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Top NSE30 Stocks you should consider buying

NSE 30 index that are likely to outperform peers over the next 12 months.

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Blue Chip stocks that defied COVID-19

The NSE30 Stocks Index are weighted by adjusted market capitalization, meaning the number of listed shares of a firm, multiplied by its closing price, and a capping factor.

It should be noted that only fully paid common stocks are included in the NSE30 index.

The NSE 30 index is usually rebalanced on a semi-annual basis, on the first working day in January and in July.
The companies presently listed on the NSE30 Index include:

• Banks: Guaranty Trust Bank Plc, Zenith Bank Plc, Stanbic IBTC Holdings Plc, Access Bank Plc, United Bank for Africa Plc, FBN Holdings, Union Bank of Nigeria Plc, Ecobank Transnational Inc, Fidelity Bank Plc, FCMB Group Plc, Sterling Bank Plc

• FMCGs: Nestle Nigeria, Nigerian Breweries Plc, Dangote Sugar Refinery Plc, Unilever Nigeria Plc, Guinness Nigeria Plc, International Breweries Plc, Flour Mills of Nigeria Plc

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• Oil & Gas: Seplat petroleum Development Co. Plc, Mobil Oil Plc

• Telecommunications: MTN Nigeria Communications Plc, Airtel Africa Plc

• Building Materials: Dangote Cement Plc, BUA Cement Plc, Lafarge Cement, WAPCO Plc

• Agro-Industrial: Presco Plc,

• Agro-Allied: Notore Chemical Plc

• Agriculture: Okomu Oil Palm Co Plc

• Hospitality: Transcorp Hotels Plc

READ: Airtel, Nestle, NB lead the Bulls to a home win, investors gain N106.3 billion 

In a mail to Nairametrics, Equity Analyst, CardinalStone Research, Khalil Woli, gave vital insights on the top NSE30 stocks, that investors and stock traders should consider buying.

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“Although domestic equities have delivered broadly negative returns in H12020 against a backdrop of weakening growth, currency concerns, and depressed earnings releases, we identify historically resilient names among the NSE 30 index that are likely to outperform peers over the next 12 months.

READ: Airtel Africa receives NCC approval to acquire 10 MHz spectrum for $94 million

“Specifically, we like stocks with track records of high profitability, low financial leverage, and less margin volatility,” he said.

These stocks also have attractive upside potential for 2020 based on our target prices, and are relatively consistent with dividend payments.

Notably, ZENITH and UBA have dividend yield that exceeds inflation levels.

READ: CBN allows banks to pay winnings, salaries for 7 banned betting & gaming companies

GUARANTY and STANBIC are also likely to offer dividend yield that are higher than the return on one-year T-Bill, going by their first-half performances.

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These banking names all announced interim dividends for the first half of the year.

In the cement space, WAPCO and DANGCEM are currently trading at attractive prices in the market, despite strong earnings expectations for FY20.

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READ: Access Bank posts Profit Before Tax of N74.31 billion in H1 2020

Both companies delivered impressive growth in profit after tax (DANGCEM, +5.8% YoY; WAPCO, + 60.0% YoY) in H1 2020, despite the COVID-19 impact on sales (principally noticed in April).

DANGCEM and WAPCO, are trading at 23.6% and 35.8% discounts respectively, to their 5-year average P/Es, despite expectations of higher ROEs in 2020.

There is also a strong investment case for PRESCO and OKOMUOIL, as oil palm companies historically thrive during currency liquidity crisis in Nigeria.

READ: BUA Cement Plc posts impressive unaudited H1, 2020 financial results

Recall that OKOMU and PRESCO grew profits by over 100.0% YoY and 82.0% YoY respectively in 2016. The border closure and potential FX-induced increase in domestic patronage are other arguments in favor of the sector

Lastly, NESTLE is an obvious pick from the consumer goods space. The company has demonstrated high defensive attributes of consistent dividend payments and superior ROE (73.9% compared to a sector average of 27.6%), amidst the macro headwinds of the last few years. Its healthy reliance on locally sourced raw materials, makes an additional case for the stock, given recent naira pressure.

