Nigeria | NGX

2023 has underscored the importance of ETI's geographically diverse model. The group navigated major currency devaluation and macroeconomic frailties in some regions of operations to report strong H1'23 earnings. Despite the political situation in Niger and other legacy issues like the weak debt profile in some markets, we expect the bank's earnings to remain resilient, buoyed by higher yields and a strong ability to reprice credit assets, 50.0% of which matures in less than a year.

Economic traction was capped in the second quarter of the year, as sustained headwinds in the oil and gas sector led to a GDP growth of 2.5% YoY, defying analyst expectations of 2.8% YoY. The print was the lowest Q2 GDP growth since the exit from the pandemic. The oil sector (-13.4% YoY) shaved off about 80bps from growth, as average crude oil production (1.22mb/d) in the review quarter touched the second lowest point since 2013. We attribute the uninspiring oil outturn to the leakages in the Forcados terminals, ageing infrastructure and strike action by oil workers.

We initiate coverage on Airtel Africa Plc (AIRTELAFRI) with a 12-month Target Price (TP) and projected market capitalization of N1,559.44 and N5.9 trillion, respectively. Our TP implies a total return of 27.8% (comprising expected capital appreciation of 24.8% and a dividend yield of 3.1%) and a BUY recommendation on the stock.

MTN Nigeria’s H1 2023 numbers were buoyed largely by double-digit growth in voice (12.1% y/y to N562.6bn) and data revenue (+34.9% y/y to N470bn), amidst inflationary growth in Operating Expenses (+18.8% y/y to N267.3bn). A net FX loss of N131.5bn contributed significantly to the decline witnessed in Pre-tax Profit, which declined by 25.4% y/y to N200.3bn in H1 2023 from N268.6bn in H1 2022.

Despite the smuggling-induced volume and price weaknesses in the first half of the year, we leave our FY'23 top-line expectation for OKOMU unchanged at N83.24 billion. This optimism is hinged on the expected impact of the over 13.7%-naira depreciation at the parallel market between June 2023 and August 2023 (or weaker 27.9% YoY), which should support local CPO prices in H2'23. We, however, lower our earnings expectation due to the likely sustenance of inflation-induced margin pressures in FY'23.

Navigating African LCY sovereign credits has been challenging, with subpar performances predominant in the earlier part of the year. However, financing conditions are improving, inspired by softer inflation in the developed market. For context, US inflation rose at its slowest pace in more than two years in June, reinforcing the views that the US Fed is nearing the end of the current interest rate-hiking cycle. The cooling inflation has also accelerated a decline in the dollar (-1.3% YtD), with potential positive pass-through to African LCY credits.