The stocks of Zenith Bank Plc, Dangote Cement Plc, Nestle
Plc, Nigerian Breweries Plc, and Seplat Plc have made the list of shares of
fortune, a report from ARM Securities disclosed.
Though the tides in the Nigerian equities turned as the
All-share index lost its four-week rally when it dropped to 26,855.52 points,
with market capitalization shedding N70.8 billion, the stockbroking firm is
optimistic that the stocks would give their investors expected returns on
investment (ROI).
Where they stand
The Zenith Bank Plc stock also made the ‘STRONG BUY’ list at
N31.50. The stock’s performance shocked ARM’s experts so much that they had to
adjust their projections for FY 2019, following some surprises observed in the
bank’s second-quarter figures (Q2).
As stated in the report, “We revised net interest income
lower due to compressed yields on its loans and treasury asset (H1’18 -10.6%
against H1’19 – 9.1%) amidst contraction in funding cost. We adjusted NIR
higher due to upward review of electronic fee income and trading book. We now
forecast profit before tax (PBT) of N218 billion, while we cut our Fair Value
Estimate (FVE) to N31.57/share from N33.71/share.”
Zenith Bank reaffirms market dominance and leadership with
Q3 2019 results, Zenith Bank Plc, Access Bank Plc and United Bank for Africa
Plc
Dangote Cement Plc (DANGCEM) is a leading cement
manufacturer in Nigeria and it made ARM’s ‘STRONG BUY’ list. The firm’s earning
per share (EPS) is expected to drop to N14 from the N22 billion that was
recorded in 2018. This is due to lower volumes in Nigerian business (caused by
increased competition from BUA Cement) and some of its Pan African business, as
well as the high base of tax credits the company recorded last year.
Nonetheless, experts in ARM argued that DANGCEM, which
currently trades at FY 19E P/E of 11x on its estimates, is cheap compared to
its competitors, WAPCO and CCNN at 17.7x and 16.8x, respectively. The
stockbroking firm also believes that the cement manufacturer’s current
valuation is unjustified given the superior return on equity (ROE) of 24%.
Nestle Plc is another stock that made the ‘STRONG BUY’ list
as its FVE was pegged at N1447.39. According to ARM, the conglomerate managed
to stay afloat, reporting modest growth in earnings amidst incessant
competition. As at the end of last September, it’s Earning Per Share (EPS)
expanded by 11.2% year-on-year (YoY) to N46.48. The growth of the EPS was
driven largely by the absence of impairment charges, which created a high base
for input costs over the same period in 2018. Asides the improved earnings,
“its strong cash balance, ROE and 100% dividend payout further supports the
case for a STRONG BUY rating.”
Nigerian Breweries Plc’s stock FVE was pegged at N75.82.
Defeating obstacles like intense competition from International Breweries (IB)
and graduated excise duty (+17% YoY) that kicked off on January 19, NB’s
revenue growth is expected to be slow as ARM expects higher finance cost (+38%
YoY) to be another pressure point to earnings in 2019.
“Given our case for a slight improvement in volumes and
decline in cost of sales (-1.1% YoY), which translates to gross (+120bps YoY)
and Earnings before interest and taxes (EBIT) (+101bps YoY) margin expansion,
the misery seems moderated. Overall, the net impact of all our adjustments
translates to PBT of N29.9 billion and EPS of N2.58 (+6.3% YoY) over 2019.”
Despite the drop in Seplat Plc’s total production in third-quarter
19 (Q3) due to the decline witnessed in gas production that offset the
improvement in the oil segment, experts are optimistic that the stock remains a
‘STRONG BUY’. They attribute their projection to the fact that the stock
remains positive on growth in production going into the final quarter of the
year (especially in oil) and into 2020, as Seplat increases capital
expenditure.
As stated, “Cashflows remain healthy. Upsides reside in the
ANOH Gas project and acquisition of Eland Oil & Gas Limited.”
Experts say…
Stockbrokers, who spoke with our analyst in separate
interviews, agreed with the ARM report as they believe that the stocks listed
above are investors’ delight.
A stockbroker, Abimbola Olaniyi, gave a thumbs-up for
Dangote Cement, which operates across 16 African nations and controls about 60%
market share in Nigeria. According to him, the earning profile of over the last
few quarters from Q1 2018 to 2019 revealed that its revenue grew by at least
12%.
“Though its revenue declined by 0.80% in Q1 2019 as the
company recorded N240.16b revenue, its performance has been very commendable as
revenue increased impressively in each of the quarters of 2018.”
Why Nestle Nigeria’s return remains strong - EFG Hermes
Experts in EFH Hermes Research also confirmed that despite
the food inflation that has slightly accelerated over the past two months,
which is affecting the purchasing power of Nigerians, Nestle remains a
major stock to watch in the consumer segment of the Stock Exchange.
With the further competition that would impact margins and
significantly increase capex, “Nestle’s returns are expected to remain strong
and well above its Weighted Average Cost of Capital (WACC), and Returns on
Equity as it would continue generating value over the coming years.”
