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.
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