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Last week, the Nigerian bourse witnessed a steep decline as the ASI closed -2.69% WoW, while market capitalization lost N239 billion to close at N14.62 trillion. All sectors closed in red, save the insurance sector (+0.15%). The decline was anchored by the Breweries (-5.62%), Cement (-4.94%), Banking (-2.26%), Oil & Gas (-5.74%), and Telecom (-1.48%) sectors. On stock performance, FBNH (-8.40%), ZENITH (-5.04%), NB (-6.36%), INTBREW (-5.56%), DANGCEM (-5.50%), BUACEMENT (-4.32%) and MTNN (-2.17%) yielded negative returns amongst other stocks.

• Dangcem– STRONG BUY (FVE: N240.87): DANGCEM’s FY 19 earnings is expected to be pressured (EPS: N14, vs N22 in 2018) owing to lower volumes in Nigeria business (due to increased competition from BUA Cement) and some of its Pan Africa business, as well as high base of tax credits from 2018. However, DANGCEM currently trades at FY 19E P/E of 11x on our estimates, which is cheap compared to WAPCO and CCNN of 17.7x and 16.8x, respectively. We believe current valuation is unjustified given the superior ROE of 24%.

• Zenith Bank Plc – STRONG BUY (FVE: N31.50): We have made adjustment to our FY 2019 expectation for Zenith Bank following some surprises in the Q2 numbers. In specifics, we revised net interest income lower due to compressed yields on its loans and treasury asset (H1 18:10.6%, H1 19 9.1%) amidst contraction in funding cost. Elsewhere, we adjusted NIR higher due to upward review of electronic fee income and trading book. Thus, we now forecast PBT of N218 billion (-5.5% YoY), while we cut our FVE to N31.57/share (previously: N33.71/share).

• Guaranty Trust Bank Plc – STRONG BUY (FVE: N49.66): GTB’s 9M 19 earnings expanded modestly with PAT and EPS expanding only 3.4% YoY to N146.9 billion and N4.99/share respectively. Although, we expect a slower growth in EPS (+4% YoY to N6.53) over 2019, our case for GUARANTY remains the resilience in NIR, improved cost management, still strong loan book with a moderate expansion in credit loss provision to 0.5%.

• Nigerian Breweries Plc – STRONG BUY (FVE: N75.82): With intense competition from International Breweries (IB) and graduated excise duty (+17% YoY) that kicked-off in Jan-19, revenue growth is expected to be slow even as we expect higher finance cost (+38% YoY) to be another pressure point to earnings this year. However, given our case for a slight improvement in volumes and decline in cost of sales (-1.1% YoY) which translates to gross (+120bps YoY) and EBIT (+101bps YoY) margin expansion, the misery seems moderated. Overall, the net impact of all our adjustments translates to PBT of N29.9 billion and EPS of N2.58 (+6.3% YoY) over 2019.

• Seplat Plc – STRONG BUY (FVE: N828.90): Seplat’s total production declined in Q3 19, as the drop in gas production offset improvement in the oil segment. That said, we remain positive on growth in production going into the final quarter of the year (especially in oil) and into 2020 as Seplat increases capex. Cashflows remain healthy. Upsides reside in the ANOH Gas project and acquisition of Eland Oil & Gas Limited.

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