Economy
Opportunities in a Bear Market – Two Stocks to Watch
By FSDH Research
The Nigerian equity market, as measured by the Nigerian Stock Exchange All Share Index (NSE ASI), depreciated by 12.42 percent as at the end of August 2019.
Our analysis of the performance of the equity market so far in 2019 shows that the Index recorded the highest depreciation of 7.5 percent in July.
FSDH Research notes that the declining crude oil price and fear of a possible global recession had negative impacts on the equity market.
Despite the current bearish trend in the market, we spot opportunities in the equity market. The two stocks we highlight here are: Zenith Bank and GTBank. Each has a history of good performance and good dividend payment; we believe the short-to-medium term outlook of these stocks are good. Therefore, investors should position in them as their share prices have recently dropped significantly.
Zenith Bank and GTBank are both strong players in the Nigerian banking sector. They both have footprints among the top-quality corporate customers. Both banks have consistent records of good asset quality and earnings.
They focus on low cost deposits from retail customers, therefore their cost of funds are low. This enables them to have good interest margin to drive profitability. They have remained the most profitable banks by absolute profit (Profit Before Tax and Profit After Tax).
The two banks have invested considerably in technology and deploy this service to existing customers and attract new ones. This has also generated a lot of non-interest income for them. Both banks operate a commercial banking licence with international focus.
FSDH Research’s analysis shows that Zenith Bank recorded improvements in both the top-line and bottom-line in Half Year (HY1) 2019 over the corresponding period of last year. The major drivers of the performance are an increase in non-interest income and its cost optimization strategy.
Although the Gross Earnings of GTBank dropped marginally in HY1 2019, it managed to record improved performance in profitability.
We attribute the drop in the gross earning to the decrease in interest income due to a drop in interest rate during the period. The growth in non-interest income and low interest expenses were mainly responsible for the growth in profitability
Our analysis of the latest results shows that GTBank is more efficient than Zenith Bank. Despite that, Zenith Bank is one of the most efficient banks in Nigeria. The efficiency ratio shows that Zenith Bank recorded the following as at HY1 2019; Net Interest Margin 9 percent; Profit Before Tax (PBT) Margin 34 percent; Profit After Tax (PAT) Margin 27 percent; Return on Equity (ROE) 11 percent (annualised to 22 percent) and cost–to–income ratio 53 percent.
GTBank however, recorded Net Interest Margin 10 percent; PBT Margin 52 percent; PAT Margin 45 percent; ROE 16 percent (annualised to 32 percent) and cost–to–income ratio 37.6 percent.
The Trailing Earning Per Share (EPS) for both banks stood at N6.39 as at HY1 2019. The Non-Performing Loan (NPL) ratio for Zenith Bank stood at 5.3 percent while that of GTBank stood at 6.8 percent and they are among the lowest in the banking industry.
Zenith Bank and GTBank have liquid balance sheets with well-diversified earning assets and sources of funding. Zenith Bank’s total assets as at HY1 2019 stood at N5.9 trillion while GTBank’s total asset stood at N3.6 trillion. Both banks’ assets are largely funded by customers’ deposits, with a strong capital base providing additional buffer for further growth. Loans and advances, and investment in Treasury Bills constitute the bulk of the total assets.
While Zenith Bank may need to create an additional N484 billion in loan assets to enable it meet the new regulatory requirement of minimum loans to deposits ratio of 60 percent, GTBank may need to create additional loan assets of N178 billion.
We recommend that investors with a long-term investment horizon take position in these two stocks at the current prices, which we believe offer significant upside potentials. Although recent global developments may have a short-term negative impact on the performance of the equity market, long-term investors may benefit from the long-term growth that the equity market offers.
The two companies usually give interim and final dividends, therefore, they are good stocks to be included in an asset manager’s portfolio.
The performance of stock prices of Zenith Bank and GTBank have also outperformed that of the NSE ASI in the last five years.
By Adedapo Adesanya
Three stocks further weakened the NASD Over-the-Counter (OTC) Securities Exchange by 1.12 per cent on Wednesday, April 8, with the Unlisted Security Index (NSI) down by 44.43 points to 3,930.91 points from the previous day’s 3,975.34 points, and the market capitalisation went down by N26.59 to N2.351 trillion from N2.378 trillion.
MRS Oil lost N11.00 during the session to close at N161.00 per share compared with Tuesday’s closing price of N172.00 per share, Central Securities Clearing System (CSCS) Plc dipped by N3.74 to N67.95 per unit from N71.69 per unit, and Afriland Properties Plc fell by N1.10 to sell at N15.95 per share versus N17.05 per share.
There were two gainers at the midweek trading session, led by IPWA Plc, which appreciated by 55 Kobo to N6.61 per unit from N6.06 per unit, and First Trust Mortgage Bank Plc improved its value by 4 Kobo to N2.32 per share from N2.28 per share.
Yesterday, the volume of securities rose by 620.4 per cent to 5.7 million units from 797,264 units, the value of securities increased by 25.1 per cent to N32.7 million from N26.1 million, and the number of deals climbed by 12.1 per cent to 37 deals from the preceding session’s 33 deals.
