GTI 5 Weekly Stock Picks -051216


Monday, December 05, 2016 9:25 AM/GTI Research

The Nigerian equity market on Friday gained 1.88% to extend uptrend to the third day in a row. Lately, the market has shown a buying momentum. This was equally depicted today with volume of transactions as high as 576.85 million.

In summary, lead indicator, the All-Share Index (ASI) gained 475.75 absolute points, representing a growth of 1.88% to close at 25,740.83 points. Similarly, the Market Capitalization gained N163.66 billion, representing a growth of 1.88% to close at N8.86 trillion.

The upturn was largely boosted by value depreciation recorded in some medium and large capitalized stocks, amongst which are; Mobil Oil (+10.25%), Forte Oil (+10.24%), Dangote Cement (+3.90%), GT Bank (+3.03%), Zenith Bank (+1.61%), Nestle Nigeria (+1.23%) and GSK Nigeria (+1.07%).

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 well 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.

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-to-customer producer with production capacity of 29 million tonnes in Nigeria and new operations set to begin across the rest of Sub-Saharan 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.

Okomu OilPalm: Currently stands as one of the lead quoted firm operating in the agricultural sector. Its operations primarily covers oil palm and rubber production, extraction and processing.

With the increasing efforts by the government to boost activities in the agricultural sector in order to provide effective diversification of the economy from oil, the company is well positioned to benefit from this.

Towards this goal, it recently acquired 11,400 hectares of land with a plan to establish 10,000 hectares of oil palm plantation on it within the next 3 years. This is expected to lead to a doubling of its Crude Palm Oil (CPO) output.

The Company’s refinery capacity has also been increased to 100 metric tonnes per day, while its fractionation plant capacity and refined products capacity have both increased to 60 tonnes per day.

Okomu refining and oil mill expansion initiatives will enable the company alleviate the local palm oil production shortage and in turn acquire a greater share of the Nigeria market.

Total Nigeria: Total Nigeria is one of the foremost oil and gas companies in the Nigerian oil sector. The company is one of the largest in terms of retail outlets across the country and leverages on these outlets to push sales volume. The company has also benefitted from the deregulation of the downstream sector where it operates as a result of its retail presence in the volume driven oil marketing space.

The company pays consistent dividend and is a firm pick with PFA’s and FPI’s .The strong growth in its 9M-2016 revenue and PAT has heightened expectation for a strong dividend payment when FY 2016 numbers are released.

GT Bank: despite the sector wide challenges, GT Banks makes our recommendation for its astute cost management strategy and proactive balance-sheet deployment and optimization. The bank is also known for pushing new frontiers in bank service delivery through effective use of ICT.

This gives the bank an edge in a competitive homogeneous market and gives it wider reach and a large share of the millennial population.

The Bank also has a healthy balance sheet size and liquidity to take advantage of the opportunities arising from the unfolding Nigerian economy and in addition to this, the rich dividend history makes the bank a top pick when FPI’s and local PFA’s decide to re-enter the market.

Watch List

UBA, Presco, Nestle, Dangote Sugar, Julius Berger

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