Author: ARM

ARM Research – Stock Recommendation for the Week , March 18

The equities market closed the week negative, with the NSE ASI shedding 2.45% WoW to close at 31,142.72 points while market capitalization lost N291.5 billion to N11.6 trillion. The downturn was driven by bearish sentiments in the Banking (-4.81%), Brewers (-1.80%), Cement (-2.42%), Personal Care (-1.22%), and Insurance (-0.23%) indices which offset gains in Food (+1.34%) and Oil and Gas (+0.11%) indices. Dissecting the sectoral performance, we saw sell pressure across bellwether stocks (GUARANTY: -5.09%, ZENITH: -11.82%, IB: -10.93%, GUINNESS: -4.69%, DANCEM: -2.56%, LAFARGE: -0.77%).

Zenith Bank Plc – STRONG BUY (FVE: N38.17): Following a mark down in its stock price, Zenith offers a more attractive entry point. The stock trades at a FY 19E P/B of 0.9x, at a discount to GTB of 1.3x. Our FVE of N38.17 translates to a STRONG BUY rating based on current pricing. Strong valuation for Zenith is hinged on i) expansion in assets yield from increase in loan book which would more than outweigh funding cost to support moderate expansion in NIM ii) increase in NIR due to resilience in fee income and ii) improvement in asset quality with non-performing loan (NPL) ratio of 4.5% and slower expansion in cost of risk (CoR) to 1.0%. At current price, expected dividend of N2.92 over FY 19E translates to a dividend yield of 13.3%.

Fidelity Bank Plc – BUY (FVE: N2.92): Fidelity is set to publish its FY 18 result next week. We expect higher net interest income and revaluation gains to support earnings over the last quarter. Over FY 18, we are optimistic on its earnings growth with EPS expected to expand 26% YoY to N0.82. Beyond our modelled expansion in Net Interest Margin over 2019, we expect further support from NIR (+19% YoY) during the year which will be central to earnings over 2019. Our estimates put PBT at N30 billion (+16% YoY) with EPS printing at `0.95 (+17% YoY).

Guinness Nigeria Plc – STRONG BUY (FVE: N77.31). Despite stiff competition across the brewery sector, we expect the wider portfolio mix of Guinness and gains from the Spirit segment to support a slower moderation in margins. Coupled with lower finance cost for after recent deleveraging of its FCY debt using proceeds from rights issue, we see improved profitability for the brewer.

Unilever Plc – STRONG BUY (FVE: N49.19): We have a STRONG BUY rating on UNILEVER with our FVE of N49.19 (+13.1% upside), supported by our expectation of strong growth from the food business over 2019, given its resilience over the last two years – having maintained a double-digit growth. In addition, given Unilever’s strong cash balance and our anticipation of slight uptick in yields, we expect the company to report a higher net finance income over the year.

Okomu Oil Palm Plc – STRONG BUY (FVE: N97.75): Over our forecast period, we anticipate volumes growth emanating from the harvest of fresh fruit bunches from its extension 2 plantation. Based on our expectation for volumes growth, accompanied by margin expansion, we raise our FVE to N97.75.

Kindly, visit ARM Research Portal for full stock reports. Or send a mail to [email protected]

 

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Access Bank Plc (ACCESS.NL): Impressive performance across income lines in Q4 18

Access Bank Plc (Access) full-year 2018 earnings released this morning showed EPS expansion of 53.2% YoY to N3.28 following material decline in loan-loss provision (-57% YoY to N14.7 billion) and increase in net interest income (+6.2% YoY to N173.6 billion). On the latter, we reckon that despite 19.1% YoY growth in interest income (with assets yield expanding 4bps YoY to 12.5%), the single-digit growth in net interest income was due to a faster increase in interest expense by 32% YoY (with related cost of fund expanding 46bps YoY) which pressured moderation in Net Interest Margin (NIMs) to 5.7% (-47bps YoY).