Great Nigeria Insurance (GNI) Plc ended the day as the most traded stock by value on a year-to-date basis with 3.4 billion units sold for N8.4 billion, trailed by CSCS Plc with 57.2 million units exchanged for N3.9 billion, and Okitipupa Plc with 27.5 million units traded for N1.8 billion.
GNI Plc also finished the session as the most traded stock by volume on a year-to-date basis with 3.4 billion units valued at N8.4 billion, followed by Resourcery Plc with 1.1 billion units worth N415.7 million, and Infrastructure Guarantee Credit Plc with 400 million units transacted for N1.2 billion.
By Adedapo Adesanya
Foreign Exchange (FX) demand pressure eased on the Naira on Wednesday, April 8, in the Nigerian Autonomous Foreign Exchange Market (NAFEX) after gaining N14.84 or 1.07 per cent against the greenback to quote at N1,371.82/$1 compared with the previous day’s N1,386.66/$1.
Also, the local currency appreciated against the Euro in the same market window at midweek by N1.54 to close at N1,604.07/€1 versus Tuesday’s closing rate of N1,605.61/€1, but lost N6.26 against the Pound Sterling to trade at N1,844.83/£1 versus N1,838.57/£1.
In the parallel market, the exchange rate of the Naira to the US Dollar remained unchanged yesterday at N1,410/$1, according to data sourced by Business Post.
There were indicators that the official FX market experienced a liquidity surge, which eased worries around the dominant US Dollar on Wednesday, as the Central Bank of Nigeria (CBN) revealed interbank deals rose to 220 from 71 reported the previous day.
The domestic currency has been in strong demand from foreign portfolio investors seeking to purchase OMO bills and other fixed-income instruments.
Forecasts also show that the local currency will remain relatively stable during the second quarter of the year, trading within the N1,340 to N1,430 per Dollar band on improved FX liquidity, stronger oil earnings, and rising external reserves, which have climbed above 50 billion dollars.
As for the cryptocurrency market, it fell after an initial ceasefire-fueled rally, with markets retracing Wednesday’s “ceasefire euphoria” as cracks emerge in the US-Iran truce while the Strait of Hormuz remains effectively closed.
Global risk assets face renewed pressure as geopolitical uncertainty combines with what analysts call “uncoordinated tightening” by major central banks, reinforcing higher-for-longer interest-rate expectations.
The price of Cardano (ADA) fell by 4.7 per cent to $0.2500, Ripple (XRP) slumped 3.7 per cent to $1.33, Dogecoin (DOGE) shrank by 3.5 per cent to $0.0915, Binance Coin (BNB) slipped 2.6 per cent to $600.02, Ethereum (ETH) went down by 2.5 per cent to $2,183.82, Solana (SOL) dipped 2.5 per cent to $82.24, and Bitcoin (BTC) depreciated by 1.1 per cent to $70,995.20.
However, TRON (TRX) appreciated by 0.4 per cent to $0.3173, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited rallied by 0.28 per cent on Wednesday despite weak investor sentiment, as the bourse ended with 18 price gainers and 38 price losers, implying a negative market breadth index.
The growth recorded yesterday by Customs Street was influenced by the 2.11 per cent rise posted by the energy index, and the 1.79 per cent jump achieved by the banking sector.
The other sectors experienced profit-taking, with the consumer goods losing 1.07 per cent, the insurance counter down by 0.36 per cent, and the industrial goods space down by 0.19 per cent.
Universal Insurance chalked up 10.00 per cent to sell for N1.21, Omatek improved by 9.78 per cent to N2.47, VFD Group expanded by 9.71 per cent to N11.30, CWG appreciated by 9.64 per cent to N21.05, and Livestock Feeds gained 9.56 per cent to close at N7.45.
On the flip side, UPDC REIT lost 10.00 per cent to settle at N6.75, Fortis Global Insurance shed 9.92 per cent to quote at N1.18, Deap Capital depreciated by 9.85 per cent to N5.40, Chams went down by 9.47 per cent to N3.06, and Japaul declined by 8.82 per cent to N3.10.
Yesterday, the All-Share Index (ASI) went up by 562.43 points to 202,585.53 points from 202,023.10 points, and the market capitalisation advanced by N389 billion to N130.404 trillion from N130.015 trillion.
During the session, 1.0 billion stocks worth N40.6 billion exchanged hands in 52,723 deals compared with the 1.1 billion stocks valued at N40.3 billion executed in 78,006 deals a day earlier, indicating an uptick in the trading value by 0.74 per cent, and a shortfall in the trading volume and number of deals by 9.09 per cent and 32.41 per cent apiece.
The activity chart was led by Access Holdings, which sold 233.0 million units valued at N6.1 billion, Fidelity Bank exchanged 113.1 million units worth N2.2 billion, Wema Bank recorded a turnover of 103.3 million units valued at N2.7 billion, Zenith Bank transacted 60.6 million units for N6.5 billion, and Chams traded 47.5 million units worth N154.6 million.
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