GTI 5 Weekly Stock Picks - 110716


Monday, July 11, 2016 1:05PM /GTI Research

Market Review Equity market sheds 0.51% to close the week in the red The Nigerian equity market extended bearish run to Friday, making it the second time out of the two trading sessions observed in the week as result of 'Eid-al-Fitr' break.

At the end of Friday's session, the NSE-ASI shed 150.35 absolute points, representing 0.51% decline to close at 28,854.98 points. Similarly, the Market Capitalization shed N51.63 billion, representing 0.51% decline to close at N9.91 trillion. Week-on-week, the market shed 4590.42 absolute points, representing 1.54% decline.

Champion Breweries: Going by the recent antecedence of Heineken and how it merged the operations of Consolidated Breweries and Sona Breweries with its flagship brand Nigeria Breweries, the smart money is on the possibility that at some time soon, Champion Breweries may be merged fully with the operations of Nigeria Breweries.

If this happens, we expect an arrangement between the minority shareholders of Champion Breweries and Heineken to ensure that both parties are treated fairly. However that plays out, we expect this would be done at a significant premium to our target price of N10.80 which makes a strong case for the upside potential of Champion Breweries.

Zenith Bank: Despite the challenges in the Nigerian financial services sector, with rising loan loss provisions as a result of their exposure to the oil and gas sector as wCell as the potentially toxic power sector, doubts about asset quality and weakening CAR, we still see opportunities in the tier one banks.

Zenith bank has one of the strongest CAR’s in the sector and continues to leverage on its stringent risk assessment framework to mitigate capital erosion. The Bank’s balance sheet size is a major incentive for us at this time because we believe that its size/liquidity is a competitive edge in an economy awash with opportunities like the Nigerian economy. The bank also has strong brand acceptability and a wide branch spread.

Julius Berger : The company has a huge public sector portfolio which includes: Permanent Site of the National Institute for Legislative Studies, Abuja, New Residences for Presiding Officers of the National Assembly, Abuja, Rehabilitation & Extension of Airport Expressway, Abuja, Rehabilitation of Badia Roads,Lagos, Lagos–Badagry Expressway,Lagos, Lagos–Ibadan Dual Carriageway, Section 1, Lagos–Shagamu, and many more. (these are all on-going).

We expect that with the focus of the government on infrastructure development a lot of the alloted N1.8trillion (30% of the total budget for 2016) will go to ongoing projects across the country. This will boost JB’s revenue base and profitability for the 2016 fiscal year.

In addition to the on-going projects, the company has also won new projects: Asokoro Conference Centre, Abuja, Dangote Jetty Apapa, Lagos, Uyo– Etinan Road, Akwa Ibom, Upgrade of NLNG MOF Jetty, Bonny Island,Dualisation Oil Mill Elelenwo Akpajo Road, Port Harcourt, No Potholes Programme, Port Harcourt. These in addtion to the company’s other business arms will ensure sustainability in revenue base going forward.

International Breweries: Following the acquisition of SABMiller by AB-inBev in the twilight of 2015 in a deal worth about $106billion, AB-inBev now controls 25% of the Global beer market. As a result of this acquisition International Breweries automatically becomes a subsidiary of the largest brewing company in the world.

We expect to see an improvement in operational processes and brewing capacity through technical support from AB-inBev. We expect this to boost International Breweries’ margins going forward and provide an option for cheaper source of funds for International Breweries to prosecute its expansion plans.

We expect to see new products introduced and International Breweries competing for a higher market share in Africa’s largest economy where Nigerian Breweries and Guinness currently dominates.

Dangote Cement: Dangote Cement is Africa's leading cement producer with three plants in Nigeria and plans to expand into 13 other African countries. The Group is a fully integrated quarry-tocustomer producer with production capacity of 29 million tonnes in Nigeria and new operations set to begin across the rest of SubSaharan Africa.

The Group plans to have 42 million tonnes capacity by the end of 2016 and 50-60 million tonnes of production, grinding and import capacity in Sub-Saharan Africa by 2016. Dangote Cement's Obajana plant in Kogi State, Nigeria, is the largest in Africa with 13 million tonnes capacity across four lines. The Ibese plant in Ogun State has four cement lines with a combined installed capacity of 12 million tonnes.
The Gboko plant in Benue State has 4 million tonnes capacity. Over time, Dangote Cement has eliminated Nigeria's dependence on imported cement and is transforming the nation into an exporter of the product serving neighboring countries. The company is favorably positioned to benefit from the focus of the country in infrastructure development through the 2016 expansionary budget.

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