Nigeria | NGX

The Afrinvest weekly sentiment weakened to 1.7x (previously at 2.0x). This week, we expect market performance to be dictated by Q3’23 earnings release.

The outlook for Nigeria’s telecoms market remains positive. An increasing shift towards more advanced technologies, a relatively untapped internet market, an underserved rural population, and favorable demographics are all factors that suggest the Nigerian telecoms market still has untapped potential and will likely retain its foothold as Africa’s largest mobile market for some time to come. That said, the country’s economic struggles such as high levels of inflation and FX volatility continue to undermine the profits of industry players.

ZENITHBANK's non-interest revenue (NIR) will take centre stage in driving its FY'23 earnings performance. We expect NIR to contribute c.60.0% (vs 66.3% in H1’23) of operating income at N1.3 trillion. The robustness of NIR contribution is anchored on the materiality of its H1'23 FX revaluation gain of N355.6 billion. Positively for NIR, we expect this robustness of FX gains to mask the noticeable weakness in net fee and commission income (-7.8% YoY in H1'23).

In FY’23, STANBIC’s earnings will likely cross the N100 billion mark to c.N125.5 billion based on the improvement in operating income. Unlike most banks in H1'23, STANBIC's relatively modest FX gains of c.N14.0 billion (on the bank's <$50 million net-open position), even though supportive, was not at the forefront of the earnings drive. Ex-revaluation gain, the bank's most noticeable tailwind emerged from the improvement of NII (+44.3% to N72.7 billion) and from the impact of FX liberalisation on trading income as the bank recorded a c.2.0x growth in trading income to N30.7billion.

In H1’23, FIDELITYBK revealed that the changes in its share capital and premium emanated from the private placement of 3.0 billion shares at 50 kobo each. This capital injection, coupled with the bank’s intended capital raise via a right issue of 3.2 billion shares and a public offer, reflects the impetus to support the bank’s capital ratio and operational expansions. We adjusted our 12-month target price to N8.34 (vs. N10.50 previously) and revised our rating on the stock to a HOLD (previously a BUY) to account for the projected ROE contraction over our forecast horizon.

In September, the performance of global equities remained underwhelming, with the MSCI world (-4.5%) and MSCI emerging market (-2.81%) indices declining for the second consecutive month. This bearish undertone was likely due to the dollar strengthening amidst renewed inflation concerns, weak macroeconomic numbers in China, and a sharper-than-expected increase in crude oil prices. To the first point, the US dollar index touched its highest point in the year in September as a second straight surge in inflation to 3.7% (vs consensus of 3.6%) further entrenched expectations of higher-for-longer interest rates. Elsewhere, macroeconomic issues remained underscored by China's deepening real estate crisis and high youth unemployment. These issues have forced the World Bank to cut the country's growth forecast to 4.4% (vs. 4.8% in April and the country's central bank target of 5.0%). Similar to the US and China, European equities were negatively impacted by a fourth consecutive contraction in PMI to 47.1 in September, highlighting possible weaknesses in private sector activities.