The year 2021 was good for equity investors in Nigeria. The NGX market ended with a positive return of 6.7 per cent. The 2021 positive return interestingly was driven by local institutional and retail investors.
Nearly all companies have released their 2021 financial reports, while some have released and some yet to release their Q1 2022 financial reports. The big question now is what stocks investors should watch and/or buy in Q2 2022 and 2022. Stocks have been reoccurring in many analysts’ buy and hold lists for 2022 for investors to consider and add to their portfolios.
Our stock pick is based on stocks found to be undervalued with good upside potential, high earnings growth potential and lower risk. A BUY recommendation is given to a stock considered undervalued relative to its peers, industry or market and/or based on its intrinsic value with strong fundamentals and potential upside return.
EcoBank Transnational Inc
- ETI provides a full range of wholesale, retail, investment and transaction banking services and products to customers in Africa and internationally.
- The bank has an excellent balance sheet with a solid track record and impressive earnings growth. Earnings grew by 324% over the past year, exceeding the industry’s earnings growth. Overall EPS grew by 11,329% in 2021 compared to 2020 in line with expectations. Its share price YtD change is +35% buoyed by improved investor sentiment. Its 1-y return (140%) exceeded the NG banks industry and NG market, which returned 16.7% and 17% respectively over the past year.
- ETI has a lower P/E compared to its Industry and the market. P/E (2.7x) ratio is lower than the industry average (3.4x) and the market (8.9x), while its P/B ratio is less than 1x. Similarly, it has good earnings growth potential and its price to earnings growth ratio is good at 0.2x. When a stock’s PEG value is lower than 1x it is considered to be good value. From the foregoing, the stock is considered undervalued with upside potential and should be considered a BUY
MTN Nigeria
- MTN Nigeria Communications PLC provides broadband fixed wireless access, telecommunication, and mobile financial services in Nigeria. Its current revenue mix include, Voice, Data, Digital, Fintech and miscellaneous. However, with the PSB license approval in principle by the Central Bank of Nigeria (CBN), MTN remains promising as there are a lot of potentials to unearth in the course of driving financial inclusion.
- In 2021, MTNN revenue grew by 23% to N1.65 trillion compared to 2020, which exceeded analyst estimates by 3%. Net income grew by 46% to N298.7 billion, consequently earnings per share moved up to N14.67 from N10.08 in 2020. Revenue and earnings is forecast to grow at 10% and 20% respectively compared to a 6.7 growth forecast for the industry in Nigeria. This is expected to be sustained in 2022 based on a robust customer base, strict saving measures and improvement in service delivery.
- MTN Nigeria has a solid track record with high growth potential. The stock is undervalued; trading below its intrinsic value with an upside potential of about 37% going by SimplyWall target price of N292.17. Arthur Steven Asset Mgt Ltd in their valuation report of November 16, 2021 urged investors to buy MTNN based on their price target of N224. The WSJ price target for MTNN is N280. MTNN stock is cheap relative to its peers and the market. P/E ratio (14.5x) is lower compared to the Industry average (15.7x). From the foregoing, the stock has an upside potential and should be considered a BUY.
Presco Plc
- Presco Plc is an agro industrial company, engaged in the development of oil palm plantations, palm oil milling, palm kernel processing and vegetable oil refining. Its products include refined bleached and deodorized palm oil; palm olein; palm stearin; palm fatty acid distillate; palm kernel oil, including crude and refined, and palm kernel cake.
- We note that the company has a solid track record and good value with an upside potential of 92%. The price target by analysts is N1,562. As of January 4, 2022, the stock traded at N88; YtD change of +51%. Its price to earnings ratio (7x) is lower than the NG Food industry average (13.7x).
- Its earnings growth over the past year exceeded its 5-year average growth of -17.5% per year. Revenue and earnings grew by 97.69% and 258.57% respectively compared to 2020; buoyed majorly by the drop in interest expense (-70.56%) in 2021. Overall its EPS grew by 258.57%.
Dangote Sugar Refinery
- Dangote Sugar refinery, apart from being undervalued is a dividend-paying stock, with a dividend yield of 6.27% and payout ratio of 55%. Its dividend payments have increased over the past 10 years.
- Compared to its fair value, the stock is undervalued by 26.1% based on analyst target price of N21.58. Also, the stock is relatively cheap compared to its peers and the market. Its price to earnings ratio at 8.8x is lower than the NG Food industry average (13.7x).
- Its 2021 revenue exceeded analyst estimates by 7.4%. The company’s earnings are forecast to grow at 23.8% per year; higher than 13% savings rate and faster than the NG market of 14.4% per year.
- Sector (Consumer Goods); sub sector (Food products); Market Classification (Main Board); Shares outstanding in Mil (12,146,878,241.00)
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