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NIGERIA STOCKWATCH

Thursday 04 March 2021

EQUITIES TO END 2021 UPBEAT In spite of capital reversal to fixed income instruments threat, current bearish trend

• Shortage of alternative assets drove equity growth in 2020, TB down 444 bps YTD while equity delivered double digit return • Risk of capital reversal into fix income instruments real • All share index down 3.27% year to Feb 25 • Slide fuelled by investors watching on the sideline, slow pace of vaccine distribution • Oil price 40% rise YTD build confidence of improved forex earning, further economic recovery • 15.3 x PER ( compared with other frontier markets) presents entry opportunities for investors GODFREY OBIOMA

he equities market will end positive in 2021 in spite of belief that fixed income instruments like OMO, Treasury Bill and bonds are likely to present new leg of opportunities in the New Year. Sentiment towards fixed income instruments is buoyed by perception that the CBN may soon resume tight monetary policy, leading to rise in interest rate and spike in yields from Omo, TBs and Bonds. Rise in liquidity, shortage of alternative assets and fund managers’ search for real return on investment in the face of galloping inflation were parts of the reasons for the 2020 equity market double digit rally. This continued in January 2021 with investors believing that the slowdown in fixed income instruments will last for a long time. But the bullish run was halted early February. By February 25, the All share index had lost 3.27 percent while market capitalization declined by 3.25 percent. The downtrend was driven by growing information that the CBN may resort to tight monetary policy to reduce pressure on the foreign exchange market; moderate inflation and attract floating funds in the global market. Also adding to the bear market is the attitude of investors who are waiting on the sideline for market correction, and slow pace of Covid-19 vaccine distribution. But fund managers say the equities market remain attractive but may not deliver returns as high as it did in 2020. Abiodun Keripe, managing director, Afirnvest Research believes the Nigerian equities are underpriced at 15.3 x price earnings

• Expectation of good corporate earnings and dividend payment remain investors attraction to equities • 10% market cap to GDP signals potential for equities growth • Stocks in resilient sectors like Telecom, Banking, Argic to drive market • Strategic portfolio mix of equities, fix income assets advised • Equities to end 2021 with 12% return • Covid -19, oil price, CBN policy thrust (flexible or tight monetary ); lack of co-ordination between monetary and fiscal policies present risk factors. ratio compared with its peers in the BRIC nations. Expectation for impressive corporate earnings and positive outlook for dividend payment from companies in the resilient sectors of the economy also present the equities as attractive assets. Unlike in matured and some emerging markets, ratio of market capitalization to Gross Domestic Product (GDP) is still low in Nigeria at 10 percent. But keripe says this shows that the market has great potential for growth. The uptick in the price of crude reflects increased economic activities and oil demand from China and other developed nations. Usoro Essien, Head, Renn Stockbrokers said if the trend continues, it will build more confidence in the Nigerian economy, grow foreign exchange from oil and the nation’s external reserves, a development he believes will have positive spillover effect on the stock market, Investment Advice As the threat of capital reversal grows, fund managers said the harvest for returns this year will be for discerning investors who are research focused. Abiodun Keripe advises investors to opt for diversified portofolio that will include both equities, treasury bills and other government instruments in their asset selection. Keripe canvasses for stocks in the telecom, banking, and agriculture sectors that deliver returns above inflation. Continues on page 03

Thursday 04 March 2021

BUSINESS DAY

NIGERIA STOCKWATCH EQUITIES TO END 2021 UPBEAT

Continued from page 1

Last year the stock market delivered handsome returns to investors. For example, Zenith Bank rewarded investors with 106.66 percent returns through capital appreciation. Stanbic paid 12.12 percent capital gain. Investors earned 42.05 percent capital appreciation while Airtel Africa returned over 184 percent capital gain to investors. Okomu oil paid investors 65.30 percent return

through price appreciation. And Asset Managers said the market will still be on the uptrend but will require real strategic investing. STOCK PICKS One of the stocks to watch in 2021 H2 is Seplat Oil. Essien Usoro believes the company will benefit from the current oil price recovery and its investment in gas production and be able to deliver impressive earnings.

