The Nigerian Stock Exchange (NSE) ended Tuesday’s trading session in negative territory. The All Share Index closed at 29,818.80 basis points, down 0.39%. Year to date, the index is down 5.13%.
Top Gainers: Champion Breweries Plc was the best performing stock today. The stock gained 10% to close at N1.32. NEM Insurance Plc gained 8.78% to close at N2.23. Unity Bank Plc gained 8.57% to close at N0.76. Linkage Assurance Plc gained 8.33% to close at N0.52. Oando Plc rounds up the top five gainers for today, gaining 6.76% to close at N3.95.
Top Losers: On the flip side, Okomu Oil Palm Plc was the worst performing stock, declining by 10% to close at N66.60. Associated Bus Co Plc fell by 10% to close at N0.27. International Breweries Plc fell by 9.97% to close at N16.70. Chemical and Allied Products Plc fell by 9.97% to close at N28. Julius Berger Nigeria Plc rounds up the top five losers for the day, shedding 9.93% to close at N19.50.
Top Trades by Volume: Wema Bank Plc was the most actively traded stock today. 2,399,041,825 shares valued at N1,475,357,949.28 were traded in 60 deals. Zenith Bank Plc was next with 409,965,614 shares valued at N8,200,827,708.70 traded in 341 deals. Access Bank Plc followed with 13,678,348 shares valued at N87,588,236.05 traded in 172 deals. 9,748,251 shares of United Bank for Africa Plc valued at N59,523,815 was traded in 138 deals. Guaranty Trust Bank Plc rounds up the top five most actively traded stocks today with 9,662,615 shares valued at N297,439,496.60 traded in 196 deals.
Oando Plc issued a statement on the NSE as regards the alleged fair hearing the Securities & Exchange Commission (SEC) claims they were accorded. The company said it was not afforded the opportunity to meet with SEC, adding that it only responded to questions posed by the assigned auditors for its business.
Omoluabi Mortgage Bank Plc notified the public on the date of it’s 5th Annual General Meeting (AGM). According to the bank, the AGM will be held on the 10th of July, 2019, by 10.00am, at Aurora Conference and Event Centre, Plot 6 Iwo-Ikirun Expressway, Ring Road by NNPC Mega Station, Osogbo, Osun State.
Secure Electronic Technology Plc announced that its AGM will hold on Thursday, 11th July 2019 at The Events Warehouse, Plot CDE Industrial Crescent, off Town Planning Way, Ilupeju, Lagos at 12pm.
Greif Nigeria Plc released its unaudited financial statement for the second quarter period ended 30 April 2019. Revenue for the period was N89.5 million as against N312.7 million in 2018, representing a decrease of 71%. Loss before tax stood at N108 million from a profit before tax of N5.2 million in 2018, which is 2,171% decrease. Loss after tax was N59.4 million as against a profit after tax of N614,000 in 2018, slipping by 9,772%.
Finally, Dangote Cement Plc held its AGM at the Eko Hotel and Suites in Lagos yesterday. At the AGM shareholders accepted the 2018 annual reports and accounts of the company and a dividend of N16 per share was approved. Directors, including Aliko Dangote, were re-elected to the company’s board.
Brent crude up by 40% in May, strongest monthly bounce since March 1999
It saw steep monthly gains due to falling global crude oil production and expectations for demand growth around the world.
Oil prices rose on Friday, with crude oil futures finishing on a bright note in the month of May. Monthly gains were recorded based on hopes that the U.S.–China trade deal wouldn’t be distorted, and the fact crude oil production was falling.
Brent crude recorded a surge of 39% for its strongest monthly gains since March 1999.
Brent crude contract ended at $37.84, gaining $1.81, or roughly 5%. It saw steep monthly gains due to falling global crude oil production and expectations for demand growth around the world.
“Oil demand has bottomed out and supplies from OPEC+ and North America is falling sharply. The market is thus no longer as oversupplied as feared,” said Commerzbank analyst Carsten Fritsch, adding that there could be a considerable supply deficit in the second half of 2020.
“The rise in demand may be painstakingly slow in the coming weeks and months, but it is expected to gradually rise over the course of the year,” said Marshall Steeves, energy markets analyst at IEG Vantage.
However, America’s leader, Trump, said his government would begin to remove the special treatment which Hong Kong enjoyed, in response to China’s plans to impose new security laws on the territory but didn’t mention anything about distorting the trade deal between U.S and China.