In addition, Silas Ozoya, Managing Partner, SUBA Capital, in a chat with Nairametrics, used the prevailing macros in selecting his favorite NSE30 stocks.

READ: Analysis: Sterling Bank, where are the returns? 

“My personal favorites are in the financial sector and consumer goods. This is because transactions happen every day and humans must consume house hold items.
So, my first pick would be Zenith Bank, GTBank, and Sterling Bank

“They are the stock to hold in my portfolio, because of pond standing stability in the case of Zenith Bank and GTBank, and rapid growth in the case of Sterling Bank,” he said.

READ: GTBank, Access Bank, 11 others pay workers N271.64 billion in H1 2020

Also, the consumer goods market is the next on his list. “Unilever, Flour Mills of Nigerian Plc, and Nestle would top my list here, because of the market and consumer behavior towards their products, which translates to a healthy bottom, capitalization, and dividend,” he added.

Overall, the leadership of these companies, and their response to the ever-changing policies have shown how much longer they’re willing to keep the business running, which is a priority for any investor holding shares in their portfolio.

Olumide Adesina is a French-born Nigerian. He is a Certified Investment Trader, with more than 15 years of working expertise in Investment Trading. Member of the Chartered Financial Analyst Society. Behavioral Finance, Duke University. You can follow Olumide on twitter @tokunboadesina or email [email protected]

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Business

Traders, artisans abandon face masks, sanitizers as fear of COVID-19 fades off for most Nigerians

Most Nigerian traders have stopped wearing facemasks as they believe the Pandemic may well be a rich man’s disease.

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Traders, artisans abandon face masks, sanitizers as fear of COVID-19 fades off for most Nigerians

Most Nigerians appear to have abandoned the use of face masks, despite the lack of a vaccine for the COVID-19 pandemic that grounded their lives for most parts of 2020.

A survey of major markets across Lagos, revealed that most traders have abandoned the daily use of face masks – a mandatory requirement of the Lagos State Government, and an offense under the law. Hawkers, roadside sellers, shop traders, clothe dealers, food sellers, cart pushers, textile sellers, etc. are no longer paying attention to the safety measures.

The Nairametrics research team, discovered most traders believe the virus is no longer a threat, as they go about their daily business without being sick. At the night market in Idumota, most of the traders can be seen transacting their business with customers, without wearing masks or any form of social distancing, suggesting life appears to be back to normal for a lot of them.

READ: UK to impose visa ban, seize assets of Nigerians for electoral offences

The same situation played out at Oyingbo market, where traders lined up their goods on the floor around the train tracks, beckoning on customers to buy their goods. Most did not wear face masks, and even those who did failed to comply with the minimum requirements.

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The face masks appeared unwashed, and even worn below the nose area. Social distancing rules also did not apply, and most did not have a basic hand sanitizer. For those who bother to wear, they only do so, to avoid being apprehended by Policemen. If caught, they end up parting away with some money – a fine, to avoid facing the law.

READ: Banks’ loans to customers rise to N18.9 trillion in Q1 2020

What they are saying

Nairametrics asked some of the traders why they no longer wear face masks. According to Mrs. Chioma at Arena market, Bolade,

“We only see reported numbers, but we have not heard of anyone who actually had the virus. In my opinion, even if there was COVID-19 in the country, it is most likely gone and defeated.”

She told Nairametrics research, that Nigerians are no more interested in the figures of COVID-19 cases anymore, because it is assumed that the numbers are inflated. Meanwhile, she stated that the only reason traders and customers are compelled to put on a face mask, is because of the enforcement by the police and market authorities.

READ: Lagos seals off church, others in Surulere, moves against illegal conversion of open spaces

Nairametrics research also visited the Computer village at Ikeja, and found few people in the market due to the alternating market day policy declared by the Lagos State government. However, some of the traders were seen without the use of face masks, and others ate in close proximity to each other.