FORECAST The expectation is that Nigeria will continue on the growth path, having exited the economic recession. The optimism is based on the rise in price of oil in the international market and discovery of Covid-19 vaccines. Essien is optimistic that the year- on- year improvement in oil and non oil GDP will berth at overall GDP at 2.1 percent in 2021 The impact of COVID 19 disruption in service sector in 2020

was massive with double digit decline in trade, hospitality, transportation, entertainment and Essien fears that this would continue in 2021. RISK FACTORS In spite of the discovery of vaccine for Covid 19, the pandemic, especially the new variant remains a source of worry to investors. The challenge of distributing the vaccine, suspicion and reluctance to take the vaccine in some countries

Fixed income market report

n February 25,2021, the Interbank call rate rose 610bps to close at 7.60% with the fixed income market traded positive.. Yields across the bonds space closed lower while we observed limited activity in the NTB and OMO segments of the market. Bond yields dipped 9bps on average, due to interest across a broad range of tenors. Particularly, yield on the 12.50% FGN-JAN-2026 bond fell 144bps to 8.16% while yield on the 14.80% FGN-APR-2049 bond eased 38bps to settle at 11.07%. However, yields in the NTB rose 1bp on average, but closed flat in the OMO space. A week before, the overnight (OVN) increased by 15.75ppts w/w, to 20.5%. According to Cordross Research, the rate was depressed at the beginning and middle of the week, following inflows from OMO maturities (NGN207.84 billion) and FX retail refunds into the system. However, provisioning for CRR by banks, and FGN bond (NGN80.55 billion), OMO (NGN180.00 billion) and FX auction debits at the twilight of the week pressured system liquidity and drove the rate northwards, the company said.. The Treasury bills secondary market closed bullish, as the average yield across all instruments declined by 28bps to 4.1%. As in prior weeks, activities in the OMO secondary market primarily drove proceedings in the broader market, as local banks reinvested excess liquidity from OMO maturities – especially at the long (-17bps) end of the curve. Thus, the average yield in the space contracted by 32bps to 6.4%. At this week’s OMO

auction, the CBN maintained stop rates across the three tenors, selling NGN180.00 billion worth of bills to market participants. Trading in the NTB secondary market was relatively muted (average yield increased slightly by 2bps to 1.5%) as weak sentiments persisted. Secondary end of the Treasury bonds market remained bearish due to weak demand following earlier bond auction; and investors” continued pricing in of the higher rates at the T-bills market. The market reacted to another inflation uptick (January 2021 CPI: 16.47%). Cordross Research reported that across the benchmark curve, the average yields at the short (+19bps), mid (+31bps), and long (+38bps) segments sustained their expansions, as investors sold off the JAN-2026 (+121bps), FEB-2028 (+45bps) and JUL-2045 (+130bps) bonds, respectively. At the primary auction, the DMO offered instruments worth NGN150.00 billion to investors through re-openings of the 16.2884% FGN MAR 2027 (Stop rate: 10.25%), 12.50% MAR 2035 (Stop rate: 11.25%) and 9.80% FGN JUL 2045 (Stop rate: 11.8%). We note that demand was weaker (subscription: NGN189.51 billion; bid-to-offer: 1.3x) compared to January (Subscription: NGN238.27 billion; Bid-to-offer: 1.6x). Due to investors’ demand for higher yields, the DMO allotted only NGN80.55 billion and opted to issue an additional NGN122.00 billion via noncompetitive allotment, bringing the total sale NGN202.55 billion. Stop rates rose by an average of 254bps compared to the previous auction.

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including Nigeria is a challenge which governments and their agents must address. The concern that CBN may relax its flexible monetary policy and resume tight option is creating uncertainty in the market. Notwithstanding, the consensus is that the equities market will still deliver good returns to investors in 2021. But asset managers said investors have to reshuffle their portfolio to include treasury bills and other government securities.

