Lead Market Wrap – Week Ended 2 August 2019

Dear Client,

In the just concluded week, equities market recorded mixed performance, advancing in two of five trading sessions, cumulatively losing 1.03% to worsen YtD index return to -12.09%. All Share Index stands at 27.918.59.

Despite second-quarter earnings filings, market activity remained dull across board, with the exception for big-ticket trades recorded in Guaranty Trust Bank, Zenith Bank Plc and MTN. Regardless, trading turnover for the week logged in at 758.4 million shares worth N14.07 billion, a 23.5% increase from the previous week.

 

TOP STORIES DURING THE WEEK

MTN’S GETS SUPER AGENCY LICENSE 
MTN Nigeria through its subsidiary, Yello Digital Financial Services Limited has been awarded a full super agent license by the Central Bank of Nigeria. This would mark the telecommunications company’s foray into financial services, operating through affiliate businesses and airtime agents.

MTN had also applied for a Payment Service Bank Licence which would improve its financial service offering with features like deposits; savings, utility and peer to peer payments. MTN is arguably the largest consumer-facing company in Nigeria, with access to over 61 million subscribers. The prospect of its fintech and financial services offering bodes well for the company’s earnings, as it taps into the over forty million Nigerian unbanked population.

US FEDERAL RESERVES LOWERS INTEREST RATE
The US Federal Open Market Committee on Wednesday, August 18, lowered its benchmark interest rates by 0.25%, its first rate cut since the global financial crisis in 2008. The Feds funds rate is now set between 2.00% and 2.25%.

The cut was prompted by slowing economic growth, tame inflation and low wage growth in the United States. In a bid to stimulate the economy which grapples with a trade spat with China, supplementary to the expansive move, the Fed has also decided to cease balance sheet shrinking program and could begin asset purchases as early as September 2019.

The decision is in line with other developed market central bankers who have adopted accommodative monetary policies to boost slumping economic growth.

PURCHASING MANAGERS INDEX INCHES TO 57.6 POINTS
The manufacturing purchasing manager’s index for the month of July showed a slight increase to 57.6, from 57.4 points reported in June 2019. The report showed expansion in activity in both non-manufacturing and manufacturing sector indices.

The PMI is a lead indicator of economic health, showing activity across businesses in the country. The PMI index below 50 points shows expansion, while below 50 shows a contraction.

EARNINGS

PRESCO H1‘19 : Revenue: N10.54 bn Vs N11.65bn (-9.52%); Profit Before Tax: N3.88bn Vs N5.71bn (-32.11%); Profit After Tax: N3.01bn Vs N3.98bn (-24.39%)

NIGERIAN BREWERIES H1‘19 : Revenue: N170.19bn Vs N172.65bn (-1.43%); Profit Before Tax: N19.40bn Vs N27.54bn (-29.54%); Profit After Tax: N13.31bn Vs N18.43bn (-27.76%)

INTERBREW H1‘19: Revenue: N68.63bn Vs N53.10bn (+29.22%); Loss Before Tax: N10.5bn Vs N5.24bn (100.77%); Loss After Tax: N6.84bn Vs N2.84bn (140.36%)

FBNH H1‘19 : Revenue: N294.05bn Vs N290.9bn (-1.1%); Profit Before Tax: N39.87mn Vs N38.87 (+2.56%);Profit After Tax: N31.64mn Vs N33.47mn (-5.48%)

ETI H1’19: Gross Earnings: N405.2bn Vs. N384.6bn (+5.4%); Profit before Tax: N73.43bn Vs. N65.09bn (+12.8%); Profit after Tax: N59.49bn Vs. N51.55bn (+15.5% )

DANGOTE CEMENT H1’19: Revenue: N467.7bn Vs. N197.5bn (-3.0%); Profit before Tax: N155.5bn Vs. N185.54bn (-37.7%); Profit after Tax: N119.24bn Vs. N113.16bn (-5.3%)

DANGOTE FLOUR H1’19: Revenue: N48.7bn Vs. N56.4bn (-13.7%); Profit before Tax: -N8.7bn Vs. N4.4bn; Profit after Tax: -N6.1bn Vs. N3.3bn

DANGOTE SUGAR H1’19: Revenue: N80.4bn Vs. N84.1bn (-4.4%); Profit before Tax: N17.3bn Vs. N19.9bn (-13.1%); Profit after Tax: N10.9bn Vs. N12.7bn (-13.6)

SEPLAT H1’19: Revenue: N108.9bn Vs. N104.8bn (+3.9%); Profit before Tax N36.9bn Vs. N37.1bn (-0.5%); Profit after tax N37.5bn Vs. N14.8bn (+153.4%)

WEEK EXPECTATION/WATCHLIST

For the week ahead, we expect the current tide of bearish sentiment and weak trading appetite to persist. In the absence of any foreseeable volatility triggers, our recommendation and outlook inclination are towards value and long term picks.

INTERNATIONAL BREWERIES: We recently began watching INTBREW, informed by its second-quarter earnings report. The brewer showed prospect which we took note of, despite the loss recorded. We are encouraged by the impressive revenue which grew faster than its peers, and the significant increase in cash flow from operations. The key risk to upside is the company’s financial leverage.

WAPCO: We iterate our buy recommendation for the cement manufacturer on the back of its fundamental transformation and return to profitability fuels our investment case. We believe the market has inefficiently priced the company’s change, baring pervasive negative equity sentiment, thus, providing room for capital appreciation.

ZENITH BANK and UBA at the current price offer attractive dividend yields for investors with an income harvesting approach.