Just like many other economies and stock markets across the globe, the Nigerian economy and her stock market also woke up to the realities of the ravaging impact of the COVID-19 pandemic since recording her index case on February 27, 2020.
Before this period, the Nigerian stock market boasts of a positive year-to-date (YTD) return, in what initially appears like a year for broad-based bullish performance following losses of 17.8% and 14.6% by the Nigerian Stock Exchange All Share Index (NSE-ASI) in 2018 and 2019 respectively.
But as the impact of COVID-19 spreads like wildfire from the city of Wuhan in China to other parts of the world, the global economic value chain got severely hit, as the lives, of humans and businesses came under the severe threats of the new pandemic.
Consequently, as characteristics of a typical pandemic period, investors across the global market began to realign their portfolios in search of safe-havens to mitigate the potential loss of their hard-earned assets at a critical period like this.
Resultantly, the NSE-ASI has also completely reversed its earlier gains, posting losses in five of the last six trading weeks since the announcement of the index case. This brings the cumulative YTD losses to -20.33% (as of Thursday 9th April 2020) as against YTD gains of 7.7% on February 27, 2020.
Amid the concern on this pandemic and its negative impact on businesses and investment opportunities, we have cherry-picked on 3-stocks which we believe the performance of the parent business will outperform the broader market (despite COVID-19 and other related development) based on certain considerations:
MTN Nigeria Communication Plc
MTN Nigeria Plc. is a leading telecommunication firm in Nigeria with its parent company in South Africa. The firm which became a publicly listed company on the Nigerian Stock Exchange (NSE) on May 16, 2019remains one of the two biggest publicly quoted firms in Nigeria with a market capitalization of ₦1.93 trillion as of April 9, 2020.
Over the recent five years of its operation in Nigeria, the firm has continued to maintain a strong grip on its revenue and Profitability, growing both at a compound annual growth rate (CAGR) of 14.8% and 57.9%respectively to ₦1.17 trillion and ₦202.11 billion in2019.
According to a recent Q3 2019 Telecoms report by Nigeria’s National Bureau of Statistics (NBS), the firm(despite increasing competition from other industry players) maintains its leadership position in terms of the number of Active Voice and Internet Subscribers on its network, with market shares of 36% (or 65.34Mn) and42% (or 51.67Mn) respectively.
Besides, the firm in its effort to maintain its current leadership position in the Nigerian telecommunication industry signed-off to a ₦200 billion syndicated loan in 2019 (to be repaid over 7-years), to enable it to fund its evolving business opportunities while assisting with capital expenditure and working capital, to deliver enhanced customer service.
Despite the economic and social disruption caused the COVID-19 pandemic, the business of MTNN is expected reap positives from this situation due to the essential nature of its services which will even be more required at a time like this for research purposes, sensitization bulk SMS, remote offices, online transactions, and reaching out to loved ones to mention but a few.
Our 12-months target price for MTNN remains ₦135, which represents a 42.11% upside potential from the closing price of ₦95 as at close of the transaction on Thursday 9th April 2020.
Nestle Nigeria Plc
Nestle Nigeria Plc. is a subsidiary of Nestle S.A.Switzerland the world’s largest food and beverage conglomerate. The Nigerian arm which began its operation in 1961 (59 years ago) is known for several iconic brands some of which include Milo, Golden Morn, Maggi, Nescafe, and Nestle Pure Life.
The firm (Nestle Nigeria Plc.) became a publicly listed company on the Nigerian Stock Exchange (NSE) in 1979, and till date, remains the biggest firm (by market capitalization) in the Consumer Goods segment of the NSE, with a market capitalization size of ₦658.06bn as of Thursday 9th April 2020.
In the last 5 years of its operation in Nigeria, the firm grew its Revenue, PBT, and EPS at a compound annual growth rate (CAGR) of 17.1%, 24.8%, and 17.8%respectively to ₦284.03bn, ₦71.12bn, and ₦57.63k in2019. This was made possible by the firm’s innovative acumen, as manifested in its diverse product types and sizes to meet the needs of every income group.
Despite the shortfalls that are expected to hit the general economic activities in Nigeria (and across the world) over the COVID-19 pandemic, we expect the business of NestleNigeria Plc. to benefit from this current situation due to the essential nature of many of its products to individuals and household survival.
Our 2020 12-months target price for Nestle is ₦1,350, which represents an upside potential of 62.61% given the closing price of ₦830.20 on Thursday 9th April 2020.
Unilever Nigeria Plc
Unilever Nigeria Plc., a subsidiary of Unilever Overseas Holdings B.V. (with 75% equity stake), is one of the most reputable names in the Consumer Goods segment (for personal/household products) of the Nigeria market.
The firm is the producer of notable brands such as Close-Up and Pepsodent toothpaste, Lux soap, Vaseline petroleum jelly, Blue Band margarine, Lipton tea, Omo washing powder, Key soap, Royco bouillon, and many others.
Since it began operation in Nigeria in 1923, the firm has continued to contribute to the growth of the Nigerian economy and other West African countries by providing direct employment for over 1,200 persons and indirect employment for over 30,000 across the region.
The firm became publicly listed in 1973, and to date remains among the 30 most capitalized stocks on the NSE (i.e. one of NSE-30), with a market capitalization of ₦60.32bn as at Thursday 9th April 2020.
Except for 2019 when Unilever Nigeria Plc.experienced a 34.8% dip in Revenue to ₦60.48bn(due mainly to a 34.7% reduction in sales in Nigeria to ₦59.4bn), the firm in four of the last five years grew its Revenue, PBT and EPS at a compound annual growth rate (CAGR) of 11.9%, 63.4%, and 54.9% respectively between 2015 and 2018.
The underperformance in 2019 was supported by a disproportionate fall in Revenue from Nigeria(which was down 34.7% to ₦59.47bn relative to prior year) as against the Cost of Sales which only fell by 13.81% to ₦55.73bn.
Despite the turbulence performance of 2019, we believe the firm stands a good chance to benefit from the disruption caused by COVID-19 relative to many firms in other industries. Our position is based on two strong pillars. First, the management of the firm in reaction to the underperformance of 2019 had in February 2020 appointed Mr. Carl Raymond Cruz (former Chairman of Unilever Sri Lanka) as managing director of the Nigerian subsidiary, to lead the firm back to a profitable path. Secondly, the product line of the firm is mainly household needs, which is expected to remain in high demand even in this COVID-19 lockdown period across many states.
Our 12-months target price for Unilever is ₦18.50, which represents an upside potential of 76.19% given Monday’s closing price of ₦10.50.