Thursday 04 March 2021

BUSINESS DAY

NIGERIA STOCKWATCH

STOCK BRIEFS

OKOMU oil impresses in 2020 Q4 koomu opened trading in 2021 at N91.00 per share on January 4 and by February 15, 2021, it appreciated 2.19 percent. Between January 4 and January 29, it gained 12.08 percent. The upward trend is a spillover from the Okomu’s 65.30 percent capital gain from January to December 2020. The January 2021 price rally was triggered by the companies 2020 Q4 impressive result; it recorded growth in revenue from N18.86 billion in 2019 Q4 to N23.43 billion. Profit after tax grew from N5.04 billion to N7.38 billion. However, following February 2021 price correction, Okomu lost 5.98 percent from January 29 and February 15, 2021. UAC back on profit zone For the 2020 Q4, UAC ‘s revenue increased from N179.26 billion in 2019 Q4 to N81.59 billion. From N9.25 billion loss in 2019, the company returned to profitability with N4.32 billion. In response, the stock recorded 12.08 percent and 2.19 percent gain between January 4 and February and January 4 and February 15, 2021 respectively. In 2020, UAC appreciated 65.30 percent between January and December. The stock however showed coldness in February, declining 5.98 percent between January 29 and February 15, 2021 following general profit taking. Guinness in 7.89% Capital gain Trading at N19.00 per share January 4, 2021, Guinness closed at N20.50 per share February 15, 2021 gaining 7.89 percent. Unlike many other stock that lost in early February trading, Guinness gained 7.89 Percent between January 29 and February 15 . The price leap was informed by the 2020 Q4 result; the company’s revenue increased from N41.42 billion in 2019 Q4 to N42.32 billion although profit after tax declined from N1.68 billion to N0.52 billion. In 2020, Guinness lost 56.63 percent between January and December. Flour Mills 13.17% stronger For the 2020 Q3, Flour mills recorded N300 billion revenue and N5.53 billion for the year to December. Profit before tax was

transaction that would boost its earnings and return to investors.

Graham Hefer, Managing Director of Okomu Oil Plc

Omoboyede Olusanya, Group Managing Director and Chief Executive Officer of Flour Mills of Nigeria Plc

Folasope Babasola Aiyesimoju, Group Managing Director and Chief Executive Officer of UAC of Nigeria Plc.

Oyeyimika Adeboye, Managing Director of Cadbury Nigeria Plc

Baker Magunda, Managing Director/ Chief Executive Officer of Guinness Nigeria Plc

Carl Cruz, Managing Director of Unilever Nigeria

Nneka Onyeali-Ikpe, MD, Fidelity Bank

Wole Adeniyi, Chief Executive officer of Stanbic IBTC Bank PLC.

Engr Yusuf Binji, managing director, BUA Cement Plc.

David Wright, Managing Director of CAP Plc.

Olumide Adeosun, CEO of Ardova Plc

Mike Adeniyi Ishola Adenuga Jr. (GCON, CSG) of Conoil

N23.6 billion Flour Mills opened 2021 trading with N26.95 per share and gained 28.75 percent from January 4 to 29 to closed at N34.70 per share. It however lost 13.54 percent between January 29 and February 15. In 2020, Flour Mills gained 18.18 percent. Cadbury 5.5% down Cadbury lost 2.22 percent between January 4 and 29 and 5.5 percent between January 4 and February. The weak price movement follows the company’s reduction in revenue from N39.32 billion in 2019 Q4 to N35.40 billion in 2020 Q4 profit after tax also declined from #1.07 billion to N0.172 billion

Unilever returns to profitability From loss of N4.74 billion in 2019 Q4, Unilever came back to the profit frontier with N0.468 billion. Revenue however increased from N9.13 billion to N16.83 billion. Trading at N13.90 per share January 29, it lost 2.87 percent. Between January 29 and February 15, it gained 3.30 percent. In 2020, it lost 7.33 percent. Fidelity Bank Fidelity Bank gained 17.21 percent in 2020 but recorded price depreciation for January 2021 trading at N2.77 per share on

January 4 and N2.72 per share January 29. Fidelity Bank recorded decline in earnings in the 2020 Q4 with N54.40 billion in 2019 Q4. Profit after tax also fell to N7.62 billion from N9.36 billion, a decrease compared with N215.57 billion in 2019. Profit after tax YTD came down to N28.03 billion from N28.40 billion. To inject capital into the bank, the management of Fidelity recently issued a 10 year N41.21 billion tier 11 local fixed rate unsecured subordinated bond at 8.5 percent coupon rate for maturity in 2013. It is expected that with such larse capital injection, the bank can take up big ticket

