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ARM Research | Weekly Call

The Nigerian equities market extended its loss run last week, with the ASI shedding 0.19% to close at 29,560.47 points while market capitalization lost N21 billion. This performance was largely driven by bearish sentiments in the Breweries (-0.32%), Personal Care (-2.16%), Food (-0.21%) and Insurance (-0.39%) indices, offsetting the mild gains in Banking (+0.08%), Cement (+0.04%) and Oil and Gas (+0.70%) sector. Dissecting the sectoral performance revealed marked sell-offs in (GUINNESS: -3.92%, CCNN: -5.88%, PZ: -9.69%, GSK: -1.58%, UACN: -4.76%, CADBURY: -3.8%, DANGFLOUR: -1.75%, DANGSUGA: -1.44%, and MANSARD: -5.00%).

• United Bank for Africa Plc – STRONG BUY (FVE: N13.04): Despite sluggish performance over 2018, we believe UBA growth story across Africa remain compelling. Particularly, we expect meaningful growth in earnings over 2019 on the back of strong retail deposit growth, increase in loan book, expansion in trading book and net fee income, and healthier asset quality. Consequently, we see FY 19E earnings growth of 15% YoY to N90.2 billion (lower than prior estimate of N102.5 billion), with FY 20F and FY 21F growth forecasts of 6% and 5% respectively. Overall, we maintain our STRONG BUY recommendation with a revised FVE of N13.04 (previously: N14.10).

• 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 iii) improvement in asset quality with non-performing loan (NPL) ratio of 4.5% (FY 18: 5.0 %) 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 14.3%.

• Guaranty Trust Bank Plc – STRONG BUY (FVE: N49.66): Our case for GUARANTY remains the resilience in noninterest revenue, improved cost management with cost to income ratio expected to moderate 50bps YoY to 36%, still strong loan book with a moderate expansion in credit loss provision to 0.5%. Reflecting our expectation of increased transfer of salary accounts to GUARANTY following the Quick Credit Scheme, we model 12% YoY growth in deposits over 2019. However, reflecting the sticky funding cost, we see a slight decline in net interest margin by 7bps YoY. Overall, we see a slower growth in EPS by 4% YoY to N6.53.

 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. Also, following lower finance cost after recent deleveraging of its FCY debt using proceeds from rights issue, we see improved profitability for the company.

 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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