Major markets in the Nigeria closed with mixed trends on June 08, 2020, as most of the indicators maintained relatively quiet trend.
Interbank rates closed relatively unchanged on Monday, as system liquidity remains relatively tight. While the Open Buy Back (OBB) closed at 14.50%, the Overnight rates closed at 15.42%. System liquidity is estimated to be c.N100 billion according to sources.
Experts in Comercio Partners projected that the funding rates are likely to hover around current levels on Tuesday barring momentous flows.
The Treasury Bills market maintained its relatively quiet trend during Monday’s session, with minimal activity witnessed across board. Nevertheless, pockets of demand was seen on the mid and long end whilst the short tenor maturities closed relatively flat.
The relatively weak trend is expected to persist in the Treasury Bills market.
Also, the Bond market started the week on a relatively quiet note with minimal volumes seen across board. Nevertheless, pockets of demand was seen across board particularly on the short and long tenor maturities albeit on a less aggressive note as yields remained relatively unchanged.
Analysts expect the Bond market to maintain a similar trend on Tuesday as the bulk of the attention will be skewed towards the outcome of the Sukuk auction.
The Eurobond market maintained its bullish trajectory in Monday’s session as the OPEC+ agreement over the weekend further strengthened the bullish bias in the market. In all yields declined by 35 on average across the Nigerian curve.
Bullish bias is expected to persist on Tuesday albeit with some profit taking on the back of the sharp decline in yields.
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At the parallel market, the Naira closed flat against the US dollar, Pound Sterling and Euro at $1/₦450, ₤1/₦545 and €1/₦473 respectively. At the Investors and Exporters’ FX Window, the local currency depreciated against the US Dollar by ₦0.83 to close at $1/₦387.33.
Herbert Wigwe purchases more Access Bank shares
Wigwe has the highest stake in the bank, directly owning 201.23 million shares.
Access Bank’s Chief Executive Officer and Managing Director, Herbert Wigwe purchased 3.1 million shares worth N21.4 million. In a disclosure filed at the Nigerian Stock Exchange, the transaction, which noted to be carried out via indirect holding through Tengen Holdings (Mauritius) Ltd.
The notification of insider dealing, on the NSE website, revealed the following details: Purchase of shares by directors of a listed company is legal and occurs regularly. However, regulatory provisions require that such trades are disclosed.
Details of the current transaction include:
- A total of 3,144,859 was purchased indirectly in the month of June. The shares were broken down into two transactions.
- Wigwe purchased 3,094,853 shares at a price of N6.81 on the 15th of June 2020 and another 50,000 shares at a price of N6.79 on the 16th of June.
- It noted that the 3,144,859 shares purchased were from Wigwe’s indirect holding through Tengen Holdings Ltd in Mauritius.
- The aggregate price of the transaction was N21,415,448.93.
Recall that in January, the bank’s CEO had sold 55.6 million ordinary shares held indirectly, followed by another 28.86 million shares worth N297.82 million, cumulatively representing a stake of 6.81% in the bank. Of the 15 members of Access Bank’s board of directors, Wigwe has the highest stake in the bank, directly owning 201.23 million shares and 1.24 billion shares indirectly.
The price difference between both days of the transaction could be as a result of the correlation between insider dealing and share prices. Access bank’s share price as of yesterday stood at N6.85, down from its 2020 year high of N11.6 per share. Access Bank has a market capitalization of 243.5 billion and a net asset of N635 billion.
Lafarge Africa: Improved leverage to soften impact of COVID-19 induced headwinds
We believe the steep decline in the stock price (down c.28% since the start of the year) presents an attractive entry point for investors.
Lafarge Africa Q1 2020 revenue was up 9.8% y/y to N63.7bn, driven by higher Cement Sales (up 11% y/y to N62.3bn) which offset the weakness in Aggregate and Concrete (down 21% y/y to N1.4bn). The growth in Cement sales was driven by increased volumes (up 8% y/y to 1.4MT) and price increment (c.2%) implemented by management at the start of the year.
Buoyed by a steep decline in Finance Cost (down 69% y/y), PBT rose significantly, up 104% y/y to N9.4bn in Q1 2020 compared with N4.6bn in Q1 2019. EPS rose by 1.56x to N0.50 in Q1 2020 (Q1 2019; N0.20).
Management noted that the sale of cement weakened significantly in the month of April due to the outbreak of COVID-19. Consequently, we expect Revenue in Q2 to be affected by slowdown in cement volumes, owing to subdued activities in the construction sector caused by the social distancing measures.
Despite our expectation of weaker Q2 Revenue, we expect earnings to receive a boost from significantly lower finance cost due to the improved leverage position of the company (Debt/equity ratio moderated to 0.19x in FY 2019 compared with 2.25x in FY 2018 and 1.83x in FY 2017). The key risk to our outlook is the possibility of a second wave of lockdown due to growing numbers of new cases of COVID 19.
We have updated our model and the overall impact is a marginal downward adjustment of our price target to N23.9/s from N24.4/s previously. However, we maintain a Buy rating given the 117% upside potential implied by our target price from the latest closing price of N11.0/s.
We believe the steep decline in the stock price (down c.28% since the start of the year) presents an attractive entry point for investors. Lafarge is currently trading at a FY2020e P/E and EV/EBITDA of 4.7x and 2.9x respectively, a discount to EM peers average of 11.5x and 6.5x respectively.
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Dangote Sugar’s outlook improves amidst expected headwinds
Following upward revisions to our forecasts, we revise our target price higher to N17.65/s from N13.87/s previously.
Dangote Sugar reported a modest 7.1% y/y growth in Revenue to N161.1bn in FY 2019 from N150.4bn in FY 2018. Net Income also grew 1.8% y/y to N22.4bn for FY 2019. Q4 was a strong quarter as Revenue grew strongly q/q, up 17.8% to N43.7bn in Q4 2019 from N37.1bn in Q3 2019. Compared with Q4 2018, Revenue grew strongly, up 33.6% y/y. Net Income also grew strongly y/y, up 105.5% to N7.7bn for Q4 2019. Though Net Income declined 9.0% y/y and 16.8% q/q in Q1 2020, Revenue grew significantly, up 24.9% y/y and 9.9% q/q.
We raise our key forecasts higher over 2020e-2024e. Volumes have recovered following closure of the border in August 2019 while the company has been able to implement price increases since Q4 2019 in the absence of lower priced smuggled sugar. Despite expected headwinds such as, possible opening of the borders, expected stutter in demand following disruptions to industrial activities & ban on social gatherings and elevated cost pressures due to higher import duty on raw sugar, VAT increases and FX concerns, we expect recovery in industrial activities in Q3 and Q4 to sustain growth albeit at a slower pace.
Following upward revisions to our forecasts, we revise our target price higher to N17.65/s from N13.87/s previously. Our new target price implies 21.3% upside to Monday’s closing price of N14.55/s, making us upgrade our recommendation to a BUY from HOLD previously. Our valuation combines a mix of DCF analysis and relative valuation in the ratio 60:40 with the greater weighting on DCF valuation.
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.