Stanbic IBTC in 2.5% capital Stanbic IBTC appreciated 2.5 percent between January 4 and February 15. This is in spite of the lower earnings reported in 2020 Q4 and full year. For the 2020 last quarter, earning declined to N51.16 billion from N57.65 billion in 2019 Q4. Profit after tax fell from N19.48 billion in the corresponding period in 2019 to N17.04 billion For the full year Stanbic IBTC marginally grew earning from N233.80 billion in 2019 to N234.44 billion while profit after tax was N83.21 billion up from N75.03 billion in 2019 BUA Cement losing its 2020 gains BUA Cement opened trading in 2021 at N85.00 per share on January 4 and closed ar N79.00 on January 29, 2021 losing 7.05 percent. Between January 29 and February 15, it lost 7.21 percent. It appreciated 109.05 percent in 2020. The company reported increase in earnings for the 2020Q4 from N175.52 billion in 2019 to N209.47 billion. Profit also increase from #60.61 billion to N70.50 billion CAP grows earnings CAP mproved earning marginally from N263 billion to N374 billion for the 2020 Q4. Profit after tax however decline to N0.36 bilion from N0.50 billion in 2019. Trading at N20.00 per share January 4, 2021, it depreciated it percent to close at N18.00 per share February 15. In 2020, CAP lost 20 percent between January and December. Ardova 40.70% sronger In 2020, Ardova appreciated 20.66 percent. And between January 4 to February 15, 2021, the stock has gained 22.04 percent to close at N16.55 per share. In Januray alone, it gained 40.74 percent between January 4 and 29 to close at N19.00 per share. Conoil up on earning, down on profit Conoil grew earning for the 2020 Q4 to N117.46 billion from N139.75 billion in 2019. Profit after tax however declined to 1.52 billion from N1.97 billion. It opened trading in 2021 at N20.85 per share on January 4 and gained 2.18 percent by January 29.

Thursday 04 March 2021

BUSINESS DAY

NIGERIA STOCKWATCH

Equities still have potential to deliver strong returns in 2021 - Abiodun Keripe There are growing concerns that fixed income yields may rise in 2021 following perception that the CBN may resort to tight monetary policy between 2021 Q2 and H2. But Abiodun Keripe, managing director, Arinvest Research said equities will still have an edge.

he Equities market started 2021 bullish with All share index rising from 41, 147.39 basis point January 4, to 42, 423.66 points January 29. By February 25, it declined to 39, 799.89 basis points. What drove the January bullish trend and current bear market? What do you expect for the rest of in Q1? The Nigerian equities market is reversing some of the January gains which were driven by continued local participation, positive sentiments around vaccine distribution despite reported increase and new strain of the C-19 virus and the outlook that fixed income yields could remain low for longer. Combined, this drove the market up by 5.3% in January. However, sentiment seems to have reversed given the mixed signal from the fixed income market that yields may begin to rise fasterthan-anticipated following the outcomes from the last OMO and NTB auctions conducted by the CBN. Again, the slow-paced vaccine distribution amidst increase case counts both globally and locally is worrisome. Consequently, equities are down 4.7% on a month-to-date basis in February. Lastly, given the wall of liquidity in the market, some investors have been on the sideline, waiting to see some level of correction. That said, Nigerian equities are still relatively underpriced at 15.3x price-earnings ratio compared with some of its global & BRICS peers and now presents entry opportunity for investors that have been waiting for a correction. The expectation for corporate earnings performance and dividend outlook remains positive particularly for the companies operating in the resilient sectors of the economy (Telecoms, Banking & Agriculture), we believe these would provide support for the market. We have seen equities take the shine off fixed income instruments. Do you see a change soon and why? What will be your advice to investors? Our broad outlook is for fixed income yields to remain low for most of the Q1 and Q2:2021 giv-

capital reversal to the fixed income market when yields begin to recover also presents another leg of attraction, hence the need for a diversified strategy. What are your stock picks for March and why? From a corporate performance angle, the market is rotating into the full year earnings season with expectation for dividend payment from the quality names on the bourse. We favour names with quality earnings growth, decent margin expansion and strong dividend yield.

Abiodun Keripe, head, Investment Research

en the weak supply of notes and the massive demand backed by liquidity. From a liquidity angle, the fortunes of the market is tied to the liquidity formation and

recovery in yields. We advise investors to maintain a diversified strategy/portfolio. Equities still have potential to deliver strong returns in 2021 but the risk of

‘

Equities still have potential to deliver strong returns in 2021 but the risk of capital reversal to the fixed income market when yields begin to recover also presents another leg of attraction, hence the need for a diversified strategy’

