₦airaland Forum

ARM RESEARCH ANALYSIS (from nairametrics.com)

Every week Nairametrics brings you a list of stocks considered as Buy, sell or hold from some of the best Fund Managers in the country. This week, we take a look at 7 stocks considered by ARM Research, a leading Fund Manager in the country.

As usual, these are not a “buy or sell recommendation” for stocks. Always consult your financial advisor before making an investment decision.

1. United Bank for Africa Plc – STRONG BUY (FVE: N14.10). We expect meaningful improvement in UBA’s profitability over 2018 hinged on growth in its deposits, increased loan book, expansion in its trading book, healthier asset quality, lower loan-loss provision, and resilience in fee income.

2. Dangote Cement Plc – OVERWEIGHT (FVE: N256.85). We remain broadly positive on DANGCEM and expect the company to sustain earnings growth, albeit at a much slower pace than 2017. Specifically, we see volume induced revenue growth and lower energy cost as key drivers of earnings in FY 18, relative to the price-induced growth story in prior year.

3. Guinness Nigeria Plc – SELL (FVE: N88.21). Guinness is poised for further earnings recovery into 2019 underpinned by lower operating and finance expenses. However, from a valuation standpoint, we believe the stock is expensive due to the dilutive impact of the recently concluded rights issue.

4. Dangote Sugar Refinery Plc – NEUTRAL (FVE: N20.23). We are cautiously optimistic on Dangote Sugar due to the recent smuggling of cheaper refined sugar which impacted on the company’s market share and, by extension, revenue. Irrespective, we believe the moderation in input costs would provide some support to 2018 earnings.

5. PZ Cussons Plc – SELL (FVE: N16.57). Our sell rating on PZ is premised on expected slower recovery 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.

6. Seplat Petroleum Development Company 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.

7. Okomu Oil Plc – NEUTRAL (FVE: N102.33). Okomu is our most preferred pick in the Palm oil sector, as 2018 presents opportunities for stronger growth in volumes, better operating efficiency, and lower finance cost which guides to improved earnings over FY 18.

2018 HALF YEAR REVIEW - NSE BEST PERFORMERS (abridged from Nairametrics.com)

Result Sheet - July 3, 2018:

June is over. If you are a retail investor with an active portfolio, this is the period to take stock of your portfolio performance in the last 6 months. For Nigerian stocks in general, the All Share Index closed basically flat @ 0.09% in the first 6 months of 2018. For June, the index closed positively, eking out a profit of just 0.46%.

Despite gloom in recent weeks, we did have some major winners in the first half of 2018, with about 37 stocks posting double-digit gains.
The top 5 gainers:
Ikeja Hotels: 76%
Learn Africa: 80%
Unity Bank: 83%
NEM: 93%
CCNN: 153%.

On this week’s Result Sheet, we take a look at some of the best performing stocks, so far this year. We start from bottom of the best, all the way to the best performing.

C&I LEASING
YTD return: About 60%
Position on list of H1-2018 best stocks: 10th.
Valuation: 2.9x earnings; 0.39x book value.
FY-2017 PAT:19% rise in profits to about N1 billion.
Important Note: Despite rise in profits, the company still has a debt load and has mooted raising capital. Could this be a reason for the rise in its share price? Some analysts believe there might be a correlation, as most stocks typically rise ahead of news of an equity raise. Investors smell an opportunity and ride their luck, hoping the capital appreciation could be sustained for a while.

FIDSON HEALTHCARE PLC
YTD Return: 62%
Position on H1-2018 best stocks: 9th.
Q1-2018 PAT: 26% increase, to N202 million.
Important Note: Rumours earlier in the year that Fidson was exploring a merger plan with May & Baker. The company put out a press release denying it but this has not stopped speculators propping up its share price. Don't be surprised if this goes on a little longer.

ETERNA OIL & GAS PLC
YTD Return: 66%
Position on H1-2018 best stocks: 8th.
Valuation: 4.22x earnings.
Q1-2018 PAT: 25% drop, to N510 million.
Important Note: Last May, NNPC issued a 2-year crude export license to some local and foreign companies, including Eterna Oil. Strong revenue potential and possible momentum for higher share price.

BETA GLASS PLC
YTD Return: 68%
Position on H1-2018 best stocks: 7th.
Q1-2018 PAT: 38% increase, to N1.10 billion.
Important Note: It is a subsidiary of Frigoglass Industries Nigeria Ltd which holds 61.9% ordinary shares of the company. The ultimate controlling party is Frigoglass S.A.I.C, Athens. We've been tracking Beta Glass for some time now and believe its strong capital appreciation is a function of strong earnings and lack of liquidity. It is incredibly difficult to find sellers for this stock.