“There was a lot of nervousness going into this press conference, so it looks like the worst-case scenario doesn’t appear to be emerging,” said John Kilduff, a partner at Again Capital Management in New York.
KPMG, PwC, Accenture prepare to become Crypto auditors
Big Four firms and other leading brands are working with several crypto and blockchain firms on ways to combat interoperability, regulatory challenges and development of the technology.
No doubt, the Blockchain technology, along with the adoption of cryptocurrencies, is getting bigger. The business end of the market is expected to reach $21 billion over the next five years.
Expectedly, professional services giants are now taking a larger role in tackling new challenges in the market, the Big Four firms and other leading brands are working with several crypto and blockchain firms on ways to combat interoperability, regulatory challenges and development of the technology.
Henri Arslanian, PwC’s global crypto leader, told Cointelegraph that the Big Four firms majorly have a vital role in the advancement of the cryptocurrency ecosystem, saying:
“Although Bitcoin was designed with a trustless ideology, the reality is that the industry still requires trusted entities to catalyze the development of the ecosystem.”
Arslanian added that when he first joined PwC years back, few people took crypto seriously. However, he saw an increasing demand for crypto assets, with some businesses starting to accept Bitcoin payments from clients.
“Over the last couple of months, we’ve expanded our work. We recently closed the first-ever crypto fundraising deal at PwC, in which we led a $14 million Series A round for a Swiss-based crypto firm with Asian family offices. We are also the auditor for BC Group, a publicly listed crypto company in Hong Kong.”
BC Group CEO, Hugh Madden, also said that BC’s vision was to make use of crypto assets in Asia’s financial market. In turn, BC Group must set standards for compliance, security, and performance. Madden buttressed on the role of audits play by saying:
“Auditing, like regulatory clarity, provides confidence to all stakeholders that companies are operating transparently and adhering to expected industry standards. As the business of digital assets continues to grow and mature, and compliance and regulatory standards become more robust, auditors will continue to play a pivotal role.”
KPMG United States blockchain audit leader, Erich Braun, further contributed by saying that a business’s blockchain system should be developed with the intent to meet both accounting and operational needs to meet with accounting standards:
“SEC issuers will want to design blockchain technologies to support the entity’s internal control over financial reporting. Being able to prove how these technologies achieve their aims in a well-controlled environment is critical to a successful blockchain strategy. If the technology is not auditable, the immense benefits it brings, such as increasing efficiencies and cutting costs, may not be realized.”
Henri Arslanian, added in his closing remarks that the Big Four firms are indeed the most important players for the crypto asset space. He said:
“I believe the Big Four firms will serve as the bridge between the crypto ecosystem and the institutional world. It is good for both the crypto ecosystem and for professional services firms like ours as a new source of clients that we can help.”
Dangote Cement: Subdued earnings outlook but valuations still attractive
Trading at FY 2020 EV/EBITDA of 7.0x compared to its EM peer average of 9.2x and its 5-year average of 7.7x, we believe the company’s valuation remains attractive.
Dangote Cement reported a 3.8% y/y growth in Revenue to N249.2bn in Q1 2020. The growth in group revenue was solely driven by an improvement in revenue from its Nigerian operations (up 5.6% y/y to N179.3bn) amidst a flattish performance from Pan African operations (down 0.6% y/y to N69.8bn). We expect the impact of COVID-19 to have a more profound impact on Nigeria Sales in Q2-2020, given that Lagos, Ogun, and the FCT went on full lockdown from 30 March. Although the lockdown measures were relaxed on 4 May, economic activities are yet to return to pre-COVID-19 levels.
Similarly, we expect weaker Revenue from Pan African Operations driven by weakness in South Africa (poor macro conditions, lockdown in the last week of March amidst weak infrastructure spending by the government), Tanzania (production challenges and unfavorable weather conditions) and Zambia (the economy slipped into recession in Q1, leading to a decline in the cement market) to have a material impact on overall Pan African sales volumes. As such, we have made marginal adjustments to our forecasts.
We retain our target price of N182.4/s and maintain our Buy recommendation largely due to attractive valuations. Trading at FY 2020 EV/EBITDA of 7.0x compared to its EM peer average of 9.2x and its 5-year average of 7.7x, we believe the company’s valuation remains attractive. We arrived at our target price using a blend of DCF valuation and relative valuation in the ratio 60:40. We also note that the company’s planned share buyback has been approved by SEC and management will review the opportunity to deploy the programme in due time. We believe this remains a catalyst for an upward re-pricing of its shares.
