Nigerian stocks to keep an eye on in 2022

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Nigerian stocks remain attractive and should remain so for the remainder of the year.
Equities had a wild ride in 2021, with eight months of positive returns and four months of bearish season. The market ended with a 6.7 percent gain following an extraordinary last-minute rally that helped boost the value of listed stocks by N1.23 trillion.

Interestingly, domestic institutional and retail investors drove the market’s liquidity and record rally, highlighting Nigerian investors’ potential to stabilize and grow the market.

Despite imminent threats to the 2022 equity market rally, Nigerian stocks remain attractive and should remain resilient this year.

The critical question now is which stocks investors should buy in 2022. Many analysts’ BUY lists for 2022 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.

Many of these stocks are currently undervalued in the Nigerian market, presenting attractive BUY opportunities for investors seeking both capital appreciation and long-term returns.

“Our top picks, Dangote Cement, MTN Nigeria, GTCO, Nestle, and Zenith Bank, are resilient bellwethers that have a track record of sustaining earnings growth through political cycles,” according to Isaac Olorungbon, CEO, Deep Trust and Investments Limited.

He remains optimistic about the Nigerian stock market in 2022, “as our cautious optimism reinforces our outlook for another positive year for Nigerian equity investors.”

Unilever Nigeria, Okomu Oil Palm, Presco, Vitafoam, Berger Paints, Ardova, Seplat, and Total Energies Marketing Nigeria are also among the companies. Dangote Sugar Refinery, Guinness Nigeria, Conoil, FCMB Group, May & Baker, Fidson Healthcare, and Neimeth International Pharmaceuticals are also on the analysts’ BUY list.

While rising market optimism may dampen funds flow to equities in 2022, a positive earnings outlook for the majority of largely capitalised value stocks should reinforce investment opportunities in these stocks.

Cement Dangote

Dangote Cement is Africa’s largest cement producer, operating in ten African countries and producing 48.6 million tons of cement per year. As of January 10, 2022, the company’s share price was N260 per share; year-to-date (YtD) change was (+1.2 percent), while the stock increased by +4.9 percent in 2021.

Meristem analysts expect Dangote Cement to trade at N287.81; Vetiva analysts expect the stock to trade at N280; and United Capital analysts expect the stock to trade at N270.3. The stock has upside potential and should be considered a BUY based on these analysts’ 2022 target prices for the cement maker.

A BUY rating is assigned to a stock that is considered to be significantly undervalued but has strong fundamentals, and where a potential return of greater than or equal to 15% is expected between the current price and the analyst’s target price (TP).

Prior to the release of its fiscal year (FY) 2021 results, the company’s unaudited interim financial statements for the nine months ended September 30, 2021, revealed revenue increased to N1.022 trillion from N761.44 billion in fiscal year 2021. Pre-tax profit was N405.487 billion for the nine-month period, up from N271.960 billion in 9M’2020.

Profitability increased to N16.23 per share in 9M’21 from N12.2 in 9M’20. The Company and its subsidiaries’ primary business is the operation of plants for the preparation, manufacture, and distribution of cement and related products. Sector (Industrial Goods), Sub-Sector (Building Materials), and Market Classification (Premium Board) (17,040,507,405 units).

Additionally, Sanwo-Olu, MTN Nigeria, Osimhen, and Ndidi are among the Nigeria Pitch Awards nominees.

Nigerian MTN

MTN Nigeria Communications (MTNN) is in the business of developing and operating cellular network systems based on the Global System for Mobiles (GSM) standard, as well as providing related services.

Between December 1 and December 14, 2021, Nigeria’s largest telco held a public offering of its shares, allowing retail investors to purchase up to 575 million shares at a price of N169 per share—a discount to the company’s share price on the secondary market.

As of January 10, 2022, its share price of N185.5 per share represented a 5.8 percent YtD negative return. In 2021, the stock increased by 16 percent. In November 2021, the Nigerian Central Bank granted it preliminary approval to operate a payment service bank (PSB).

“By 2022, we believe that MTNN’s 4G coverage will remain expansive, as the company works to meet the ever-increasing data needs of Nigeria’s population. Thus, data revenue is expected to reach N647 billion, an increase of 25% year on year (y/y).

“With the NCC lifting the suspension on new SIM card registrations and the company indicating that it is aggressively ramping up new registration centers to support the FG’s NIN enrolment program, we anticipate some growth in MTNN’s subscriber base going forward.” As a result, we anticipate that this will provide some support for voice revenue through 2022. However, we must keep in mind that voice services face intense competition, given the growing preference for cheaper internet-based alternatives.

“With the company on the verge of obtaining a PSB license, product offerings are ripe for expansion, and we may begin to see a material impact on MTN’s top-line performance,” according to Victoria Ejugwu, an oil and gas, telecom analyst at Lagos-based Vetiva.

“As we look ahead to 2022, we are guided by our December 30 Nigerian telecom sector report ‘Delivering a Digital Future,’ in which we recommend a BUY for MTNN with a target price of N266.17/share and a SELL for Airtel Africa with a target price of N793.84/share,” Coronation Research analysts wrote in a January 4 note.