CAVERTON OFFSHORE SUPPORT GROUP PLC
YTD Return: 69%
Position on H1-2018 best stocks: 6th.
Q1-2018 PAT: 37% increase, to N293 million.
Important Note: Caverton has risen largely on positive market sentiments in Q1, and the company signing a major contract with Chevron Nigeria Ltd. We like this stock too and have it on our watch list.

IKEJA HOTELS PLC
YTD Return: 76%
Position on H1-2018 best stocks: 5th.
Q1-2018 PBT: 82% increase, to N328 million.
Important Note: Rise in its share price is largely due to lifting of a 2-year suspension by NSE. There had been a boardroom tussle between Goodie Ibru and a faction led by Maiden Ibru. Goodie stepped down from the board in February last year, citing need for a new generation of Ibrus to take over. Some analysts believe this could be one of the major reasons there is a scramble for the shares. In fact, the stock experienced a major surge as soon as NSE lifted the suspension. This could be a bull trap, so be careful.

LEARN AFRICA PLC
YTD Return: 80%
Position on H1-2018 best stocks: 4th.
FY-2017 PAT: 13% increase, to N238 million.
Important Note: Not much can be deciphered on why the share price has grown this much, especially for a stock with very little volume of trade. We suspect a potential merger or acquisition in play here, or the company might be planning to raise capital. In terms of debts, it has a combined external loan of just over N100 million, so its unlikely that it is looking to raise capital to repay debts. This stock's performance remains a mystery to us.

UNITY BANK PLC
YTD Return: 83%
Position on H1-2018 best stocks: 3rd.
Important Note: Earlier in the year, it was the best performing stock, before being overtaken by CCNN. Rally in its share price was initially due to news of a planned $1 billion investment by a private equity firm, Milost Global. Milost terminated the agreement following threats by an unnamed investor. Unity however denied any form of agreement was signed. SEC is currently investigating the transaction. The renewed capital appreciation we have seen lately perhaps is indicative of another deal in the offing. Unity Bank was bailed out by the CBN and is running against time to get a buyer.

NEM INSURANCE PLC
YTD Return: 93%
Position on H1-2018 best stocks: 2nd.
Q1-2018 PAT: 24% increase, to N751 million.
Important Note: The first 5 months of the year are typically great periods for NEM stock. Some investors buy around February, hoping to see capital appreciation come April when they would have released their results. It did happen that way too. More recently, the company's board squabbles can be largely attributed to the share price hike.

CEMENT COMPANY OF NORTHERN NIGERIA PLC
YTD Return: 153%
Position on H1-2018 best stocks: 1st.
Valuation: 7.96x earnings.
Q1-2018 PAT: 95% increase, to N1 billion.
Important Note: Recent news of a merger with Kalambaina Cement, a subsidiary of BUA Cement. BUA is ultimately controlled by Abdulsamad Rabiu. Whilst this may not be the reason for the impressive return of the stock, investors typically like to buy stocks that have hints of mergers or acquisitions. The company's result has been impressive and perhaps investors are also bullish about its potentials, thus the reward of capital appreciation. Is this still a good buy? If its mid-year performance beats expectations, then one might in hindsight believe its current share price is cheap. Despite this, we do not see this stock hitting another 100% in the next 6 months (we hope we are wrong).

SOURCE: Nairametric.com (abridged for brevity).

FLOUR MILLS OF NIGERIA Q4 2018 RESULTS ANALYSIS

Flour Mills of Nigeria Q4 2018 Results – Sales Down by -14% YoY to N115.16B

By Brandspurng on July 2, 2018

Flour Mills of Nigerian (FMN) reports weaker-than-expected Q4 2018 (end-Mar) results.

Implications:
FMN’s 2018 PBT surprised negatively relative to consensus 2018 PBT forecast of N22.8bn. As such, we expect to see downward revisions to consensus 2019E PBT forecast and a negative reaction by the market. In terms of outlook, Bloomberg consensus wheat forecasts indicate that wheat prices which form bulk of FMN’s inputs are expected to rise by only c.5% between 2018 and Q1 2019 (end-March).

Although the company is exposed to a downside risk from a potential slide in the naira relative to other major currencies, we believe the likelihood of this is remote given prevailing price levels of crude oil and improved crude oil production levels relative to 2016/2017 levels.

Positives:
No obvious positives

Negatives:
Sales down -14% y/y. FMN reported a pre-tax loss of –N3.0bn (which came in lower than ours and consensus implied Q4 2018 forecasts of N667m and N3.3bn respectively). The weak earnings were driven mainly by a -96% y/y reduction in other operating income. Compared with our forecasts, Q4 sales missed by 21%. PBT and PAT also came in behind our N667m and N393m forecasts due to a negative surprise in interest expense. Although almost all the major divisions saw marked y/y reduction in sales, the foods business which declined by -27% y/y was the key driver behind the y/y decline in sales in Q4.

SOURCE: https://brandspurng.com/flour-mills-of-nigeria-q4-2018-results-sales-down-by-14-yoy-to-n115-16bn/

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