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Afrinvest Stock Recommendation for the Week - 030717


Monday, July 03, 2017, 12:58 PM /Afrinvest

Market Last Week
The Nigerian bourse recovered from previous week’s loss as investors resorted to bargain hunting in stocks that had depreciated in prior trading sessions. Consequently, the benchmark index climbed 3.1% W-o-W to close at 33, 3117.48 points, bumping YTD gain to 23.2%.

All indices trended northward save for the Insurance index which slid 0.1% W-o-W. The Industrial Goods index led sector gainers, advancing 3.3% W-o-W followed by the Banking index which closed 3.0% higher W-o-W. Similarly, the Consumer Goods index rose 2.2% W-o-W while the Oil & Gas index advanced 1.0% W-o-W.

The best performing stocks were NEM (+10.5%), DIAMOND (+9.7%) and PZ (+9.7%) while SMURFIT (-28.9%), MAYBAKER (-18.1%) and UNILEVER (-14.2%) were the worst performers. 

Market This Week
The Afrinvest weekly sentiment indicator strengthened to 3.0 points from 2.7 points last week due to improved market breadth. 

Whilst we reckon that the performance of the equities market will remain largely driven by the positive macroeconomic developments in the past three months, we do not eliminate the possibility of some profit taking in the early trading sessions this week. 

Hence we advise that investors take advantage of fundamentally sound stocks that have fallen to attractive entry prices. 

Our top pick for the week is ZENITH 

Top Pick for the Week: Zenith Bank Plc
Zenith Bank Plc (Zenith or the Bank) operates an international banking license in Nigeria, and has subsidiaries in Ghana, Sierra Leone, and the Gambia. The bank also has representative offices in South Africa and The People s Republic of China. 

Zenith is one of the largest banks in Nigeria by Total Asset (N4.7tn).

In FY: 2016, Gross Earnings expanded 17.4% Y-o-Y to N508.0bn from N432.5bn in prior year while PAT grew 22.7% to N129.7bn from N105.7bn in prior period and EPS settled at N4.14. 

The Bank also paid a total dividend of N2.02 for the year. Zenith’s Cost to Income Ratio (CIR) moderated to 48.0% in FY:2016 from 54.3% in FY:2015 despite the 4.0% jump in OPEX which settled at N174.5bn. 

The positive trend was sustained in Q1: 2016 as Gross Earnings and PAT improved 48.6% and 41.4% to N147.7bn and N37.5bn respectively. We continue to see value in Zenith based on its inherent fundamentals as we project a forward EPS of N4.47 while the Banks sustains its dividend payment history. 

The stock has an RSI of 57.5 and currently trades at N20.89 (30/6/2017) relative to our 12-month target price N21.94. Our outlook on forward earnings remains impressive hence we recommend a BUY on the counter.   

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