Economy

Opportunities in a Bear Market – Two Stocks to Watch

Published

5 years ago

09/09/2019

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.

Economy

House of Reps Passes MTEF-FSP For 2025-2027

Published

2 hours ago

27/11/2024

Adedapo Adesanya

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.

Economy

Petrol Station Owners Lament N75 Price Difference Between PH, Dangote Refineries

Published

5 hours ago

27/11/2024

Adedapo Adesanya

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.

Economy

Cardoso Targets Ease in Inflation, FX Pressures By Q1 2025

Published

6 hours ago

27/11/2024

Adedapo Adesanya

By Adedapo Adesanya

The Governor of the Central Bank of Nigeria (CBN), Mr Yemi Cardoso, has said the lender’s efforts to tame inflation and pressures on the foreign exchange market will begin to yield results by the first quarter of 2025.

Mr Cardoso spoke during a press conference in Abuja to announce the outcomes of the two-day meeting of the Monetary Policy Committee (MPC) which raised the Monetary Policy Rate (MPR) for the sixth time by 25 basis points to 27.50 per cent.

He said the apex bank is using every possible strategy to tame inflation with a firm assurance that ongoing monetary tightening measures, which it has done six times alone this year, will have a favourable outcome.

The CBN rationalised that the 25 basis points hike is targeted at addressing rising inflation, which stood at 33.88 per cent as of October 2024.

“The central bank is resolute and committed to continuing to fight the war against inflation and there is no going back on that.

“We are going to deploy everything in our arsenal to ensure that we are able to tame it. And of course, this entails the return to orthodox monetary policies,” Cardoso stated amid agitations of rising interest rates on the economy,” the central banker said.

According to him, the Committee was unanimous in its decision to further tighten policy, though members took a decision to retain the asymmetric corridor around the MPR at +500/-100 basis points; Cash Reserve Ratio of Deposit Money Banks at 50 per cent and Merchant Banks at 16 per cent; as well as the Liquidity Ratio at 30 per cent.

He also said the MPC was particularly concerned that all inflationary measures also inched up on a month-on-month basis, suggesting the persistence of price pressures, with attendant adverse impacts on the income and welfare of citizens.

Despite this, Mr Cardoso’s tone was optimistic, forecasting that current measures would be able to tame prices in coming months due to lag effect.

“It is important for people to understand that there is a time lag between when you implement policies and when they have an impact. That time lag can be anything up from six to nine months to even a year. Our own perspective is that we expect to see greater results in the first quarter of 2025.”

He said in addition, that the apex bank is working very assiduously with some of the relevant agencies to ensure that structural impediments to growth are handled appropriately.

“We are ensuring that we are on top of the game and that the foreign exchange market operates at its most optimal manner to reflect the true value of the currency, and of course, we have price discovery.”