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 Modupe Gbadeyanka
The Dangote Refinery located in the Lekki area of Lagos State has been described as a game-changer for Nigeria’s economy because of its significance to the country’s sustainable growth.
This was the view of the Ogun State Chamber of Commerce, Industry, Mines, and Agriculture (OGUNCCIMA) through its president, Mr Niyi Oshiyemi.
“The Dangote Refinery is a game-changer for Nigeria’s economy. With a capacity to refine 650,000 barrels of crude oil daily, it has reduced Nigeria’s reliance on imported petroleum products, conserved foreign exchange, and fortified our energy security.
“This milestone reinforces the critical role the private sector plays in national development,” Mr Oshinyemi said, noting that, “The refinery’s operations have created employment for Nigerians at all levels while fostering technology transfer and skills acquisition. This has strengthened local businesses and equipped them with the tools to compete in domestic and global markets.”
The emphasis on local content has been a cornerstone of Dangote Refinery’s strategy. By sourcing materials locally and partnering with indigenous companies, the refinery has supported the growth of Nigerian enterprises and encouraged investments in infrastructure, engineering, and technology.
The ripple effects of the Dangote Refinery extend beyond the energy sector. Its presence has catalyzed industrialization by attracting investments in related sectors such as petrochemicals, manufacturing, and transportation. This multiplier effect has significantly expanded Nigeria’s industrial base and enhanced the nation’s economic competitiveness.
“This refinery is a shining example of what can be achieved through visionary leadership and investment in strategic sectors. It demonstrates Africa’s potential to compete globally and foster regional integration,” Mr Oshiyemi remarked.
In addition to its economic contributions, Dangote Refinery has maintained a strong commitment to corporate social responsibility. The Dangote Group’s investments in education, healthcare, and infrastructure have improved the quality of life for many Nigerians and strengthened community resilience.
“Dangote Refinery exemplifies the role of private sector enterprises in driving social progress alongside economic development. Its initiatives in healthcare and education are building a brighter future for Nigerians,” the OGUNCCIMA chief noted.
He urged stakeholders across public and private sectors to emulate the Dangote Refinery’s innovative approach to development. By fostering partnerships and investing in transformative projects, Nigeria can achieve sustainable economic growth and reduce its reliance on external resources.
“This refinery stands as a model for what is possible when the private sector leads with vision and commitment. We call on all stakeholders to collaborate and replicate such success stories to build a resilient, self-reliant, and prosperous Nigeria,” Mr Oshiyemi concluded.
By Adedapo Adesanya
The House of Representatives on Wednesday passed the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) for the next three years (2025-2027).
In passing the MTEF, the lower chamber’s committees on Finance, Petroleum Upstream, and Petroleum Downstream were tasked to investigate reports from the Revenue Mobilization, Allocation, and Fiscal Responsibility Commission (RMAFC) alleging that the Nigerian National Petroleum Company (NNPC) Limited’s withheld N8.48 trillion as claimed subsidies for petrol.
Additionally, the investigation will address the Nigeria Extractive Industries Transparency Initiative (NEITI) report that claimed the NNPC failed to remit $2 billion (N3.6 trillion) in taxes to the federal government.
The committees were further directed to verify the total cumulative amount of unremitted revenue (under-recovery) from the sale of Premium Motor Spirit (PMS) by the NNPC between 2020 and 2023.
Some of the recommendations in the MTEF as adopted by the house are; that the projected oil benchmark prices are $75, $76.2 and $75.3 per barrel in 2025, 2026 and 2027, respectively.
Three-year projections for domestic crude oil production are 2.06 million barrels per day, 2.10 million barrels per day and 2.35 million barrels per day for the subsequent years of 2025, 2026 and 2027.
The country’s economic growth rate forecast, measured by the gross domestic product (GDP) was put at 4.6 per cent, 4.4 per cent and 5.5 per cent for the years 2025, 2026 and 2027, respectively.
By Adedapo Adesanya
The Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) has said the price of Premium Motor Spirit, also known as petrol, being sold by the old Port Harcourt Refinery, which resumed production on Tuesday, is N75 per litre higher than that sold by the Dangote Refinery.
This was revealed by the association’s Public Relations Officer, Mr Joseph Obele, during the official reopening ceremony of the refinery, which is now operating at a capacity of 60,000 barrels per day.
Business Post reports that the lifting price of Dangote’s petrol product is N990 per litre. However, the refinery announced a N20 discount on Sunday, which is only available to marketers buying a minimum of 2 million litres of the fuel.
Mr Obele, a former chairman of the Independent Petroleum Marketers Association of Nigeria (IPMAN) at the Port Harcourt Deport who initially applauded the federal government for revitalising the old refinery, expressed concern over the pricing disparity between petrol supplied by the Nigerian National Petroleum Company (NNPC) Limited and the Dangote Refinery.
According to him, while Dangote Refinery sells petrol to marketers at N970 per litre, NNPC’s price stands at N1,045, a difference of N75 per litre.
He said the N75 price differential is a steep margin for businesses, particularly for an industry where profitability hinges on competitive pricing.
However, Mr Obele described the refinery’s restoration as a significant step in reducing Nigeria’s dependence on imported petroleum products.
He revealed that the Group Chief Executive Officer of NNPC Limited, Mr Mele Kyari, has promised to address the issue and harmonise prices to mitigate the impact on marketers and consumers.
The reopening of the Port Harcourt Refinery I is expected to enhance local production capacity and reduce reliance on imports, a move welcomed by stakeholders across the sector.
However, concerns over pricing disparities underscore the need for continuous reforms to stabilise the downstream sector of the petroleum industry.
The reopening has also sparked anticipation for the rehabilitation of other state-owned refineries including the second refinery in Port Harcourt as well as the Warri and Kaduna structures.
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