The Nigeria’s bourse closed the prior week negative, shedding 119bps to close at 26,536.21 pts with market capitalization losing N154.1 billion. Last week’s decline was spurred by Telecom (-1.54%), Banking (-1.23%), Cement (-1.80%), Food (-1.27%) and Personal care (-2.61%) sectors. Sell offs were seen in MTNN (-2.29%), GUARANTY (-2.34%), STANBIC (1.90%), UBA (-1.49%), FBNH (-2.26%), DANGCEM (-1.89%), CCNN (-2.08%), UNILEVER (-2.38%) and NESTLE (-3.70%) WoW, muting gains in NB (+2.93%) and GUINNESS (+1.72%) amongst others.

• Dangcem– STRONG BUY (FVE: N240.87): DANGCEM’s earnings will be pressured this year (EPS: N14, vs N22 in 2018) owing to lower volumes in Nigeria business (due to increased competition from BUA Cement) and some of its Pan Africa business, as well as high base of tax credits from last year. However, DANGCEM currently trades at FY 19E P/E of 11x on our estimates, which is cheap compared to WAPCO and CCNN of 17.7x and 16.8x, respectively. We believe current valuation is unjustified given the superior ROE of 24%.

• Zenith Bank Plc – STRONG BUY (FVE: N31.50): We have made adjustment to our FY 2019 expectation for Zenith Bank following some surprises in the Q2 numbers. In specifics, we revised net interest income lower due to compressed yields on its loans and treasury asset (H1 18:10.6%, H1 19 9.1%) amidst contraction in funding cost. Elsewhere, we adjusted NIR higher due to upward review of electronic fee income and trading book. Thus, we now forecast PBT of N218 billion (-5.5% YoY), while we cut our FVE to N31.57/share (previously: N33.71/share).

• Nestle Plc – OVERWEIGHT (FVE: N1447.39): Amongst the food producers, Nestle Nigeria Plc has managed to stay afloat, reporting modest growth in earnings amidst incessant competition. For 9M 19, EPS expanded by 11.2% YoY to N46.48 driven largely by the absence of impairment charges which created a high base for input costs over the same period last year. Asides from improved earnings, its strong cash balance, return on equity and 100% dividend payout further supports the case for a STRONG BUY rating.

• Nigerian Breweries Plc – STRONG BUY (FVE: N75.82): Intense competition from International Breweries (IB) and graduated excise duty (+17% YoY) that kicked-off in Jan-19, revenue growth is expected to be slow even as we expect higher finance cost (+38% YoY) to be another pressure point to earnings this year. However, given our case for a slight improvement in volumes and decline in cost of sales (-1.1% YoY) which translates to gross (+120bps YoY) and EBIT (+101bps YoY) margin expansion, the misery seems moderated. Overall, the net impact of all our adjustments translates to PBT of N29.9 billion and EPS of N2.58 (+6.3% YoY) over 2019.

• Seplat Plc – STRONG BUY (FVE: N828.90): Seplat’s total production declined in Q3 19, as the drop in gas production offset improvement in the oil segment. That said, we remain positive on growth in production going into the final quarter of the year (especially in oil) and into 2020 as Seplat increases capex. Cashflows remain healthy. Upsides reside in the ANOH Gas project and acquisition of Eland Oil & Gas Limited.

Kindly, visit ARM Research Portal for full stock reports.

Picture Credit: PremiumTimes.Com

C&I Leasing Rights Issue FAQ

1. What is a rights issue?

A rights issue is an offering of rights to the existing shareholders of a company that gives them an opportunity to buy additional shares directly from the company at a discounted price rather than buying them in the secondary market. The company issues new shares to the public in order to raise capital.

But until the date at which the new shares can be purchased, shareholders may trade the rights on the market the same way that they would trade ordinary shares.