On asset quality, Access recorded 230bps YoY contraction in Non-Performing Loans (NPL) ratio to 2.5% (compared to GTB and Zenith of 7.3% and 5% respectively). Accordingly, the impact reflected in the lower provisioning during the year, with cost of risk contracting 100bps YoY to 0.7%. Elsewhere, we reckon that the bank Non-Interest Revenue (NIR) remained resilient during the year declining by 0.7% YoY (relative to our estimate 15% YoY decline) to N138.2 billion due to strong performance in net trading income over Q4 18, which more than outweighed declines in fee income (-49% YoY) and foreign exchange loss of N39.5 billion on the Other Income line.

The bank declared a final dividend of N0.25 which in addition to interim of N0.25 brings total payout to N0.50. The final dividend translates to a dividend yield of 4.2% on current pricing.

Impressive performance across income lines in Q4 18. Access Q4 standalone numbers was impressive with sturdy performance across income lines resulting in 38% QoQ growth in EPS to N1.11. The strong performance stemmed from double-digit growth in net interest income by 34% and NIR growth of 10% QoQ, both of which more than outweighed the surprise additional N6.3 billion loan loss provision during the period and higher operating expense (+6% QoQ). On NIM, the gains stemmed largely from growth in interest income of 21% QoQ following recovery in interest on investment securities (+94% QoQ) and strong outing on interest on cash and interbank lending (+255% QoQ) both of which offset decline on interest on loans (-11.3% QoQ) to support 226bps QoQ expansion in assets yield. On the other hand, funding cost over the quarter expanded +18bps QoQ to 5.3% with interest expense rising 11.2% QoQ. Accordingly, the stronger expansion in assets yield necessitated expansion in NIM by 252bps QoQ to 6.9%. For Interest expense, the QoQ increase emanated from growth in interest on interbank placements (+76% QoQ to N16.5 billion) and customers deposit (+2% QoQ to N30.4 billion).

The stock currently trades at a current P/B of 0.34x which is at a discount to peers of 0.76x. Our last communicated FVE on ACCESS is N11.80, however, we have a HOLD rating on the stock. We will revisit our numbers after further analysis and discussion with management.

The bank will be holding a teleconference call on Today, March 15, 2019 at 2pm Lagos Time (1pm London/ 3pm Johannesburg/ 9am New York) with its senior management. Click here for the presentation and here for registration link.

For the full report, send a mail to [email protected]

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Dangote Cement Plc – Competition caps earnings growth

DANGCEM posted an impressive growth in EPS by 91% YoY to N22.9 (missing our estimate of N13.52) over 2018. The deviation from our estimate stemmed largely from the long-awaited tax credit (N89.52 billion) which included reversal of tax provisions (N134 billion) made on the Obajana 4 and Ibese 3 & 4 lines for 2015 – 2017, as well as a tax charge of N44 billion based on a 15% effective tax rate for 2018 (inclusive of an extension of the additional two-year pioneer tax credit which is pending approval). However, we reckon that core earnings dragged over 2018 with PBT increasing modestly by 4% YoY to N300.81 billion, which was in line with our estimate of N303.21 billion.

Going into 2019, we maintain our optimism on DANGCEM and expect the company to sustain earnings growth, albeit at a still slower pace. Specifically, we expect PBT to expand modestly by 6% YoY and a steep decline in EPS by 32% YoY to N15.6 (reflecting the high base of 2018 due to the reversal of prior year tax benefits); excluding the impact of the tax reversals in 2018, forecasted 2019 EPS will grow 3% YoY. The slower growth in our forecast PBT stemmed from i) downward revision of our 2019 and 2020 volume growth to 10% and 6% to 25.96mt and 27.55mt respectively; ii) downward adjustment to revenue per ton, with average price for the group estimated at N35,790 per ton (lower by 3.1% YoY) largely driven by price erosion in Nigeria and the rest of Africa as competition intensifies; and (iii) reduction in our gross margin estimates to 57.8% from 58.3%. The impact of our adjustments culminated in a cut of our FVE on DANGCEM to N248.14 (Previous: N253.03). DANGCEM trades at 2019 EV/EBITDA of 9.8x which is at a discount to MEA peers of 12.74x. Accordingly, we maintain our STRONG BUY recommendation on the stock.

