Equity Research Report – 13 December 2019

Are the Odds in Favour of the December Effect? Following the CBN’s mandate to restrict Open Market Operations (OMO) auctions to Foreign Portfolio Investors (FPI) and Deposit Money Banks (DMB), the equities market witnessed renewed investors’ interest. This led to four consecutive weeks of gains in November, with some counters hitting record-highs. In this report, we analyzed the December Effect vis-a-vis recent profit taking activities on the equities market’s performance

Stock Recommendation- 21st October 2019.

The Nigerian equities market hit its lowest point this year, as the All-Share Index fell to 26,448.62pts, settling the YtD return at -15.85%. The downturn in the market was spurred by continuous sell-offs in the energy, industrial goods and banking sectors. On a balance of factors, we expect the market to close down this week. Kindly find attached the full report.

Stock Recommendation- 14th October 2019.

The Nigerian equities market endured another bearish week for the fourth consecutive time, shedding 1.68% at the close of trades. Save for the banking index, all other sectoral indices closed downwards. Thus, the YtD return worsened to -15.58%. Last week’s losses were spurred by further sell-offs on heavyweight counters. DANGCEM, hit a new year low at NGN144.20, while SEPLAT and NESTLE also featured on the losers’ chart. Based on these considerations, we expect a negative close for the week. Kindly find attached the full report

Stock Recommendation- 7th October 2019.

The Nigerian equities market lost 2.48% last week as considerable losses on some large cap stocks and general bearish sentiment dragged the market to a negative close. The YtD return therefore worsened to -14.14%. Last week’s market downturn was spurred by significant selloffs on stocks across the consumer goods, banking and oil & gas sectors. On a balance of factors, we expect a negative close for the week. Kindly find attached the full report. 

Earnings Update- CUSTODIAN: Q1 2019.

Premium income growth trajectory sustained: After growing its revenue by 14.77% YoY to NGN36.72bn in FY2018, the momentum was sustained in Q1:2019 as the firm grew gross premium income by 35.58% YoY to NGN11.71bn, the highest level at this period of the year in over ten years. The company also recorded solid growth from its other main income streams as investment income and fees and commission income grew by 17.27% and 19.92% respectively to NGN2.14bn and NGN1.11bn. This reflects the growing underwriting capacity of the company in its quest to strengthen its 2nd and 3rd ranking (in terms of market share) in the non-life and life insurance markets. We expect the growth of premium income from its oil and gas contracts to continue to drive the company’s top line, with support from growth in its life contracts (5-year CAGR of 18.54%). This should see revenue settling at NGN41.34bn by FY2019. Kindly find attached the full report.

Earnings Update- WAPCO: H1 2019.

The H1:2019 revenue for Lafarge Africa contracted by 1.23% YoY to NGN160.30bn, stemming from a weaker top-line recorded in Q1:2019. Volumes of cement sold increased by 104Kt (+3.24% YoY) to print 3.31Mt in H1:2019. At a disaggregated level, Lafarge logged an increase in volume sales in its Nigeria and South Africa operation (LSAH) with respective growth of 2.46% and 6.57%. However, the ReadyMix segment, which contributes c.17% gave a negative impression on total revenue with respective 8.69% and 3.61% decline in volume and revenue. The Q2:2019 standalone figures were the main comfort to the half-year result as it concealed the unimpressive performance of the first quarter. Analysis of the volume showed that despite the subsisting macroeconomic challenges in S/Africa, LSAH recorded an impressive volume growth of 15.12% YoY compared to a decline of 1.26% in the first quarter, while volume from Nigeria grew modestly by 3.26%. However, intense competition as a result of additional capacity in Nigeria and demand slag in S/Africa pressured the average price in both markets by way of discounted pricing and other promotional offers to customers. Thus, revenue inched marginally by 0.17% YoY and 4.17% QoQ to NGN81.78bn. Kindly find attached the full report.

Earnings Update- WAPCO: Q1 2019.

