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Company Results

Sterling Bank’s earnings to remain pressured but valuations still attractive

We project Pre-tax Profit of N9.0bn (down 15% y/y) and we estimate ROAE of 6.9% in 2020e (FY 2019; 9.8%).

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Sterling Bank

Sterling Bank’s Q1 2020 numbers were largely impacted by the regulatory-induced fee cut on e-banking transactions resulting in a decline in Net Fee and Commission (down 16% y/y) and weak operating efficiency given the higher growth in OPEX (up 8% y/y) compared with the increase in operating income (up 3% y/y). Net Interest Margin (NIM) however improved to 7.7% in Q1 2020 (Q1 2019; 7.4%) on the back of lower funding cost (5.1% in Q1 2020 compared with 6.6% in Q1 2019).

READ MORE: How Quidax is Building Africa’s Next Billion-Dollar Crypto Startup

Sterling bank’s NPL ratio declined to 2.0% in Q1 2020 from 8.9% in Q1 2019 following the declassification of exposures in stressed sectors. We do not expect asset quality issues to crystallise in the short term, as we expect the bulk of the loans in the Oil and gas upstream/midstream (c.27% of gross loan) to be restructured. We however expect earnings to weaken in 2020, due to low asset yields amidst weak loan creation and the downward adjustment in fees on e-banking transactions. We Project Pre-tax Profit of N9.0bn (down 15% y/y) and we estimate ROAE of 6.9% in 2020e (FY 2019; 9.8%).

Following the downward revision to our 2020 earnings forecast, we have revised our target price downwards to N1.67/s from N2.84/s previously. We however maintain our BUY recommendation due to attractive valuations (P/E; 3.7x and P/B; 0.3x) and the 34% upside from the last closing price of N1.25/s. We note that the steep decline in the stock price (down c.37% since the start of the year) presents an attractive entry point.

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@Copyright CSL STOCKBROKERS LIMITED, 2020. All rights reserved.

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    Company Results

    MTN post N385.3 billion in revenues in 3 months as Nigerians guzzle data

    MTN posted revenue of N385.3 billion representing a 17% increase from the N329.1 billion reported in the same period in 2020.

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    UACN appoints Toriola as new Director 

    Nigeria’s largest telecoms network, MTN posted revenue of N385.3 billion representing a 17% increase from the N329.1 billion reported in the same period in 2020.

    The double-digit growth is happening at a time when Nigerians have put the Covid-19 lockdown behind them and returned fully to work across the country. It is also happening on the back of tumultuous three months of SIM card registration bans and government mandates for all Nigerians to register to obtain their NIN and link the numbers to their SIM Cards.

    MTN reported an 8% growth in Voice related revenue topping N208 billion for the period under review. Data revenue continued to lead revenue growth printing at N105.7 billion, a 42.6% growth year on year, showing heavy reliance on data by MTN’s 61.5 million internet subscribers, the highest in the country.

    MTN commands the market share for internet subscriptions owning about 42% of the market. MTN also controls 40% of the Voice market share, the highest compared to any other competitor.

    READ: Banks, MTN reach agreement, restore suspended USSD services

    Commenting on the result, MTN’s CEO, Karl Toriola explained that “the effects of customer churn and the restrictions on new SIM sales and activations arising from changes in SIM registration regulations” had resulted in a decline of its subscriber base. This reduction led to a marginal drop of 71,000 in Q1 active data subscribers to 32.5 million but this did not affect growth. Rather they recorded an 86.7% increase in data traffic and a 48.5% increase in usage (MB per user) from the existing base.

    Toriola explained that “the improvement in data services was supported by the completion of our acquisition and activation of an additional 800MHz spectrum” enabled the company to further increase traffic by 10% and enhance throughput by 79%.

    MTN also doubled its revenue from Digital business rising to N3.7 billion during the quarter while FinTech related revenue rose 28.5% to N14.6 billion.

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    “Digital revenue grew by 101.0% and fintech revenue by 28.5% as customers continued to adopt more digital products and services, a trend accelerated by the pandemic. As of the end of March 2021, we had 449,100 registered MoMo agents and 4.6 million fintech customers.”

    MTN also revealed it was being owed N40.3 billion by deposit money banks (DMBs) on services provided for under its USSD product. MTN did not recognize any revenue for its USSD business resulting in a flat year-on-year revenue for its enterprise business.

    What next for MTN?

    The GSM behemoth maintains it will continue to pursue double-digit revenue growth in 2021 through its 4G network expansion and positioning its FinTech Business for “accelerated growth” to unlock its full potential.

    MTN also revealed it will continue to push for a revised commission paid to banks on its air time sales and is exploring other options of selling its airtime outside of banks.

    “We will continue to sustain our expense efficiency programme to strengthen our financial position and support margins. We remain in dialogue with the DMBs on a pricing option for airtime sales commission while diversifying our airtime recharge channels to offer our subscribers more options to purchase airtime and stay connected.”

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    Company Results

    Dangote Cement incurs N97 billion taxes in 2020

    The cement giant incurred its taxes on record.

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    One of Nigeria’s largest indigenous companies and the largest by market capitalization incurred a company income tax of N97 billion for the financial year ended December 2020.

    This s according to the information contained in its full-year audited financial statements for the period under review.

    Dangote Cement Taxes. 2018 was a tax credit.
    Source: Nairalytics Research

    Why this matters?

    Dangote Cement has enjoyed Pioneer Status over the years and has often been criticized for not paying enough taxes despite its mega-profits.

    • The N97 billion incurred in 2020 is the highest company income tax reported by Dangote Cement since it became listed on the Nigerian Stock Exchange.
    • It incurred N49 billion in taxes in 2019 and got a tax credit of N89.5 billion in 2018.
    • Despite incurring N97 billion in taxes during the year, Dangote Cement’s actual tax paid was just N20.9 billion in 2020 compared to N4.6 billion paid a year earlier.
    • Tax incurred in the profit and loss statement is an accounting provision and is not always the actual tax paid in cash.
    • Putting it into context, the dividend paid during the year is N272 billion and interest payments to its creditors totals N48.2 billion.

    Improved Cement Revenues

    Despite the Covid-19 Pandemic, the Cement Giant reported full-year revenue of N1 trillion, the highest it has ever recorded since it was privatized almost 20 years ago. The company also reported a profit before tax of N373.3 billion only and a profit after tax of N276 billion, its highest since 2018.

    Nigeria like most countries in the world has faced a challenging 2020 due to the impact of Covid-19 on the economy, especially the private sector. However, mega-corporations like Dangote Cement appear to have even performed better during the year. The cement industry in general also appears to have performed well during the year as the combined revenue of the top 3, Dangote Cement, Lafarge, and BUA rose to N1.47 trillion from N1.28 trillion.

    The impressive result nonetheless, Dangote Cement’s margins remained strong during the year posting a gross profit margin of 57% in line with its 3-year averages. However, the higher taxes incurred in 2020 dropped profit margins to 26.7%. When compared to 2018 when it still enjoyed Pioneer status, the company posted profit margins of about 43%.

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