In a conversation with Mr. Wasiu, a phone repairer, he said,

“Though we hear there is still COVID-19 in the country, but we do not believe it is true, which is why we have been going about our businesses as usual, and we have been good. It is safe to say, God is the one protecting us.”

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Also in the Mile-12 market, another trader who identified himself as KC, believes the pandemic may have been a hype

“I have come to the conclusion that the pandemic is not as bad as we were made to believe, as most people now go back to their usual practices.”

READ: Gas is the new petrol – FG to Nigerian car owners

When asked if he now engages in handshakes, He said

“Yes. Furthermore, I used to have sanitizer before, but I don’t use it anymore. Our security personnel who enforces the use of face masks and sanitizers have stopped doing so, which has caused most of us to stop adherence. That alone is an indication that the disease is not as bad in the country as it was portrayed.”

While others claim the inexistence of the disease, Mrs. Bimpe, at Idumota, feels that Nigerians are not used to covering their faces, and staying apart from each other. That is why they tend to forget the guidelines stated by the government.

“I believe that there is COVID-19 in the country, we only need time to get used to the social distancing and the wearing of face masks.” She said.

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In perhaps, one of the most remarkable take on COVID-19; a commuter explained how the BRT bus he entered was filled with passengers, without social distancing rules being applied. According to her,

“The new blue BRT going to Cement, Iyana-Ipaja area, was loaded beyond capacity yesterday, including standing. If the Government is not acting like there is COVID-19, why should I? My brother e no dey.”

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Explore the Nairametrics Research Website for Economic and Financial Data

What the data says

Nigeria has about 56, 735 confirmed COVID-19 cases, since the first case in late February 2020. However, case numbers have dropped significantly in September, partially due to the reduced number of testing.

  • As the curve flattens, the government has gradually lifted lockdown restrictions; opening Churches, Schools, Markets, and most public areas.
  • Most publicized death cases have been of notable public figures, giving the impression that the disease does not affect the poor.
  • Without reported cases of an outbreak in congested locations – with next to zero social distancing capabilities; it is difficult to convince most of these traders and artisans, that they can be affected by COVID-19
  • Also, without palliatives, Nigerians have had no choice but to get back to their daily livelihoods, fending for themselves and their families. This is purely the motivating factor for most traders who have no one else to turn to, as higher fuel and electricity prices take toll.

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Currencies

Why Nigeria’s external reserves is stuck at $35 billion

Forex reserves remain just above $35 despite the pressure on the exchange rate

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external reserves, After loosing $520 million in two weeks, Nigeria's external reserves rise again, Foreign reserves, Nigeria’s external reserve drop by $261 million in 15 days, oil firms to sell forex to CBN 

Nigeria’s external reserves remain stuck at just above $35.7 billion, according to data from the central bank for the week ended September 10th, 2020.

Nigeria is in the midst of a foreign currency crisis that has led to multiple devaluations in March, July, and in August 2020. Pressure from the World Bank has also led to a unification of the exchange rate, which is now between N380 and N386/$1.

However, despite the pressure on the exchange rate and the decision by the CBN to resume sales of forex to the BDCs, forex reserves remain just above $35.

Forex reserves at the beginning of the year was $38.5 billion and fell to under $36 billion in the days leading to the lockdown. Since then, external reserves have fallen to $33.4 billion before rising to above $36 billion when the IMF disbursed loans to Nigeria. It has remained stuck at above $35 billion since July,

Nigeria has awaited a $1.5 billion loan from the World Bank, which is viewed as critical to releasing forex to meet the demand of foreign investors waiting on the sidelines to repatriate their funds. Pent up demand is thought to be around $2 billion, depending on who you read.

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(READ MORE: External reserves decline by over 8%, despite lower FX demand)

Why reserves remain static: The CBN relies heavily on oil sales to shore up its external reserve position.