Trump Administration embarked on trade wars and the implications. Under Biden, US appears to be relaxing it. How will this new stance affect the Nigerian economy? As at Q3:2020, the US accounts for 9.7% of total Nigeria trade imports higher than 9.9% in FY:2019 and 7.9% in 2017. On the other hand, the share of exports to the US has fallen from 12.7% in 2017 to 5.3% in 2019 and 2.3% as at September 2020. I am not particularly optimistic that this shift would change the dynamics of trade between both countries. The US is increasingly pushing for a non-carbon economy and has cut back on oil imports from Nigeria. On the other hand, the relaxation of immigration rules would be a positive for Nigerians and can continue to support higher diaspora remittances. What is the outlook for the Nigerian economy and equities market for 2021? In our 2020 Outlook report, titled Nigeria in the New Decade: Nothing Ventured; Nothing Gained, we had reviewed the performance of the Nigerian economy over the last decade and highlighted critical imperatives necessary to restore the nation on the path of prosperity in the new decade. We noted that while economic performance in the last decade was a tale of two halves with GDP growth averaging 3.7%, the new decade promises to be better given the commencement of a reset in the economy and consolidation of reforms across key sectors. True to this, the decade commenced with

traction from the leadership of the country in favour of curbing subsidies, embracing trade, and embarking on business friendly reforms. However, there has been no meaningful traction in restoring fiscal discipline, embracing market approach and raising agriculture productivity in an era when the world is increasingly transitioning to a post-carbon economy. With the outbreak of the pandemic, the path to resetting the economy became murkier. The health crisis and the ensuing security and poverty challenges have further exposed decades of neglect for human capital development. We believe the impact of this pandemic would reverse the marginal gains recorded since the 2016 economic recession, thereby hurting businesses and households. Nigeria now faces the need to accelerate development in healthcare and education but weak government capacity and lack of policy makes this difficult. Notwithstanding, we believe the pandemic presents an opportunity for the leadership of the nation to make choices that would help the economy reset. The cycle of poor investments in human capital development has to end. In the face of severe resource shortages, the fiscal discipline to channel government resources to the most critical sectors such as education, healthcare and infrastructure remains missing. The running costs of the government formed 86.1% of revenue in 2010 and was still elevated at 81.8% in the 2021 budget. This also meant that the resources available to invest in priority sectors are scarce. Also, the present approach to resolving insecurity has not led to significant improvements across the country while it continues to deter investments in the agriculture value chain, leaving the nation stuck to perennially weak growth in the sector. We believe the challenges of the past would continue to haunt the Nigerian economy, especially in the near-term if the leadership fails to make the right choices. The inability of the government to make these choices leave the nation on a blurry path to recovery.

Thursday 04 March 2021

BUSINESS DAY

NIGERIA STOCKWATCH

STOCK FOCUS Zenith Bank rallies 106.66 %

ith market capit a l i z at i o n o f N813.16 billion and outstanding shares of 31, 396, 493, 786, Zenith bank a tier 1 bank has remained consistent in robust returns to investors. Trading at an average of N12.00 per share January and closing at N24.8-0 per share in December, 2020, it appreciated 106.66 percent in 2020. However, between January 4 and February 15, it shed 2.14 percent in price to close at N25.15 per share. And by February 25, its price had risen to N28.85 per share. Zenith Bank has earned investors’ respect over the years. A good dividend paying stock too, Zenith justified its 2020 impressive outing with Q3 revenue of N695.45, up from N662.25 billion in 2019 while profit after tax increased from N208.89 billion to N230.56 billion. As at the close of trading on January 13, 2020, Zenith had gained 8.28 percent from December with ytd of 5.29 percent. Demand pressure for the stock pushed its price to an all-time high. The stock which traded at an average price of N20.85 per share in January slumped to N12. 10 per share in March in response to the Covid 19 pandemic but rose to N17. 30 in September, N27. 15 on November 13 before the December 4 N23. 91 per share

correction. Its 2020 Q3 rise in revenue from N49. 26 billion in 2019 to N508. 07 billion and increase in profit after from N150. 72 billion to N159.3 billion created enough incentives for investors to capitalize on as the price rose 38.43 percent. Between September and December, it rewarded investors with79.93 percent return through capital appreciation. Our market study shows that the stock had a 52 week high of N28.15 per share, low of N10.70 per share and year to date of 25.94 percent. Zenith Bank has been on a gaining spree over a period. Apart from January to March 2020, when the stock lost 39.50 percent following the general price slump, it has been investors’ toast because of its price appreciation-and dividenddriven return. Trading at N16.15 per share, Zenith Bank gained 16.90 percent between March 26 and May 29 2020. For the 2020 Q1, Zenith Bank reported 8 percent year -onyear increase in Gross Earning at N166.8 Billion. This is in spite of the 7 percent year -onyear decline in interest income to N114.3 Billion. The increase in earnings was driven by 61 percent year –onyear increase in non-interest income of N52.5billion. The foreign exchange revaluation gain in the banking industry boosted the result. Price of Zenith Bank is expected to close higher by the end of 2021.