Review of Q1 2020 performance
Q1 2020 Revenue grew 3.8% y/y to N249.2bn. The growth in group revenue was solely driven by an improvement in revenue from its Nigerian operations (up 5.6% y/y to N179.3bn) amidst a flattish performance from Pan African operations (down 0.6% y/y to N69.8bn). On a q/q basis, we note that group revenue grew stronger, up 17.6% q/q, again on the back of a sturdy growth from Nigerian operations (up 26% q/q). We believe the growth in revenue from Nigerian operations reflects stronger demand for cement particularly in the months of January and February which more than compensated for the slowdown in March due to headwinds triggered by the outbreak of the global pandemic. Notably, cement sales volumes grew by 0.7% y/y to 4.0MT, the highest Q1 volume in the last four years. However, we note that the momentum in sales volumes has slowed down, following the lockdown implemented in states such as Lagos, Ogun, and the Federal Capital Territory (FCT).
EBITDA grew 2.2% y/y to N114.2bn. The low single-digit growth in EBITDA was due to a higher increase in cost of sales adjusted for depreciation (up 6.3% y/y) compared to the growth in revenue (up 3.8% /y). The increase in cost of sales adjusted for depreciation was largely driven by growth in salaries and related staff costs (up 13% y/y) and other production expenses (N4.0bn in Q1 2020 vs N1.5bn in Q1 2019). However, the company reported a sub-inflationary growth in OPEX (up 4% y/y to N47.7bn). We highlight that expenditure on advertisement and promotion was up 96% y/y to N3.7bn- we believe this was due to the continued implementation of sales promotional activities to drive sales volume. Overall, EBITDA margin weakened marginally by 0.7ppts to 45.8% in Q1 2020.
Net Finance Cost dipped significantly, down 60.5% y/y t0 N3.7bn in Q1 2020, due to a decline in Finance Cost (down 23% y/y to N9.0bn) alongside foreign exchange gains of N3.7bn recorded in Q1 2020. However, Finance Income was down 32.6% y/y to N1.5bn, reflective of the decline in Cash and Bank Balances (down 41% y/y to N101.8bn) and a lower yield environment. We note that the decline in Finance Cost was due to the absence of Foreign exchange loss in Q1 2020 compared to N3.1bn recorded in Q1 2019.
Pre-tax Profit grew 11.5% y/y to N88.1bn in Q1 2020. A higher effective tax rate of 31% in Q1 2020 compared to 24% in Q1 2019 led to a flattish growth in Profit after tax, up 0.6% y/y to N60.6bn in Q1 2020. Earnings per share rose to N3.60/s in Q1 2020 from N3.54/s in Q1 2019.
Looking ahead, we expect the deterioration in the macroeconomic narrative of Nigeria, caused by the outbreak of COVID-19 and significantly lower oil prices to constrain activities in the construction industry as fiscal spending on capital projects weakens, on the back of lower oil revenue. In a similar fashion, we expect private sector investment in gross fixed capital formation to slow down as businesses cut down on their CAPEX plans given fragile macro conditions, which will weaken aggregate demand.
Similarly, we expect weaker Revenue from Pan African Operations driven by weakness in South Africa (poor macro conditions, lockdown in the last week of March amidst weak infrastructure spending by the government), Tanzania (production challenges and unfavorable weather conditions) and Zambia (the economy slipped into recession in Q1, leading to a decline in the cement market) to have a material impact on overall Pan African sales volumes. Considering the 1.4% decline in Pan African Sales Volumes in Q1 2020, we have revised downwards our forecast on Pan-African volumes to 9.25MT (previously; 9.82MT) in 2020.
Valuation; BUY rating maintained
We retain our target price of N182.4/s and maintain our Buy recommendation largely due to attractive valuations. Trading at FY 2020e EV/EBITDA of 7.0x compared to its EM peer average of 9.2x and its 5-year average of 7.7x, we believe the company’s valuation remains attractive. Furthermore, we highlight that the proposed share buyback is a positive catalyst for upward re-pricing of the shares. We arrived at our target price using a blend of DCF valuation and Relative valuation in the ratio 60:40.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.