‘Make gradual entry into strong stocks ahead of H2 rebound’

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By Taofik Salako, Capital Market Editor


should look beyond the market situation and begin to build up their portfolios with stocks with strong fundamentals ahead of the expected recovery in the second half of the year.

Analysts at Afrinvest Securities in their investment advisory report stated that while the spreading impact of Covid-19 and crude oil crash might adversely impact the performance of the stock market in the immediate period, the steep price depreciation and steady fundamentals of several stocks imply strong potential for considerable returns in the medium to long-term.

According to analysts, there are opportunities in the stock market for medium to long-term investors as the market valuation, the lowest since 2015, has built up potential for capital gains and high dividend yields.

“Given the effectiveness of social distancing measures to fighting the spread of Covid-19 and its wide adoption in countries most vulnerable to the virus, we could see a resumption of economic activities in second half of 2020 which would support crude oil prices and market performance. Thus, we advise a gradual entry approach, buying in tranches, into the Nigerian equities market given the uncertainties both on the global and domestic fronts,” Afrinvest Securities stated.

Analysts selected a portfolio of 12 stocks which they considered as liquid stocks with high dividend yields and strong fundamentals for consideration by investors. These stocks included Guaranty Trust Bank (GTB), Zenith Bank International, Flour Mills of Nigeria, Stanbic IBTC Holdings, United Bank for Africa (UBA), MTN Communications Nigeria, Nestle Nigeria, Okomu Oil Palm, Dangote Cement, United Capital, Access Bank and Nascon Allied Industries.

Analysts noted that while the domestic incidence of Covid-19 has been moderate, the domestic equities market has been reeling from a global contagion that has wiped off initial 10.7 per cent gains and caused a slump of -15.4 per cent on year-to-date basis.

“This is the worst start to a year since 2016, and the reaction of investors reflects concerns about Nigeria’s vulnerability to external shocks, mainly oil,” Afrinvest Securities stated. The slowdown in global oil demand, in addition to the decision of oil producing countries to abandon output cuts, had caused a 50.2 per cent drop in oil prices to $32.9 per barrel by the weekend, the lowest in over four years.

Analysts pointed out that with oil price below the budget benchmark of $57 per barrel, there is a risk of poor implementation of the 2020 budget, thus less support for growth.

According to analysts, with the external reserves fallen by 6.3 per cent so far this year to $36.2 billion, and with little prospect for accretion given capital flight and low oil prices, there is a risk of currency devaluation.

“In light of these risk factors, domestic and foreign investors have maintained a risk-off approach towards Nigerian equities, leading to massive sell-offs. However, this presents interesting opportunities for medium to long-term investors. With the increasing adoption of social distancing measures, which is proven to have worked in some countries, there is a higher chance that the world would defeat Covid-19 and economic activities would pick-up in second half of 2020,” Afrinvest Securities.

Nigeria’s largest financial institution, GTBank is distributing N82.4 billion as cash dividend for the 2019 business year as the bank’s pre-tax profit rose to N231.71 billion.

The board of the bank had indicated that shareholders would receive a final dividend per share of N2.50 in addition to interim dividend of 30 kobo paid earlier, bringing the total dividend per share for the 2019 business year to N2.80. The bank had distributed N80.94 billion as cash dividend for the 2018 business year, representing a dividend per share of N2.75.

Key extracts of the audited report and accounts for the year ended December 31, 2019 showed modest growths across key performance indices. Gross earnings rose from N434.7 billion in 2018 to N435.31 billion in 2019. Profit before tax increased by 7.5 per cent from N215.6 billion to N231.7 billion. After taxes, net profit improved from N184.71 billion to N196.87 billion. Earnings per share thus increased from N6.54 in 2018 to N6.96 in 2019.

UBA has also increased dividend payout to shareholders as the pan-African financial group achieved record earnings and balance sheet in 2019. Gross earnings crossed the milestone of N500 billion while total assets crossed N5 trillion for the first time.

The board of the bank has recommended increase in dividend payout to N34.2 billion, implying a total dividend per share of N1 for the 2019 business year as against 85 kobo paid for the 2018 business year. The bank will be paying a final dividend of 80 kobo per share in addition to an interim dividend of 20 kobo per share paid earlier in 2019.

Key extracts of the audited report and accounts for the year ended December 31, 2019 released at the Nigerian Stock Exchange (NSE) at the weekend indicated that gross earnings grew by 13.3 per cent to N559.8 billion in 2019 compared with N494.0 billion recorded in 2018. Total assets also grew significantly by 15.1 per cent to an unprecedented N5.6 trillion in 2019. This is the first time the bank’s gross earnings and assets will cross the N500 billion and N5 trillion marks respectively.

Profit before tax rose from N106.8 billion to N111.3 billion. Profit after tax grew by 13.3 per cent to N89.1 billion in 2019 compared with N78.6 billion in 2018. On the cost side, operating expenses grew by 10.1 per cent to N217.2 billion in 2019 as against N197.3 billion in 2018, well below average inflation rate within the period, a reflection of cost efficiency gains.

Stanbic IBTC Holdings recorded a net profit of N75.04 billion in 2019 as the financial holding company sustained steady growths across key performance indicators.

The board of the holding company yesterday indicated that it has recommended payment of N21 billion as dividend for the 2019 business year, implying a dividend per share of N2, 33.3 per cent increase on N1.50 per share paid for the 2018 business year.

Key extracts of the audited report and accounts of Stanbic IBTC Holdings for the year ended December 31, 2019 showed that gross earnings rose from N222.36 billion in 2018 to N233.81 billion. Profit before tax increased from N88.15 billion in 2018 to N90.93 billion in 2019. Profit after tax also improved marginally from N74.4 billion to N75.04 billion. Earnings per share however dropped from N7.04 in 2018 to N6.92 in 2019. The decline in earnings per share was due to additional shares due to cash-to-scrip dividend conversion policy of the company.