MTNN’s unaudited condensed consolidated interim financial statements for the nine months ended September 30, 2021 revealed that revenue increased to N1.206 trillion from N975.764 billion in 9M’2020, a 23.62 percent increase.

Profit before tax (PBT) increased to N321.352 billion in 9M’21, up 51.87 percent from N211.594 billion in 9M’2020; while basic/diluted earnings per share increased to N10.82, up 52.74 percent from N7.09 in 9M’2020.

Sector (Information and Communications Technology); Subsector (Telecommunications Services); Market Classification (Premium Board); and Number of Shares Outstanding (20,354,513,050 units).

Seplat Power

Seplat Energy is a leading independent energy company in Nigeria that is publicly traded on the Nigerian Exchange Limited and the London Stock Exchange. The company believes that the greatest opportunity ahead of it is to supply the appropriate mix of energy to Nigeria’s young and rapidly growing population and to accelerate the country’s transition to cleaner, more affordable, universal energy. Seplat ended 2021 with a share price of N650, an increase of 61.6 percent over the previous year.

As of January 10, the stock price of N665 represents a 2.3 percent year-to-date gain. It increased revenue to N182.7 billion in the nine months ended September 30, 2021, up from N135.6 billion in 9M’2020.

In 9M’21, gross profit increased to N58.1 billion from N31.7 billion in 9M’20. Profit before tax increased to N38.6 billion in 9M’2020 from a loss before tax of N45.5 billion in 9M’2020. For Seplat, the ANOH project is on track to begin production in H1′ 2022.

“A significant step forward will be when the ANOH project comes online in 2022, supplying additional transition gas to an energy-scarce market that is heavily reliant on expensive, high-carbon electricity generated by small-scale diesel and PMS generators,” said Roger Brown, CEO of Seplat Energy.

United Capital maintains a BUY rating on Seplat with a target price of N770.4. Meristem’s target price is N754.42, which comes with a BUY recommendation. Vetiva also maintained a BUY rating on the stock, setting a target price of N796.57 for 2022.

“Recently, Seplat announced that it was in talks with ExxonMobil about acquiring some shallow water assets. Given that the acquisition’s terms have not been disclosed to the public, we have not factored in the potential impact on Seplat’s valuation.

“However, if the deal goes through, we anticipate an increase in crude output and cost synergies as a result of the combined entity’s administrative operations being integrated,” said Luke Ofojebe, Vetiva’s head of research.

Sector (Oil and Gas); Subsector (Exploration and Production); Market Classification (Premium Board); and Outstanding Shares (588,444,561 units).

Nigerian Flour Mills

Flour Mills of Nigeria, one of the country’s largest food and agro-allied groups, remains committed to executing its long-term strategy with the objective of sustaining growth and profitability.

Flour Mills of Nigeria and Honeywell Group Limited recently agreed to merge their operations through affiliates and Honeywell Flour Mills (HFMP), a portfolio company of HGL, for a total enterprise value of N80 billion, which will result in Honeywell Group selling a 71.69 percent stake in HFMP to FMN.

The proposed transaction will combine two complementary businesses and establish a more resilient national champion in Nigeria’s food industry, ensuring long-term job creation and preservation.

The combination of FMN and HFMP will create a food business that is better positioned to benefit Nigeria’s growing population, advance national food security objectives, and capitalize on opportunities created by the African Continental Free Trade Area (AfCFTA).

Flour Mills was one of the year’s best performers (+183.3 percent) in 2021. Flour Mills of Nigeria’s share price closed at N29 per share in the trading week ended January 7, 2022, a gain of 2.3 percent year to date.

Half-year (H1) revenue for the Group was N522.8 billion in 2021/2022, up from N355.1 billion in H1 2020/21, a 47 percent year-on-year (YoY) increase. The group’s performance was consistent across all key business segments, with the agro-allied and support segments in particular demonstrating impressive growth of up to 35%. Profit before tax (PBT) for the review H1 period was N15.5 billion, up from N14.6 billion in H1 2020/21 (6 percent – YoY growth).

This performance was bolstered by continued strength in the food segment and continued improvement in the agro-allied and support segments. PAT was N10.5 billion, up from N9.9 billion in H1 2020/21 (6 percent – year on year growth). The Group’s strong operational performance was fueled by strong organic growth, which was aided by product innovation, as well as continued momentum in retail sales.

On January 10, the stock had fallen by 0.9 percent this year. According to United Capital research analysts, Flour Mills is a BUY at their target price of N46.6. Meristem is also requesting investors to purchase Flour Mills at their target price of N40.63.

Meristem research analysts recommended investors “BUY” Flour Mills of Nigeria Plc shares in a January 10 stock recommendation. Additionally, Vetiva’s price target for Flour Mills is N44.34,” said Chinma Ukadike, the firm’s consumer goods analyst.

“We note that the company’s volume growth strategy across its Food and Agro-allied segments has been quite successful thus far. As a result, we continue to be optimistic about the impact of newer product roll-outs expected in the coming quarters,” the analysts said.

Consumer Goods Sector; Food Products Subsector; Main Board Market Classification; Shares Outstanding (4,100,379,605 units).

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