 

For the full report, please send a mail to [email protected]

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#ILoveMyFamily: My Wife Is A Genius

I laid against the bed headrest in our bedroom. I was scrolling through my social media news feeds but could hear my wife’s sonorous voice from the shower as she sang a familiar song.

It was Friday night but instead of going to watch a match at a viewing center, I decided to spend the evening with my wife. After a nice meal, I went to put finishing touches to the bookshelf I had been working on. My wife came to join me at the workshop. We were chatting as I sprayed the shelf and left it to dry.

She admired my craftmanship, took several photos of the masterpiece with my phone and posted them online while tagging her own social handles.

There were many good comments on the posts already. A couple of friends wanted to know how they can get the same piece or something similar. One wanted to know where my workshop was.

I also got a couple of hits in the inbox. I felt really elated at the positive reviews and my mind went back to the discussion I had with my wife in the previous week about leaving my present job and my resolve not to give up on the pursuit of my dream of owning a carpentry business outfit.

My wife joined me in the bedroom ready to turn in for the night.

“What are you smiling at?” She asked because of the wide grin I had splattered across my face.

“Look at this.” I proudly passed the phone to her so she could see the wonderful reviews too.

She smiled broadly too, “Well, they just discovered what I have always known sweetheart. You are very talented with your hands and tools!”

I could almost feel my heart expand some more.

“Sure you are not going to let all this praise go to waste now, would you?” She wiggled her eyebrows at me smiling and tucking us both into bed. I turned out the bedroom light.

I sighed with a bit of regret in the brief silence.

“I only have a little bit of time to pursue personal interests on the weekends, I don’t have the time to take up these offers now on a full scale. I will send them my regrets in the morning.” I responded finally.

My wife was quiet for a little while as if in deep thought.

“Darling, I know how much carpentry gives you joy and that you haven’t given up on looking for a way to break into the industry. Why don’t you take up an insurance plan at ARM just like the one we took for my restaurant?”

I turned towards her and tried to peer at her in the darkness as she spoke.

“In fact, we can save towards your carpentry business gradually using  ARM Savings Plus the same way we are saving for my food business.”

“Thank you, honey, this means a lot to me but like you pointed out last week, we can’t afford any more strain on our income at least for now.”

“Yes, that true but you save for the carpentry workshop from the proceeds you get from helping our neighbors fix their stuff or making simple furniture like your cabinet for those who want them. Of course, you work only on weekends and no heavy duty stuff,” She concluded. I could see her smile in the dark.

“Ain’t you a genius woman!”

She laughed out loud and we hugged tightly as I decided to work out the modalities of her ideas by morning.

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ARM Securities Partners with BMCE Capital on Global Research

Casablanca/Lagos, March 11^th, 2019

BMCE Capital and ARM announce the signature of a partnership in terms of Global Research aiming at providing their clients with a broader access to African markets with a coverage including Morocco, Tunisia Cote d’Ivoire, Nigeria, Ghana and Kenya.

This agreement reinforces the Pan African offer of the two partners that pool their resources and publications for a local and international release within the framework of African Securities Network – ASN®.

This partnership completes the already established cooperation in terms of brokerage activity allowing our global clients – local and international – to benefit from trading and high level execution services through all the covered Stock Exchanges.

About BMCE Capital:

BMCE Capital is the Investment Banking division of BMCE Bank Of Africa, and operates in all of the capital market activities, Brokerage, Asset Management, Advisory, Equity Research and Global Custody, covering Morocco, Tunisia and West Africa.

About ARM Securities:

ARM Securities is the brokerage and Investment Banking division of Asset & Resource Management (ARM) Group – Nigeria’s largest and most reputable non-bank financial services provider.

ARM securities provide unrivalled access, knowledge and execution in equity and fixed-income markets in Nigeria.

The company is positioned as a recognized brokerage and financial advisory firm in Nigeria.

ARM Securities’ in-depth research reports has gained widespread recognition and highly ranked across a broad range of asset classes and securities in Nigeria.

About ASN®:

African Securities Network (ASN®) is a registered trademark used for commercial purposes for the dissemination of BMCE Capital and its subsidiaries’ own publications in Casablanca, Tunis and Abidjan as well as in co-branding with its partners in Africa.

