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Afrinvest Stock Recommendation for the Week - 190617


Monday, June 19, 2017 11:56 AM / Afrinvest Research

Market Last Week 
•    The upbeat performance in the Nigerian Equities market since introduction of the I&E window extended to last week’s trading sessions as Investor sentiment towards equities remained bullish. Consequently, the All Share Index gained 1.6% W-o-W, pushing YTD gain to 25.8%.

•    Performance across sectors was mixed, although positively skewed, as 3 of 5 indices advanced W-o-W. The Banking index advanced the most, up 5.0% W-o-W on account of upticks in GUARANTY (+6.7%) and ZENITH (+10.6%) while the Industrial Goods index recorded the most decline, down 0.3% W-o-W on account of losses in WAPCO (-0.9%).

•    The best performing stocks for the week were MAYBAKER (+60.6%), SKYEBANK (+41.5%) and CCNN (+33.7%) while INTBREW (-19.2%), FORTE (-13.6) and LEARNAFRCA (-12.6%) were the worst performers.

Market This Week  
•    The Afrinvest weekly sentiment indicator waned to 3.6 points from 5.2 points last week due to relatively weak market breadth.

•    Whilst we remain optimistic that the upbeat market performance would persist in the near term as investor sentiment remains largely driven by strengthening macroeconomic fundamentals and FX management, we envisage some profit taking by investors on value stocks in the early trading sessions of this week.

•    However, we advise investors to keep an eye on short term downside risks to market performance, which include the unfolding developments in the oil market as well as the CBN’s FX policies.

•    Our top pick for the week is NESTLE.

Top Pick For The Week

Nestle Nigeria Plc

•    NESTLE is one of the most capitalized stocks listed on the Nigerian Stock exchange.

•    The company is a subsidiary of NESTLE Global, the world's leading nutrition, health and wellness company.

•    The multinational outfit is known for household brands such as Maggi, Milo, Nescafe, Baby products (CERELAC) etc.

•    The company has a consistent dividend payment history.

•    Despite the difficult operating terrain and restrained consumer spending, NESTLE posted a turnover expansion of 20.3% in FY:2016 (N181.9bn from N151.3bn in FY:2015) while PAT fell 66.6% to N7.9bn. In Q1: 2017 both Turnover and PAT expanded 69.3% and 24.9% to N61.2bn and N8.4bn respectively.

•    The stock currently trades at a P/E of 74.8x versus P/E of 47.1x (16/06/2017) for the NSE Consumer Goods index. However, we note that the Company has always enjoyed premium market pricing over peers due to high earnings growth and ROE. It is one of the stocks tracked by FPIs.

•    At current price of N907.00 (16/06/2017), the stock is trading close at its 52-week high.

•    Nevertheless, we believe that if the developments in the FX market continued to improve and foreign investors return to the market, the stock could rally further. Hence, we recommend a BUY on the stock.

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