EBENEZER N. ONYEAGWU GMD/CEO of Zenith Bank Plc

Stanbic IBTC leaps

ith market capitalization of N488.66 billion and 11, 105, 997, 568 outstanding shares, Stanbic IBTC is a strong stock to watch. Trading at N33.50 per share on January 4, 2021, it lost 8.05 percent to close at N30.80 per share on January 29. By February 25, 2021, it rose to N40.00 per share. Investors who took positions in Stanbic IBTC stock in January, 2020 at N39.29 per share were not disappointed. Even when the price fell to N38.29 per share in March following the general market trend, it rose to N46. 00 per share on November 13 before moderating at N44.00 per share on December 4, 2020. Between January and November 13, 2020, it gained 17.07 percent. Following its 2020 Q3 impressive performance, it appreciated by 8.64 percent between September and December 4. The bank reported improvement in earnings in 2020 Q3 from N176.15 billion in 2019 Q3 to N183.28 billion while profit after tax was up from N55.55 billion to N66.16 billion. With 52 week high of 48.00 per share, low of N23.85 per share and YtD of 10.00 percent, Stanbic IBTC emerged one of the growth stocks that stimulated the market in 2020.

DEMOLA SOGUNLE

TAG Managing Director of Stanbic IBTC Bank’s

Stanbic IBTC was among the stocks that beat the pre-COVID 19 valuation. Between March 26 and October 2, it recorded 65.30 percent price appreciation. In between, the stock also demonstrated value increase with price gain

of 19.17 percent between June 30 and August 28; 10.95 percent between August 28 and September 11 and 24.61 percent between June 30 and October 2. Between January and October 2, it recorded capital gain of 5.71 percent.

New status to spike GT Bank’s earnings

s at February 17, 2021 recorded YtD of 6.34 percent. The bank’s plan to restructure into financial company offers it an ability to invest in large project and assets that could further grow its earning. According to UcheUwaleke, a financial economist, this is expected to help investors extract greater value from the stock. JolomiOdoghanro, head, Cordross Research is optimistic that the bank’s earnings will remain resilience on account of a new capital buffer and risk framework that will support its assets quality and efficiency ratio. In 2020, the stock appreciated by 84.72 percent with YtD of 15.03 percent. It reported Q3 profit after tax of N142.28 billion, down from N146. 98 billion in 2019. Trading at an average price of N30. 00 per share in January, 2020, N18.00 in March, N22. 05 in June, N27.00 in September and N36. 40 in November, investor’s extracted 10.83 percent capital gain- driven return between January and December 4, 2020, 84.22 percent from March to December and 23.14 percent between September and December. For the second quarter of 2020, Zenith Bank reported earnings of N331.5 billion. Profit after tax was up from N88.88 billion to N103.82 billion. The impressive result impacted

SEGUN AGBAJE MD of GTBank

positively on its share price. The bank gained 73.55 percent from March 26 to October 23 and 4.65 percent between June 30 and August 28. From June 30 to October 2, it appreciated 12.11 percent and 49.17 between March 26 and October 2,2020. Listed in the Financial ServicesBanking of the exchange, GTBank has rewarded its shareholders with

robust returns through capital appreciation and dividend payment. Between March 26 and May 29, it gained 33.33 percent and 28.33 percent between March and June 18. The bank paid dividend of N2.50 per share with record of 5.9 percent dividend yield and yield to date of -17.8 percent.

Continues on page 6&7

Thursday 04 March 2021

BUSINESS DAY

NIGERIA STOCKWATCH Dangote Cement supported by MTN ridding on increase in data demand infrastructure spendings