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#ILoveMyFamily: I Want To Leave Banking For Carpentry.

It was Saturday and I had been in my workshop putting together a new small bookshelf since after breakfast. I checked the time, it was mid-afternoon and my wife would be done with lunch. The plan was to take a nap right after lunch and head to a football viewing center after. I prefer watching football matches at viewing centres because of the argument. What is a football match without fans’ sentimental argument?

I stepped into the kitchen through the back door and was welcomed by the aroma of a mouth-watering Afang soup. My stomach rumbled in response and my wife laughed and teased me about how much I love her meals.

“Where’s Nifemi?” I asked. Our daughter likes to hang around the kitchen while her mother cooks.

“In the playroom with Chinedu and Maxy. She has stopped helping me out in the kitchen since Maxy came.” My wife protested, and we laughed it off.

As we had our meals around the dining table, my wife told me about a park that she learned is very close to our home.

“Mrs. Okafor across the street told me about the small park last evening and I informed her that she can bring her furniture over to your mini-workshop for a quick fix at a reasonable amount.” She said.

“Oh thank you, sweetheart!” I responded. “You know, I have been thinking of taking this carpentry business more seriously. Who knows, I could be the Ikea of Africa”

“How do you mean?” She asked.

“You know how much I really love carpentry. I will like to go into it fully soon and be my own boss.” I went on to explain to her how good it will be to save up to start my own business.

Chidinma didn’t look too pleased with the idea and she stared at me like I had suddenly grown two heads, “You would quit a banking job for a start-up carpentry workshop?”

“The plan is to go big,” I responded even though her reaction was making me a little uncomfortable.

“Let’s assume that we can swap banking for carpentry, I still don’t think it’s wise that we both have these big career changes at the same time. I mean we just started saving up for my restaurant business!” She exclaimed.

“Hey… Relax dear.” I glanced anxiously at the kids. Thankfully, they weren’t paying us close attention. “But that doesn’t mean that we can’t save for a workshop too,” I responded, trying to make her see reason with me.

“Where are we even going to get the money from, to start a large-scale carpentry business?”

I thought about the recent changes we made; new housing, the children’s new school and the insurance plans we have in place to save up for my wife’s business and the children’s education plan. We already have so much pressure placed on both of our salaries and we can’t afford to put more strain on it. It also means that now, I couldn’t afford to think of quitting my present job to pursue my passion.

I saw clearly what the challenges were to achieving my dream career. I wasn’t ready to give up without a fight but at the moment, I let things cool down so as not to upset my dear wife any further.

I reached across the table and took her hand. “Okay dear. You have made very good points.”

She sighed deeply and smiled at me.

We continued the rest of the meal in silence, but my mind was busy searching for a plan that will make my carpentry business dream come true. Suddenly, a thought dropped into my mind, a fantastic thought that will see my dream come to fruition.

To be continued next week…

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Initial View – Zenith Bank Plc FY 2018 – Lower impairment, harbinger of 2018 earnings

Lower impairment, harbinger of 2018 earnings

• Zenith Bank Plc (Zenith) released its audited FY 18 result yesterday with EPS expanding 11% YoY to N6.16 (below our estimate of N6.72), largely on the back of strong declines in interest expense (-33% YoY to N144 billion) – which masked the 7% YoY decline in interest income to support 15% YoY growth in net interest income – and loan loss provision (-81% YoY to N18 billion). The bank declared a final dividend of N2.50, which alongside interim dividend of N0.30 translates to total dividend of N2.80 (FY 17: N2.70). At current pricing, final dividend translates to a yield of 10% (FY 17: 8%).

• NIMs moderates in Q4 despite strong FY 18. As earlier stated, while yields on assets contracted 162bps YoY to 8.1% over FY 18, the contraction in WACF by 217bps YoY to 3.1% supported 15bps expansion in NIM to 5.4%. However, over the last quarter of 2018, the contraction in asset yields intensified to more than outweigh the moderation in WACF, which depressed NIMs by 128bps QoQ to 6.0%. Much of the decline in interest income (-8.5% QoQ to N100.9 billion) emanated from lower interest on loans (-13% QoQ) and bonds (-19% QoQ). The moderation in interest on loans largely reflects the year to date decline in loans to customers by 13.2%.

