11 June 2018 - According to analysts at ARM Securities Limited after 5 consecutive week of losses, Nigeria’s stock market traded positive last week with a gain of 5.03% WoW, return so far in 2018 stands at 1.1%. Key stocks closed positive WoW, particularly, Dangote Cement ( DANGCEM )(+5.7%), ( GUARANTY ) (+6.5%), ( ZENITHBANK ) (+6.1%), and Lafarge ( WAPCO ) (+17.1%). Despite the gains, the market closed negative on Friday, and it will be interesting to see if this reversal will be short-lived or sustained this week. The US Fed’s FOMC will be meeting this week and analysts expect a further increase in interest rate (+25bps). On the local front, analysts are expecting May inflation data on Wednesday, and expect a decline in inflation to 11.7%. Panic is likely to be sustained, but a correction is very likely in the medium term.
All opinions and recommendations on below stocks are from analysts at ARM Securities limited. Easykobo does not endorse or oppose any recommendations expressed in this article.
FBNHPlc- STRONGBUY(FVE:N14.40). ( FBNH ) looks increasingly attractive under-pinned by improving asset quality. Precisely, analysts see further potential upside from lower provisioning, resilience in NIM, operational efficiency and possible streamlining of branches.
CCNNPlc.–BUY(FVE:N32.68). BUA, the largest shareholder of ( CCNN ), recently announced the commissioning of the1.5MMT plant in Sokoto State, expected to be operated by CCNN. Based on available data, analysts believe the capex was funded by BUA Group, as such, analysts assessed the possible structure on how the plant would be integrated into CCNN. Working on the best-case scenario, the analysts assumed a debt related structure (finance lease) and arrived at a FVE of N32.68.
GuinnessNigeriaPlc–SELL(FVE:N88.21).( GUINNESS ) is poised for further earnings recovery into 2019 under-pinned by lower operating and finance expenses. However, from a valuation standpoint, analysts believe the stock is expensive due to the dilutive impact of the just concluded rights issue.
( FLOURMILL ) Flourmills of Nigeria Plc – STRONG BUY (FVE: N39.40). Flourmills recently raised N39 billion via rights with proceeds earmarked to pay down some of its short-term debts amongst others. Following the payment of some of its debt, analysts expect tamer finance costs and, by extension, improvement in earnings in FY 19. Additionally, currently lower commodity prices (sugar and wheat) guides to expansion in gross margin and improvement in operating cash flow.
PZ Cussons Plc – SELL (FVE: N16.57). The analyst’s sell rating on ( PZ ) is premised on expected slow rebound in volumes due to weak income levels. Additionally, the recent rise in Brent crude is expected to stoke pressures on petrochemical prices which would weigh on gross profit and earnings.
( SEPLAT ) Seplat Plc – STRONG BUY (FVE: N975.27) The case for Seplat remains higher crude oil prices and volumes, unrecognized capital allowance, reserve accretion, higher receipt from crude oil lifted in OML 55 as well as the company’s extended debt maturity profile which feeds into an improved cash position.
( OKOMUOIL ) Okomu Oil Plc – NEUTRAL (FVE: N102.33). Okomu is the analyst’s most preferred pick in the Palm oil sector, as 2018 presents opportunities for stronger volumes growth, better operating efficiency, and lower finance cost which guides to improved earnings over FY 18.
Corporate Benefit Tracker
- Ekocorp Plc, Learn Africa Plc, Great Nigerian Insurance Plc released results for the period ending FY 17 with Great Nigerian Insurance Plc also releasing its result for Q1 2018.
- The full suspension placed on the shares of Prestige Assurance Plc was lifted on Thursday, 7 June 2018.
- Closure of register: Cadbury Nigeria Plc, Newrest ASL Plc and Capital Hotel Plc.
- AGM: CAP Plc and Okomu Oil Plc,
- Dividend Payment: CAP Plc
A two-tier rating system is employed which is based on systemic importance of the security under review and the deviation of our target price for the stock from current market price. We characterize systemic importance as a function of a stock’s ranking among the group of top 20 stocks by NSE market capitalization over a trailing 6-month period (minimum) to the review date. We adopt a 5-point rating system for this category of stocks and a 3- point rating system for stocks outside this group. The choice of top 20 stocks arises from the consideration that this group of stocks constitutes >75% of overall market capitalization and stocks outside this group are generally less liquid and individually account for <<1% of market capitalization. For stocks in both categories, the basis for ratings subject to target price deviation is outlined below:
TOP 20 ( Rating and its respective deviation)
STRONG BUY : > 20%
OVERWEIGHT: 10 - 20%
NEUTRAL : 0 - 10%
UNDERWIEGHT: 0 - -5%
SELL: < -5%
NON TOP 20 ( Rating and its respective deviation)
BUY : > 20%
NEUTRAL: 5 - 20%
SELL: < 5%
BUY : Accumulate security to a substantial extent constrained only by portfolio diversification considerations
OVERWEIGHT: Accumulate security to an extent moderated by cognizance of its benchmark weight
NEUTRAL : Maintain status quo for security with respect to current holding—i.e. keep if already holding and don’t buy otherwise—subject to reasonable portfolio constraints
UNDERWEIGHT: Minimise exposure to security taking cognizance of its index weighting
SELL: Sell-off security completely from portfolio
Source: Analysts at ARM Securities Limited
Reporting for EasyKobo on Monday, 11 June 2018 from Lagos, Nigeria
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