MICHEL PUCHERCOS GMD of Dangote Cement

ith market capitalization of 3.92 trillion, Dangote Cement is one of the most capitalized companies quoted on the Stock Exchange. It traded at N244.90 per share January 4, 2021 and lost 10.16 percent to close at N220.00 per share on February 17, 2021. By February 25, the price remained N220.00 per share. The market value of Dangote Cement is expected to be boosted by the company’s share buy-back of about 10 percent of the issued stock. Fund managers also believe the Federal Government’s 2021 budget offers great opportunity for the company to grow its earnings. UcheUwaleke, a Financial Economist and Professor of capital market at the Nassarawa State University said implementation of the budget which provides greatest capital market allocation to works and housing is sure to grow earnings for Dangote Cement. The company is into cement production and provides services to government at various levels of infrastructure development. Dangote reported 2020 Q3 revenue of N 761.44 billion up from N679.79 billion at the same period in 2019. Profit after tax increased from N154.35 billion to N200.69 billion. The stock appreciated 102.90 percent between January and December 2020 but lost 6.08 percent from December 2020 to January 13, 2021. Investment managers however believe that the company’s earnings and returns in 2021 will be supported by its African spread. Jolomi Odonghanro, Head, Cordross Research said its Africa wide foot prints will

provide diverse opportunities for earnings. The company is expected to leverage on its efficiency and network to drive earnings and growth. From January to December 4, 2020, investors reaped 64.87 percent returns through capital gains alone. A strong divided paying company, Dangote Cement recorded price rally in 9 months with 53.95 percent gain, trading at N129.26 per share in March when the market suffered its worst general slump and N199.00 per share on December 4, 2020. Dangote Cement far outperformed the NSE All-share index, with YtD of 44.37 percent. The company gained 25.10 percent between January to October 23, 2020 and 16. 82 percent between March and October 23. It recorded 5.66 percent between June 30 and August 28 and 13.38 percent from June 30 to October 2. The stock appreciated 19.30 percent and 11.02 percent between January and October 2 and 11.02 percent from March to October 2 respectively. The company reported N476.85 billion earning for the 2020 second quarter, up from N467.7billion in 2019 Q2. It grew profit after tax from N119.2 billion in 2019 Q2 to N126.04 billion. Trading at N139.60 per share as at June 18, 2020, the stock is known for its impressive dividend payment and capital appreciation, having paid about N16.00 divided per share with record of 12.34% dividend yield. June 18, 2020, Dangote Cement appreciated by 7.17 percent. The company posted N249.18 billion revenue for the 2020 first quarter, 3.8 percent year -onyear increase compared with the 2019 record. Profit after tax increased by 0.66 percent.

TN opened trading at N169.90 per share January 4 and closed at N181.70 per share on February 17. By February 25, it declined to N179.90 per share. A member of the premier Board of the Nigerian stock Exchange, MTN is one of the most capitalized companies with market capitalization of N3.35 trillion and outstanding share of 20,354, 513, 050. Investors harvest good returns from MTN through strong dividend payment and capital gains. In 2020, the stock appreciated 42.05 percent. For the 2020 Q3, MTN Nigeria, quoted in the ICT- Telecom Services segment of the market recorded earning of N975.75 billion, an increase compared with N856.95 billion in 2019 and reported a decline in profit after tax from N149.22 billion to N144.24 billion. There is positive investors sentiment that the company will perform more impressively in the 2020 full year and 2021 Q1results. Jolomi Odonghanro, head, Cordross Research is upbeat that the commencement of PSB operation, the company’s leadership in broadband penetration and increase in social media activities in the country will further grow data demand and stimulate earnings. Between January and October 23, 2020, MTN Nigeria gained 17.15 percent and 40.00 percent between March and October 23, 2023. It appreciated 30 percent from March 26 to October 2. Between August 28 and September 11, its price increased by 1.86 percent and 3.33 percent from September 11 and 25. It recorded 0.25 percent increase from June 30 and August 28.

MODUPE KADRI CEO/CFO of MTN

MTN Nigeria traded at N199.60 January and closed at N119.00 at the close of business on August 14, 2020. Between the periods, t recorded streaks of gains and losses. After losing 16.38 percent between January and March, it gained 16.7 percent between January and March. It appreciated 16.7 percent between March 26 and May 29; 1.29 percent between May 29 and July 30; 1.64 percent between July 3 and 29; 0.51 percent between July 29 and August7 and 19.00 percent between March 26 and August14, 2020. The price appreciation was driven by the increase in data demand following the Covid19 inspired lockdown. In the second quarter of 2020, MTN’s revenue increased 12.5 percent to N638.1 billion from N567.06 in 2019 on quarter on quarter basis. Revenue declined

6.2 percent to N308.9 billion from N329.2 billion. The increase in revenue followed the 49.0percent increase in data to N154.0 billion and 2.7percent increase in voice revenue to N363.6 billion; 33.5 percent increase in value added services to N21.9 billion and 5.0 percent rise in digital revenue to N17.8 billion. Operational expenses rose 17.5 percent to N311.06billion from N264.6 billion in the first quarter of 2019. This was due to the 23.7 percent rise in direct network operation; 14.6 percent increase in discount and commission; 68.7 percent increase in accessory cost and 28.4 percent rise in employee benefit cost. The company paid interim dividend of N3.50 per share or 5.9 percent dividend yield to N119 price.

