The year 2021 was a roller-coaster for equities, with eight months of positive returns and four month of bearish season. The market ended with a positive return of 6.7 percent amid a remarkable last-minute rally that helped push the value of listed stocks up by N1.23 trillion.
Interestingly, market liquidity and the record rally were driven majorly by domestic institutional and retail investors, thus reinforcing the potential of Nigerian investors in stabilising and growing the market.
Notwithstanding imminent risks to equity market rally in 2022, Nigerian stocks are still attractive and should remain resilient in this year.
The big question now is: what stocks should investors buy in 2022? Stocks seen reoccurring in many analysts BUY lists for 2022, which investors should actively consider in their equities portfolio this year include Dangote Cement, MTN Nigeria, Lafarge Africa, GTCO, Nestle Nigeria, Zenith Bank, BUA Cement, BUA Foods, UBA, Fidelity Bank, Access Bank, Stanbic IBTC Holdings, and Flour Mills of Nigeria.
Currently in the Nigerian market, many of these stocks are undervalued and present attractive BUY opportunities for investors seeking both capital appreciation and for long-term returns.
“Companies such as Dangote Cement, MTN Nigeria, GTCO, Nestle and Zenith Bank, which are our top picks, are resilient bellwethers with the history of sustaining earnings growth through political cycles,” according to Isaac Olorungbon, chief executive, Deep Trust and Investments Limited.
He remains upbeat on the prospect of the Nigerian stock market in 2022, “as our cautious optimism reinforces our outlook of another positive return for Nigerian equity investors in the new year.”
Others are: Unilever Nigeria, Okomu Oil Palm, Presco, Vitafoam, Berger Paints, Ardova, Seplat, and Total Energies Marketing Nigeria. Also on analysts BUY list are Dangote Sugar Refinery, Guinness Nigeria, Conoil, FCMB Group, May & Baker, Fidson Healthcare, and Neimeth International Pharmaceuticals.
Amid increasing optimism in the market, a likely modest rise in the interest rate environment may undermine funds flow to equities in 2022, but a positive earnings outlook across most largely capitalised value stocks should reinforce the investment opportunities in these stocks.
Dangote Cement
Dangote Cement is Africa’s leading cement producer with existing operations in 10 African countries with a production capacity of 48.6 million tons per year. The company’s share price as of January 10, 2022, was N260 per share; year-to-date (YtD) change (+1.2%), while in year 2021 the stock rose by +4.9 percent.
Meristem analysts target price (TP) for Dangote Cement is N287.81; Vetiva analysts target price for the stock is N280; while United Capital analysts target price is N270.3. Going by these analysts 2022 target price for the cement maker, the stock has upside potential and should be considered a BUY.
BUY rating is given to a stock considered highly undervalued, but with strong fundamentals, and where potential return in excess of or equal to 15 percent is expected to be realised between its current price and analysts’ target price (TP).
Ahead of its full year (FY) 2021 results, its unaudited interim financial statements for nine months ended September 30, 2021, showed revenue grew to N1.022 trillion as against N761.44 billion 2021. Pre-tax profit for the nine months period was N405.487 billion as against N271.960 billion in 9M’2020.
Earnings per share increased to N16.23 in 9M’21 from N12.2 in 9M’20. The principal activity of the Company and its subsidiaries is to operate plants for the preparation, manufacture, and distribution of cement and related products. Sector (Industrial Goods), Sub-Sector (Building Materials), Market Classification (Premium Board), and Shares Outstanding (17,040,507,405 units).
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MTN Nigeria
MTN Nigeria Communications (MTNN) is engaged in the business of building and operating Global System for Mobiles (GSM) cellular network systems and other related services.
Nigeria’s largest telco did a public offer of its shares from December 1 to December 14, 2021, which allowed retail investors to purchase up to 575 million shares at N169 per share—lower than its share price on the secondary market.
As of January 10, 2022, its share price of N185.5 per share represented a negative return of 5.8 percent YtD. The stock rose by 16 percent in the year 2021. In November 2021, the Central Bank of Nigeria gave it an approval-in-principle to operate a payment service bank (PSB).
“Going into 2022, we believe that MTNN’s 4G coverage will continue to be expansive, as it strives to meet the ever growing data needs of Nigeria’s population. Thus data revenue is projected to come in at N647 billion, up 25 percent year-on-year (y/y).
“Given that the NCC has lifted the suspension of new SIM card registrations, and with the company also hinting that it is actively ramping up new-registration centres, which will support the FG’s NIN enrolment programme, we expect to see some gains in MTNN’s subscriber base going forward. Thus, we expect this to somewhat provide a support system for voice revenue through 2022. However, we also bear in mind that voice services are subject to stiff competition, given the growing preference for internet-driven cheaper substitutes.
“With the company now underway to getting a PSB licence, product offerings are up for a full-blown scale-up, and we might start to see considerable impact on MTN’s top-line performance,” according to Victoria Ejugwu, oil & gas, telecom’s analyst at Lagos-based Vetiva.
“Going forward into the 2022, we are guided by our recent Nigerian telecom sector report ‘Delivering a Digital Future,’ December 30, in which we recommend a BUY for MTNN with target price of N266.17/share and a Sell for Airtel Africa with a target price of N793.84/share,” according to Coronation Research analysts in their January 4 note.