2. Who is C&I Leasing?

C & I Leasing Plc is Nigeria’s foremost leasing company and a leading brand for finance leases, and other ancillary services in Nigeria. The company, which started as a consumer finance leasing company licensed by the Central Bank of Nigeria in 1991, has grown to become a diversified, leasing and business service conglomerate providing support services to various indigenous and multinational organizations in West Africa in:

• Fleet Management
• Personnel Outsourcing
• Marine Services

3. Why is C&I Leasing raising funds through a rights issue?

C&I leasing wishes to use the proceeds to:

• Capital restructuring – Ensure optimum capital structure that appropriate balance of debt and equity
• Repay short term loans
• Acquire equipment and vessels to expand their marine services business
• Provide working capital requirements as the needs arise

4. How much capital is C&I leasing raising?

N3.5 billion

5. Issue Price:

N6.00 per share

6. What effect will the rights issue have on C&I Leasing’s shareholders’ equity?

Current existing shares: 404,252,500

Rights shares: 539,003,333

Post rights issue shares: 943,255,833

7. Issue criteria:

4 new rights for every 3 shares held

Each right entitles the shareholder to 1 new share

8. Is there a minimum subscription to complete the rights offering?

No

9. Who is eligible to purchase rights?

Shareholders of C&I leasing at the record date can use their rights to subscribe to newly issued shares

Non-shareholders can buy rights from the market from C&I Leasing shareholders selling their rights at market value

10. When can I subscribe to the rights issue?

The issue opened on November 17 and closes on December 27

11. How long will it take for me to get my shares after the rights issue?

CSCS accounts will be credited and Investors will receive share certificates on the 29^th of January 2020

12. How do I subscribe to the rights issue?

Contact customer service at ARM securities at +234 (1) 2701096, 2701653 or [email protected] to gain access to application forms

13. Can I sell my Rights – can they be traded?

Yes, A right is an option to buy shares, but you are not obligated to do so. You may decide not to exercise your right to purchase all or some of the shares you are entitled to, in which case you can sell all or some of your rights at market value.

The December 2019 Auction opened today December 2, 2019 and closes on Friday, December 6, 2019. Please find the details stated below.

HOW TO INVEST IN THE FGN SAVINGS BOND

1. Ensure you have a CSCS Account Number with ARM Securities. If you haven’t any, open an account online at ARM Stocktrade or fill this form and submit at any of our offices.
2. Print/download and carefully fill the portions of the FGN Savings Bond application form relevant to you.
3. Transfer the amount you intend to invest into the following bank account detailed below:

• In this report, we resume coverage on UACN with a target price of N8.96 which translates to a BUY rating at current price. While UACN’s history of reporting poor operating performance dulled investor’s sentiment, we believe lower finance cost and little or no impairment charge in coming years, post exit from UPDC, supports a rerating. Coupled with recovery in the feeds business, we see improvement in earnings over our forecast period. Comparing 5-year historical average EV/EBITDA of 9.9x, to current level of 3.3x, UACN presents a good entry point on current valuation. At current price and based on our FY 19E dividend of N0.65, we view expected dividend yield of 10.6% as attractive and could be compelling to investors.

• Restructuring exercise is positive for UACN. Ahead of the planned restructuring of UACN (which would involve UACN’s outright dissolution of its interest in UPDC directly to its shareholders), UPDC was classified as a discontinued operation as at 9M 19 unaudited numbers. Accordingly, related finance cost and impairment charges (through the fair value difference between UPDC REIT and market value) were classified as discontinued operation, leaving UACN 9M 19 numbers at the strongest level we modelled post restructuring. With the exclusion of UPDC from 9M numbers and restatement of prior year, UACN delivered EBIT and PBT expansion of 175bps and 150bps YoY respectively, with EPS growing 30% YoY. Notably, without the exclusion of UPDC and restatement of the prior year, UACN would have reported a loss after tax of N12.8 billion (9M 18 loss of N994 million). With the exclusion of the volatility emanating from impairment charge on the real estate property and higher finance expense (UPDC account for 80% to 90% of total UACN borrowings) we expect stable growth in earnings over our forecast period, with EPS CAGR of 12.4% between 2020 and 2024.

• Recovery in feeds business to soften OPEX pressure. Our market survey revealed that OLAM and UACN’s feed products now sell at similar price points, as OLAM steps down its aggressive pricing strategy. As a result, we see improvement in sales from feeds with contribution to group revenue gradually picking up to pre-2018 levels. In the short term, we believe the extended border closure creates some incentive for sales upside for local poultry products and by extension the feeds business.