• Non-interest Revenue bottomed out in 2018. NIR declined by 31% YoY to N179.9 billion over FY 18, largely on the back of loss in the bank’s FX trading position of N16.7 billion (FY 17: N68.7 billion) and lower operating income (-20% YoY to N17.9 billion). However, Q4 18 standalone, NIR grew 6% QoQ to N44.4 billion largely on the back of higher trading income (+69% QoQ to N27.3 billion) and 426% QoQ growth to N6.7 billion.

• Lower impairment provisions, harbinger of 2018 earnings. In line with the development over the first nine months of the year, loan loss provision ended the year significantly lower by 81% YoY to N18.4 billion (2017: N98 billion), with associated cost of risk contracting 367bps YoY to 1%. However, despite our expectation of a higher provisioning over Q4 following haircut on the resolution of 9Mobile, Zenith recorded additional loan loss provision of just N4 billion over the quarter with cost of risk of 0.9%.

• Reflecting the moderation in operating income by 8.7% over 2018, cost to income ration expanded by 453bps to 47.4%, while actual operating expenses grew 0.94% YoY with most of the decline emanating from the slowdown in Q4 (-17% QoQ to N43 billion). Overall, while operating expenses and slight moderation in loan loss provision was a positive in Q4, the material contraction in net interest income and higher effective tax rate over the period drove a 21% QoQ decline in EPS to N1.57 over Q4 18.

• Our take. Overall, while the performance was impressive over the full year, we note the weakness in core earnings over Q4 18. However, given the faster decline in loan loss provisions compared to our estimates of N26 billion we expect a positive reaction to bank in the interim.

• Our last communicated FVE on Zenith Bank is N38.83 translates to a STRONG BUY rating on the stock. We will revisit our numbers after further analysis and discussion with management.

Contact [email protected] for full report

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#ILoveMyFamilySeries: At Last, Help Found Us

Our new home is way more comfortable than the former one. It is more spacious, the kitchen tastefully furnished and finally, I have a workspace for my favorite hobby – Carpentry.

The kids love the space in the house and the driveway. As they are on mid-term holidays, they spend most of the day playing with Maxy.

Maxy is a new addition to our family. My wife had always wanted us to have a pet dog, but our former Landlord warned us against having pets in his house based on reasons best known to him. The moment we moved into the new house, she went to get a cute Puppy. Ever since Maxy came into our family, our kids can’t get enough

We have also transferred Nifemi and Chinedu, our children to a school closer to the new house. Although they miss their friends from their old school, they have adapted quickly and Nifemi talks non-stop about his new friends and teachers.

As they say, nothing good comes without a price. We found out soon enough that the schools around here with the desired good standards and quality education cost more than our former place. My wife couldn’t hide her worries, but I calmed her down. We agreed to make some adjustments to our spending to accommodate the new fees.

When the mid-term holidays are over, it will be time to pay up the balance upon the school fees payment and thankfully that coincides with Payday

Yesterday evening after church, my friend Kola came with his family to see our new place. They loved it too. Kola told me how his kids, Titi and Edwin, miss Chinedu and Nifemi since we moved away, and the children got transferred too.

While the wives were catching up in the living room, I took Kola to see my new workspace. He loves woodwork too and was impressed with the simple setup. I told him I was already planning to make it a side hustle since I need more income streams now that my bills have taken a hike.

We caught up on the usual; sports, work, money and I quickly confessed to him that I couldn’t wait for the salary to come in, so I could balance up on the school fees that we are still owing.

Kola was surprised to hear that I still owe school fees. That was when he gave me an expo to how he handles his owns kids school fees. He introduced me to an affordable Education Plan he started years ago with ARM Life for his children and how he’s had zero worries when it came to paying school fees.

After they left, I told my wife what Kola told me and we checked it out online. We found that the offers in the plan were even better than what Kola described and it. Taking the step now will ensure that things will become a whole lot better for us in the future!

Suddenly, things are looking up. As soon as the salary arrives, I know exactly what do!

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Valentine’s Day: Five Magical Shades of Love

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