May was a bearish month on the Nigerian Stock Exchange (NSE) with the stock market’s All Share Index closing 7.6% down for the month. Before this month, stocks had lost a total of 8 times in 33 years, in the month of May. This year’s bearish close makes it the 9th time.
June has also started out similarly, with the market closing negatively on Friday. In fact, stocks have now reversed all the big gains it made earlier in the year as we are now -3.73% YTD.
From what we gather, the sell-offs are responses to global economic uncertainty over America’s trade wars with Europe, Canada and Mexico, as well as the unrest in the Middle East. Thus, we won’t be betting against June closing negatively.
So which stocks do we think should be on the sell basket and which ones do we consider buying?
These stocks made our picks for this June.
Seplat Petroleum Development Company Plc
Seplat has been a recurring stock on our buy/sell list. This has largely been due to the rebound in crude oil prices and the company’s improved fundamentals.
Though Saudi Arabia has signalled its intentions to increase crude oil volumes in response to concerns by the United States, crude oil prices are forecast to trade within the $70 range. This is also above the company’s forecast price range.
Q1 2018 results by the firm show that revenue increased from N14.4 billion in 2016 to N55.2 billion in 2017. The company also made a profit after tax of N17.9 billion in 2018 as against a loss of N5.6 billion in the corresponding period of 2017.
Seplat paid an interim dividend of $0.05 last month.
Barring any militant attacks as elections approach, and significant downtime of the Trans Forcados pipeline, the company should maintain Q1 performance.
United Capital Plc
United Capital is currently trading at 4 times earnings. The company is known for prompt release of results. Though Q1 2018 results were largely flat, the looming bear market means that the stock is a buy at current levels, and preferably at our target price of N2.70.
An increase in primary market activities could mean higher income for the company. United Capital makes money when there are deals and with the looming listing of MTN, they are likely to enter a new phase of boom.
The company is also playing an important role in the sale of 9mobile to potential buyers, Teleology. They will also earn significant revenue from this deal.
United Capital dropped below the N3 floor briefly in last week’s trading session and it could fall even further. Year to date, the stock is down 15.01%,
Beta Glass Plc
This is a very resilient stock and it has proven to withstand sell-offs and economic downturns over the years. The bottle maker has limited ownership in the market, so liquidity is scarce. However, if we can lay our hands on this stock, we will gladly buy.
Beta Glass currently trades at a price earnings multiple of 12.30. Top line revenue for the company has risen from about N16.6 billion to N22 billion between 2014 and 2017, while earnings per share has risen from N4.8 to N8.20 within this period. It also looks like a well run company.
Julius Berger Nigeria Plc
This stock has seen better days. From an earnings per share of N6.54 in 2014, it recorded a loss per share of N1.82 in 2016. It posted modest profits in 2017 and reported an earnings per share of N1.95. Earnings per share for the first quarter of this year was N1.09.
The company recently issued bullish statements about their performance and promised that the future was brighter for them and their shareholders. We also think so, as Julius Berger makes money when the government is buoyant. Loaded with Eurobond cash and higher oil revenue, the government will try to close out some contracts ahead of the 2019 elections. They need to have something they can share with voters as part of their success.
Sell side
Ikeja Hotels Plc
Ikeja Hotels Plc is up 41% year to date. The rally in the share price has been due to the lifting of a technical suspension placed on the stock last month.
Though the stock is trading at a discount compared to its peer, Transcorp Plc (which is trading at 19.5 times earnings), the stock could witness some form of correction this month.
Cement Company of Northern Nigeria (CCNN) Plc
CCNN Plc, up 194.2%, is currently the best performing stock year to date. The company earlier this year launched an additional line for its plant; Q1 2018 results, however, are largely in line with the comparative period of the prior year.
Though the stock is trading at 9.27 earnings, much lower than other players like Dangote Cement (which is trading at 19.2 times earnings), investors are better off selling the stock to re-enter later in the year.
GT Bank Plc
Guaranty Trust Bank is one of the country’s 5 tier one banks. While the stock is currently trading at 6.28 times earnings, there could be further downside in the stock’s price.
Foreign investors appear to have begun exiting the capital market, going by the large volume trades in the stock last week. Savvy investors could enter later in the year when bearish sentiments would have subsided.
Zenith Bank Plc
Zenith Bank is currently trading at 4.27 times earnings, a discount compared to its tier one peers. The stock could witness some downside this month as foreign investors exit the market. The stock witnessed large volumes last week.
Investors would be better off entering the stock once the bear markets have subsided.
Dangote Cement Plc
The company is looking to raise some cash either via its parent company, Dangote Holding, or by Dangote Cement itself. Dangote’s expansion plans across Africa is ramping up and to compete, they will need to have long term patient capital. DangCem is just up 4% year to date and lost 2.4% in value in May alone.
There could be more pressures this month and emerging market investors might pull out funds due to fear of a down turn.