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Access, UBA, Seplat, Zenith, GTB, Dangote Cement are top stock picks for 2020

Stock market

Access Bank plc, Zenith Bank plc, United Bank for Africa plc, Seplat Petroleum Development Company plc, Guaranty Trust Bank plc, Flourmills Nigeria plc and Dangote Cement plc are among notable stocks in analysts’ basket of select equities with potential for increased return in 2020.

Other analysts’ stock picks are FBN Holdings, Nigerian Breweries plc, FCMB, Guinness Nigeria, Dangote Sugar Refinery plc, Stanbic IBTC Holdings plc, Nestle Nigeria plc, Cement Company of Northern Nigeria, Julius Berger, Okomu Oil Palm plc, Total Nigeria plc, Mobil Oil Nigeria plc (11 plc), and Forte Oil plc (Ardova plc).

Among other notable counters, analysts picked these stocks because they are currently undervalued, but with strong fundamentals. Some of them were picked because they have the potential for return in excess of or equal to 15 percent between their current price and the analysts’ target price.

The investment cases for Access Bank are positive because the bank holds the records as Nigeria’s biggest bank based on asset size and the one with the highest number of retail customers since the merger with Diamond Bank.

“It has a current Book Value per share of 17.30x which is above its existing market price. Our target price for Access Bank is N12.50, representing a premium of 23.15 percent returns over the closing market price of N10.15 as of Friday, January 3, 2020,” said GTI Research analysts.

“Despite the numerous challenges posed by Nigeria’s unstable macro-environment in the last five to six years, Zenith Bank plc has continued to set the pace in terms of posting strong gains year-in, year-out. Our 12-months target price for Zenith Bank is N24.70, which represents an upside potential of 28.31 percent to the closing market price of N19.25 as at close of the transaction on Friday, January 3, 2020,” the analysts said.

Dangote Cement plc recently disclosed plans to buy back 10 percent (1.17 billion) of its shares in issue from shareholders.

The aim of the share buyback which will be completed in 12 months is to improve the company’s return on equity (RoE). The share repurchase programme serves as a means for firms to return cash to their shareholders. It also impacts positively the per share profitability of the firm, most notably the Earnings Per Share (EPS) due to the reduction in issued shares.

Vetiva Research analysts who asked investors to buy Seplat stocks, having set a target price of N1,188.65 against current price of N592.10, said they foresee further improvement in oil production in subsequent quarters as the firm continues its drive to revert oil output to pre-2019 levels.

“Specifically, management announced that the company had drilled and completed three oil wells so far in 2019, with two additional oil wells expected to be drilled before year end and completed in early 2020,” said Vetiva Research analysts.

“That said, we expect oil output to come in at 1.9 million barrels in fourth-quarter (Q4) 2019, translating to an oil revenue of $114 million (+6 percent quarter-on-quarter (q/q), which subdues the effect of an anticipated weaker realised oil price of $60 per barrel, in third-quarter (Q3) 2019 it was $62 per barrel,” the analysts said.

Julius Berger made the stock picks with a target price of N32.52 against N19.90 currently.

“Given the strength of the company’s contract portfolio and the presence of the Presidential Infrastructure Development Fund (PIDF) which was created to ensure financing for construction projects, we forecast a strong year-on-year (y/y) topline growth in Q4,” Vetiva analysts added.

Nigeria equity market had an excellent start to the new year as both market performance indices, the NSE-All Share Index (ASI) and market capitalisation, closed green in all the four trading sessions.

Consequently, the ASI climbed 2.1 percent week-on-week (w/w) to settle at 26,968.79 points. As such, year-to-date (YtD) return printed on the green at +0.5 percent while market capitalisation advanced N266.6 billion to N13 trillion.

This was driven by early positioning by investors, mostly for regular dividend paying stocks, in anticipation of better fourth-quarter (Q4) 2019 earnings results as against the many unimpressive performances in third-quarter (Q3) 2019.

“In anticipation of the release of the full-year 2019 earnings result by many of market players in the coming weeks, we expect to see increased positioning by portfolio investors, supported by the declining yields on both fixed income instrument and fixed deposit account. As such, we expect the market to close positive next trading week,” said Lagos-based GTI Research in its outlook for the week ending January 10, 2020.

Also in their outlook for 2020, research analysts at United Capital plc said the continued auction of high yield OMO bills to Foreign Portfolio Investors (FPIs) may keep foreign interest in local equity market tepid “amid fears of a naira devaluation and confidence deficit in the economy”.

“Again, FPIs are likely to continue their flight to safety by swapping/selling equities for low-risk OMO bills. Yet, our outlook for stocks in 2020 is anchored on developments in the domestic and global economy with monetary policy as the biggest factor to watch. From all indications, the only justification for an uptick in the equities market is the lower yield environment, supported by increased local currency liquidity,” United Capital analysts said.

“However, this will not be enough to trigger a major rally in the absence of the demand from FPIs. Overall, our base case scenario, sees equities market return at +5.3 percent in 2020, driven by local demand for high-quality dividend-paying stocks and increased system liquidity,” they said.