  • But with oil prices hovering just above $40 and Nigeria’s crude oil output down to 1.4 million barrels per day, dollar inflows have remained short of expectations.
  • The government reported a 50% drop in revenues in the first half of the year.
  • Foreign portfolio investments in the country have also crashed. According to data from the NBS, Foreign Inflows fell to $1.29 billion compared to $5.8 billion.
  • Foreign investments into the money market also fell drastically from $3.4 billion in Q1 2020 to just $323 million.
  • The CBN attracted significant inflows of forex between 2017 and 2019, offering high-interest rates as an incentive to foreign investors to keep their money in the country.

Why this matters: Nigeria’s external reserve is a closely watched benchmark for a lot of reasons.

  • It helps determine how much forex Nigeria has to meet its import requirements.
  • A sharp drop below $35 billion could send s signal to the forex market that another devaluation is imminent to help prop up the naira.
  • In contrast, an increasing external reserve suggests a higher inflow from crude oil sales, foreign investor inflows and other external loans such as the world bank loan.
  • Nigeria’s current account deficit is also negative, meaning that the CBN will likely keep the reserves at these levels until government external revenue sources improve.

Impact on forex: It appears the CBN is not immediately disposed to selling forex to meet demand at the NAFEX window until it receives a significant inflow of forex. This confirms how important the World Bank’s loan is to provide a temporary fix to Nigeria’s exchange rate challenges.

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Business

Leaked letter by Poultry Farmers Association triggered CBN emergency approval to import maize

Poultry Farmers called on Buhari to allow a guided importation of Maize in order not to shut down their industrt.

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Leaked letter by Poultry Farmers Association triggered CBN emergency approval to import maize, nImplications of CBN's latest devaluation and FX unification, current account deficit, IMF, COVID-19, CBN OMO ban could give stocks a much-needed boost , CBN’s N132.56 billion T-bills auction records oversubscription by 327% , Nigeria pays $1.09 billion to service external debt in 9 months , Implications of the new CBN stance on treasury bill sale to individuals, Digital technology and blockchain altering conventional banking models - Emefiele  , Increasing food prices might erase chances of CBN cutting interest rate   , Customer complaint against excess/unauthorized charges hits 1, 612 - CBN , CBN moves to reduce cassava derivatives import worth $600 million  , Invest in infrastructural development - CBN Governor admonishes investors , Credit to government declines, as Credit to private sector hits N25.8 trillion, CBN sets N10 billion minimum capital for Mortgage firms, CBN sets N10 billion minimum capital for Mortgage firms , Why you should be worried about the latest drop in external reserves, CBN, Alert: CBN issues N847.4 billion treasury bills for Q1 2020 , PMI: Nigeria’s manufacturing sector gains momentum in November, CBN warns high foreign credits could collapse Nigeria’s economy, predicts high poverty, MPC Member, BVN, Fitch, Foreign excchange (Forex), Overnight rates crash after CBN’s N1.4 trillion deduction, Nigeria’s foreign reserves hit $36.57 billion; Emefiele keeps his word on defending the naira, CBN to support maize farmers, projects 12.5 million metric tons in 18 months, BREAKING: CBN Upscales Greenwich Trust Limited, grants it's operational license for merchant banking

A letter from the Poultry Farmers Association of Nigeria is touted as the trigger for the recent decision by the Central Bank of Nigeria to approve emergency importation of 262,000 tons of maize into Nigeria.

Nairametrics confirmed this, after sighting the letter signed by the President of Poultry Farmers Association, Onallo S. Akpa, dated July 3rd, 2020. In the letter, the association called on President Buhari to allow for guided importation of maize, in order not to shut down the poultry business in Nigeria, since poultry farmers rely heavily on maize to feed their chickens.

The laundry list of what they asked for include:

  • The FG should instruct the Federal Ministry of Agriculture & Rural Development, to release 300,000Mt of maize and 10,000Mt of soyabeans to the association, at subsidized rates, in order to keep the poultry industry going.
  • A guided importation of maize in order not to shut down the entire poultry industry in Nigeria. They specifically requested for a Feed Grade Maize of 2,100Mt and soyabeans meal of 10,000Mt.
  • Poultry farmers will be the ones to import the maize and soyabean meal themselves, which they will make available to their members.
  • That the importation will serve their needs for 5 months.
  • That the FG should make available $70 million in forex at the prevailing exchange rate, for the importation of Feed Grade Maize and soyabeans.
  • Import duty and VAT exemptions to sustain the poultry production business, and stabilize protein supply for the country.
  • Halt the export of ‘critical commodities’ to neighboring countries, in order to ensure food security for Nigerians.

