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ARM Research | Weekly Call

The equity market closed the previous week negative, as the NSE ASI moderated by 0.61% WoW to 32,515.52 points with market capitalization shedding ~ N74 billion, and a YTD return of 3.45%. The bearish sentiment was driven by losses across few sectors – Brewers (-3.76%), Cement (-0.80%), and Personal care (-1.35%). Dissecting the sectoral performance reveals there were selloffs in both large and mid-cap stocks: (DANGCEM: -0.82%, NB: -3.61%, UNILEVER: -1.15%, PZ -2.37% FBNH: -1.18%, and ACCESS: -3.03%).

 Dangote Cement Plc – STRONG BUY (FVE: N253.03). We have lowered our FVE on DANGCEM to N253.03 largely due to a downward revision of 2019 volume growth due to electioneering concern which has slowed ongoing infrastructure projects. However, we believe DANGCEM presents an attractive entry point in the cement sector in Nigeria given its strong and diversified margins and balanced funding structure.

 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.

 Lafarge Africa Plc – SPECULATIVE BUY (FVE: N18.07). We have lowered our FVE on Lafarge to N18.07 as we now expect a more significant dilution from the N89 billion Rights Issue and a downward revision to our 2019 volumes growth. Based on current price, our FVE translates to a BUY. However, we are highly cautious on Lafarge and thus rate the stock a SPECULATIVE BUY.
 Unilever Plc – OVERWEIGHT (FVE: N49.19). We have an OVERWEIGHT 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.

 Guinness Nigeria Plc – OVERWEIGHT (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.

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