The unaudited condensed consolidated interim financial statements of MTNN for the nine months period ended September 30, 2021, showed that its revenue grew to N1.206 trillion from 9M’2020 level of N975.764 billion, up by 23.62 percent.
Its profit before tax (PBT) in 9M’21 went up to N321.352 billion from N211.594 billion in 9M’2020, up by 51.87 percent; while its basic/diluted earnings per share increased to N10.82 from N7.09 in 9M’2020, up by 52.74 percent.
Sector: (ICT); Sub Sector (Telecommunications Services); Market Classification (Premium Board) and Shares Outstanding (20,354,513,050 units).
Seplat Energy
Seplat Energy is a leading Nigerian independent energy company listed on both the Nigerian Exchange Limited and London Stock Exchange. The company believes that the greatest opportunity ahead of it is to supply the right mix of energy for Nigeria’s young and rapidly growing population and drive Nigeria’s transition to cleaner, more affordable energy that is accessible to all. Seplat closed the year 2021 at N650 per share, up by 61.6 percent in 2021.
As of January 10, the stock price at N665 represents an increase of 2.3 percent YtD. In its unaudited results for the nine months ended September 30, 2021, it grew revenue to N182.7 billion from N135.6 billion in 9M’2020.
Gross profit went up to N58.1 billion in 9M’21 from N31.7 billion in 9M’20. Pre-tax profit grew to N38.6 billion from loss before tax of N45.5 billion in 9M’2020. For Seplat, ANOH project remains on track for first gas in H1’ 2022.
“A strong step forward will be when we bring on stream the ANOH project in 2022 delivering more transition gas to an energy poor market, over reliant on expensive, high carbon-emitting electricity generated from small-scale diesel and PMS generators,” said Roger Brown, CEO of Seplat Energy.
United Capital target price for Seplat is N770.4 with BUY rating. Meristem target price is N754.42 supported with BUY rating. Vetiva also rated the stock a BUY with 2022 target price at N796.57.
“Recently, Seplat announced that the company was in discussions for a possible acquisition of some shallow water assets from ExxonMobil. Given that details of the acquisition are yet to be released to the public, we have not included the potential impact on the valuation of Seplat.
“However, should the deal materialises, we expect to see an increase in crude output, while we expect cost synergies to result from the integration of administrative operations for the combined entity,” said Luke Ofojebe, Vetiva’s head of research.
Sector (Oil & Gas); Sub Sector (Exploration and Production); Market Classification (Premium Board); and Shares Outstanding (588,444,561 units).
Flour Mills of Nigeria
Flour Mills of Nigeria, one of Nigeria’s leading food and agro-allied groups, remains committed to executing its overall long-term strategy aimed at maintaining growth and sustaining profitability.
Recently, Flour Mills of Nigeria and Honeywell Group Limited agreed to combine operations of FMN through its affiliates and Honeywell Flour Mills (HFMP), a portfolio company of HGL, at a total enterprise value of N80 billion, which will make Honeywell Group dispose of a 71.69 percent stake in HFMP to FMN.
The proposed transaction will combine two businesses with shared goals and create a more resilient national champion in the Nigerian foods industry, ensuring long-term job creation and preservation.
A combination of FMN and HFMP will bring together two trusted and iconic brands, creating a food business that is better positioned to benefit the growing Nigerian population, further enhance national food security objectives and leverage opportunities stemming from the African Continental Free Trade Area (AfCFTA).
Flour Mills was among best performing stocks in 2021 (+183.3%). In the trading week ended January 7, 2022, the share price of Flour Mills of Nigeria closed at N29 per share, representing an increase of 2.3 percent YtD.
In half-year (H1) (2021/2022), the Group revenue was N522.8 billion, compared to N355.1 billion in H1 2020/21, which represents 47 percent year-on-year (YoY) growth. Performance was consistent across all key business segments in the group with agro-allied and support segments in particular showing impressive growth by as much as 35 percent. In the review H1 period, the Group’s profit before tax (PBT) was N15.5 billion, compared to N14.6 billion in H1 2020/21 (6% – YoY growth).
This performance was underpinned by continued strong operating performance in the food segment; continuous improvement in agro-allied and support segments. The Group’s PAT was N10.5 billion, compared to N9.9 billion in H1 2020/21 (6% – YoY growth). The Group’s solid operational performance was stimulated by strong organic growth, supported by product innovation, and continued momentum in retail sales.
The stock had on January 10 decreased this year by 0.9 percent. United Capital research analysts say Flour Mills is a BUY considering their target price of N46.6 for the stock. Meristem also wants investors to buy Flour Mills considering their target price of N40.63.
Meristem research analysts in their January 10 stock recommendation urged investors to “BUY” Flour Mills of Nigeria Plc shares. Also, Vetiva’s price target for Flour Mills is N44.34,” said its consumer goods analyst, Chinma Ukadike.
“We note that the company’s volume growth strategy has been quite successful so far, across its Food and Agro-allied segments. In line with this, we remain positive on the impact of newer product roll-out expected in the coming quarters,” the analysts said.
Sector (Consumer Goods); Sub Sector (Food Products); Market Classification (Main Board); Shares Outstanding (4,100,379,605 units).