The motive for CBN’s import Ban

The Central Bank, in July, adding to its 41 items ban list, announced a ban on forex for maize importation into the country, so local farmers could compete. It is unclear if the CBN was privy to this letter when the circular was issued on July 13th, 2020.

However, soon after the ban was announced, criticisms poured in against the CBN directive.

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The CBN has also heavily invested in agriculture, through several intervention funds directed at farmers. A source at the CBN informed Nairametrics that the quantum of investments in the sector was a major factor in deciding on the import ban.

The apex bank has resorted to restriction of access to forex as a monetary policy tool, to dissuade importation of items that compete directly with locally produced substitutes, backed by intervention programs.

Since last year, the Federal Government has closed the country’s borders to the importation of goods, piling pressure on Nigeria’s trade, and jacking up inflation. Nigeria’s food inflation has risen to 15.48% as of July 2020, on the back of several policy measures of the government.

Poultry Farmers Association is the trigger

The letter from the poultry farmers, who are also benefiting from a ban on the importation of frozen chicken, demonstrates how difficult it is to stir local production through government actions such as import substitution, bans on forex access, and increase in import duty.

It also highlights the challenges of policymaking, particularly by the CBN, who is often blindsided by several other fiscal policies working at cross purposes. The letter from the Poultry farmers is a classic example.

When the ban on importation of maize was first announced, policy analysts pointed to the likely effect it could have on poultry farmers. In a report, the Academic Director, Agribusiness, Lagos Business School, Dr. Ikechukwu Kelikume, explained that the policy could further compound the woes of poultry farmers, given that maize, which constitutes over 50% of poultry feed content, is currently very scarce, and where available, very expensive, with an ever-increasing price.

On the consequences of the CBN directive, “The situation spells doom for poultry farmers across the country, who are beginning to cut down on production, because of the high cost of feed and imported medication for the birds. A negative spillover effect of the high cost of feed is egg scarcity, and a consequent rise in its price across the country. The implications of the current challenges in the maize value chain are that, the gains of employing more people in the agricultural sector will be rolled back in the coming months.” said Kelikume.

Mr. Kalu Aja, CEO, AfriSwiss Capital Assets Management Limited, speaking to Nairametrics says it’s simple “supply fell,” citing that it is basic Economics 101, “if you ban a product supply where demand remains same, the price will increase.”

He added that banning the import of maize will affect the poultry industry, as other feeds go up, especially chicken feed, since maize is an important component for poultry, and with the chicken feed going up, the cost may have to be passed to the consumer.

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FG u-turn

As the controversy raged on, pressure piled on the government to assuage their request, culminating in the President deciding early in September, to release 30,000 tons of maize from the Federal Reserves to animal feed producers, in order to deal with the high cost of poultry production after the ban on maize imports.

The next day, the Nigeria Customs Service confirmed that four companies were given CBN emergency approval, to import 262,000 tons of maize into Nigeria. The companies are Wacot Limited, Chi farms Limited, Crown Flour Mills Limited, and Premier Feeds Company Limited.

A reliable source at the CBN also informed Nairametrics that the decision to select these four companies was because they were already implementing backward integration operations, and they are the largest importers of Maize in the country. They also will not be utilizing the nation’s forex reserve, as they will rely on their own forex exchange sources to process Form M required to facilitate the imports.

Despite the lifting of the ban for the importation of maize, the government is still insisting on its forex for food ban, maintaining that the policy was aimed at protecting local production.

Bottom Line: Nigerians will at some point have to choose between accepting foreign imports, and its attendant negative consequences, which include, killing of farming jobs, mothballing of factories, and risk of food security due to its heavy reliance on imports. The other option is to protect local production and forex reserves while facing the short to medium term pain of higher food prices.

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