AIRTEL, the bull on the loose

irtel gained 9.18 percent, opening at N851.80 per share January 4 and closing at N930.00 per share February 17, 2021. By February 25, it still closed at N930 per share. Between January and December 4, 2020, Airtel appreciated 114.11 percent and 114.76 between March, height of the covid 19 pandemic and December 4. Between September and December 4, less than 3 months, it gained 58.94 percent. Airtel recorded 52 week low of N298.90 and high of N640.00 per share. The stock was traded at N298.90 January 31, N390.20 per share in June, N480.97 per share on November 13 and N640.00 per share on December 4 with YtD of 96.99 percent. Airtel Africa, listed in the ICTTelecom service sector of the market rewarded its investors with 5.87 percent capital gain between July 3 and 29, 2020; 9.19 percent between August 7 and 14 and 13.15 percent from January to August 14 through price ap-

SEGUN OGUNSANYA MD/CEO of Airtel Nigeria.

preciation. The company reported revenue increase from $851 million in the 2019 first half to $851 mil-

lion. EBITDA declined 62.0 percent from $988 million to $375 as profit fell from $132 million to $57 million.

Thursday 04 March 2021

BUSINESS DAY

NIGERIA STOCKWATCH

Thursday 04 March 2021

BUSINESS DAY

NIGERIA STOCKWATCH Low equity market capitalization to GDP displays significant headroom for growth - Usoro Essien

Nigeria’s equities market outperformed many of its peers in 2020. And Usoro Essien, Team Leader, Research, RMB Nigeria said opportunities for more growth exist with the low equities market capitalization to GDP ratio.

he capital market delivered double digit percentage returns to investors in 2020. By February 25, the trend has changed. What do you attribute this to and how long can this last? The main driver was the shortage of alternative investment assets with returns superior to inflation due to the decline in treasury bills to decimals (>1%) in 2020 (YTD -444bps). Equities on the other hand, presented investors with several blue-chip counters delivering dividend yields in the single to double digit range (6 – 12 %). There is no certainty on the duration of any stock market rally, so our expectations are primarily hinged on our

Usoro Essien, Is Lead Team, Research, Rmb

projections of the change in fixed income yields, foreign exchange liquidity and other factors. We expect another positive close for the market,

albeit with a more narrow return (c12% 2021e). How would you rate the Nigerian equities market com-

pared to matured, emerging and other frontier markets? The Nigerian equity market holds a special place amongst other frontier markets particularly in the African continent due to its level of development (Advanced trading platforms and products) and sheer size (Market Capitalization). Also, the stock markets relatively low equity market capitalization to GDP (c10%) displays significant headroom for growth and development. The market could easily develop into a competitive emerging market with additional trade liberalization efforts and more alternate investment instruments (Derivatives, Commodities). According to the NBS, Nigeria’s real GDP contracted

by 3.62 percent in 2020 Q3 compared with 6.10 % in 2020 Q2 and growth of 2.28% same period in 2019. What are your expectations in 2021 H1 and H2 and why? We expect Nigeria to grow oil and Non-Oil GDP to 2.0% in 2021. Our expectations for tangible growth are supported by a 2020 low base and improved demand and supply from distribution of Covid-19 vaccines. The rally in commodity prices, particularly Brent crude oil (40% YTD) is reflective of improving economic activity in China and other key manufacturing nations. It is noteworthy to mention that the impact from pandemic induced disruptions was greater on Nigeria’s service sectors with double digit declines in

trade, hospitality, transport, entertainment and the significantly large informal sector. We believe these sectors will continue to trail non-services sectors (tangible) in 1H21 due to their extreme reliance on significant foot-traffic and physical interaction to deliver growth. What are your Stock Pick for March and why? Seplat - Oil price recovery and additional investments in gas production (ANOH). What are the new trends you are noticing in the global and local economy? Aggressive reform and adaptation to Covid-19 disruptions. Renewed focus on underfunded sectors.

Thursday 04 March 2021

BUSINESS DAY

NIGERIA STOCKWATCH

Thursday 04 March 2021

BUSINESS DAY