Revenue dragged by abysmal performance of South Africa’s operation: Lafarge Africa finally released its delayed 2018FY and Q1:2019 financial results, accompanied by the announcement of the divestment of its 100% interest in Lafarge South Africa Holdings (LSAH). In Q1:2019, the South African cement market remained muted against the backdrop of a challenging market, where both the consumer segment and construction industry came under pressure. Consequently, decline in cement volume sold in LSAH marred the group’s Q1:2019 performance. Revenue from Nigeria increased marginally by 0.60% while South Africa, which contributed 29.00% contracted by -10.80%, hence, the total revenue declined by 2.64% to NGN78.51bn. Kindly find attached the full report.

Earnings Update- DANGCEM: H1 2019.

Dangote Cement Plc. (DANGCEM) released its H1:2019 financial scorecard, reflecting struggling sales in Nigerian market, which led to a 3.05% revenue decline to NGN467.73bn. In Nigeria, the intense competition from additional capacity of BUA Group and the impact of early rainfall, left its trail on top line. Also, aggressive trade discounts by the players waned the effect of the 7% price increase, as we estimated that average price only increased marginally by 1.04%. Thus, volume and revenue dropped by 2.75% and 4.60% to 7.60MT and NGN328.29bn respectively while market share was down to 64% from 66% in same period of 2018. On the other hand, positive scores from Pan-African markets outweighed the woes with volume and revenue increasing by 2.67% and 1.01% to 4.69MT and NGN140.09bn respectively. The Pan-African result was enhanced by 127% volume growth in Tanzania, owing to a lower base period that was affected by frequent shut downs; improved volumes (+89%) on the back of marketing efforts in Sierra Leone; and price increase coupled with 13% volume growth in Zambia. On the flip side, Ghana was subdued by unavailability of clinker which brought volumes down by 37.25% while the South Africa segment remains muted by unfriendly economic condition. Kindly find attached the full report.

Earnings Update- DANGCEM: Q1 2019.

Weakness in Domestic Market led revenue decline: Dangote Cement Plc.’s (DANGCEM) Q1:2019 group revenue slipped by 0.81% YoY to NGN240.16bn (vs. NGN242.12bn in Q1:2018). Despite a YoY marginal increase of 0.55% in volume, Nigerian revenue declined by 2.31% to NGN169.89bn, from NGN173.91bn in Q1:2018. We believe this largely reflects the impact of trade discounts on the average price in the Nigerian market and competitive pressure from the entrance of 1.5Mta Kalambaina plant which has commenced substantial ramp-up. On the other hand, Pan-African revenue witnessed a 4.82% volume growth that translated into revenue growth of 2.50% to NGN70.27bn. Key positive developments in Pan-African volumes include; 49.0% growth in Congo, which was supported by the introduction of 32.5R new grade cement & opening of new depots, 19.2% growth in Ethiopia, which was driven by retail sector demand, 78% growth in Sierra Leone as a result of increased sales and marketing activities, and 127% growth in Tanzania in the aftermath of the use of gas as opposed to LPFO in Q1:2018. Growth in the Pan-African markets, however, continue to be subdued by security challenges in Cameroon (-10.0%), insufficient cement supply to Ghana import terminal (-39.0%), and economic slowdown and price competition in South Africa (-19.0%). Kindly find attached the full report.

Earnings Update- CCNN: H1 2019.

Cement Company of Northern Nigeria (CCNN) continues to leverage on its expanded capacity, dominance in the North and geographical proximity to neighboring countries to ramp up production. The financial results for H1:2019 showed that revenue was propelled by the aforementioned factors to reach NGN32.15bn from NGN12.08bn in H1:2018. From our analysis, the company maintained 80% capacity utilization while prices were heavily discounted, as part of the industry wide competition. CCNN remains competitively positioned to maintain 80% capacity utilization, hence, our outlook for volume remains the same. However, price discounting will continue to be a tool used by players to defend/increase market share, effectively offsetting the price increase that occurred in April. Case in point is the expanded capacity of the BUA Group with additional capacity of 4.5MTA in H1:2019 and the typical weaker sales volume in Q3, which is expected to be accompanied by stiffer competition. Thus, our revenue projection has been affected by the aggressive discounting which has reversed our initial forecast of 7% price increase. Therefore, our revenue projection has been revised downward to NGN63.60bn. Kindly find attached the full report.