• Value play or value trap? With the recovery in sale of feeds already evident in the 9M 19 numbers, amidst flattened cost, we expect improvement in gross and operating margins by 117bps and 116bps YoY to 19% and 3.9% respectively in 2019. Though the management guided to an improvement in its operating expense, we are less optimistic of a significant change as the company has only been able to tame the cost and not reduce it as at 9M 19. On that note, we left opex to sales ratio unchanged at 15% till 2020 and gradual improvement from 2021 with mild improvement in operating margin to 4.1% in 2020 and average of 7% over FY21-24. Further down, with reduced finance cost and absence of impairment charge, following the reclassification of UPDC as discontinued operation, we expect earnings from continued operation to print at N1.35 in 2020 (N1.32 in FY 19E from a loss per share of N2.08 recorded in the prior year) with 5-year earnings CAGR of 12.4% between 2020 and 2024. At current market price, UACN trades at 2019E and 2020E EV/EBITDA of 3.12x and 3.01x respectively, which is attractive when compared to 5-year historical average of 9.9x.

The Nigerian bourse ended last week in green as gains particularly on Monday (+41bps) and Friday (+48bps) trading muted losses observed every other day of the week. Consequently, the ASI as well as Market Cap increased by 8bps WoW to 26,314.49 pts and N10.3 billion respectively. Banking sector (+8.07%) anchored the gains while other sectors closed negative, with bulk of the decline seen in Personal Care (-20.45%) WoW. On stock performances, ACCESS (+17.95%), FCMB (+16.25%), UBA (+13.79%), GUARANTY (+13.49%), CCNN (+10.06%) recorded gains muting declines in UNILEVER (-26.59%), INTBREW (-25.4%) and DANGCEM (-2.47%) WoW amongst others.

• DANGCEM– STRONG BUY (FVE: N240.87): DANGCEM’s earnings will be pressured this year (EPS: N14, vs N22 in 2018) owing to lower volumes in Nigeria business (due to increased competition from BUA Cement) and some of its Pan Africa business, as well as high base of tax credits from last year. That said, DANGCEM currently trades at FY 19E P/E of 11x on our estimates, which is cheap compared to WAPCO and CCNN of 17.7x and 16.8x, respectively. We believe current valuation is unjustified given the superior ROE of 24%.

• Nigerian Breweries Plc – STRONG BUY (FVE: N75.82): Intense competition from International Breweries (IB) and graduated excise duty (+17% YoY) that kicked-off in Jan-19, revenue growth is expected to be slow even as we expect higher finance cost (+38% YoY) to be another pressure point to earnings this year. However, given our case for a slight improvement in volumes and decline in cost of sales (-1.1% YoY) which translates to gross (+120bps YoY) and EBIT (+101bps YoY) margin expansion, the misery seems moderated. Overall, the net impact of all our adjustments translates to PBT of N29.9 billion and EPS of N2.58 (+6.3% YoY) over 2019.

• Guaranty Trust Bank Plc – STRONG BUY (FVE: N49.66): GTB’s 9M 19 earnings expanded modestly with PAT and EPS expanding only 3.4% YoY to N146.9 billion and N4.99/share respectively. Although, we expect a slower growth in EPS (+4% YoY to N6.53) over 2019, our case for GUARANTY remains the resilience in NIR, improved cost management, still strong loan book with a moderate expansion in credit loss provision to 0.5%.

• Nestle Plc – STRONG BUY (FVE: N1447.39): Amongst the food producers, Nestle Nigeria Plc has managed to stay afloat, reporting modest growth in earnings amidst incessant competition. For 9M 19, EPS expanded by 11.2% YoY to N46.48 driven largely by the absence of impairment charges which created a high base for input costs over the same period last year. Asides from improved earnings, its strong cash balance, return on equity and 100% dividend payout further supports the case for a STRONG BUY rating.

• Seplat Plc – STRONG BUY (FVE: N828.90): Following a stronger than expected oil exit rate in Q2 19, we have revised our FY19E total production estimate slightly higher to 50,266 boepd (previous: 49,765boepd) and crude oil price to $63.9/bbl. (previous: $60/bbl.). This coupled with a surprise gas toll revenue of $67 million in Q2, increased 2019E revenue to $701 million (previous: $656 million). Thus, our 2019E EPS and FCF/s were revised higher to $0.33 and $0.12, from previous estimate of $0.31 and -$0.02, respectively.

Kindly, visit ARM Research Portal for full stock reports.