Nigeria | NGX

Over 15 states in Nigeria are battling excessive flooding, with National Emergency Management Agency (NEMA) estimating that more than 600,000 persons have been displaced while over 637,000 hectares of cropland are submerged. The crisis has been attributed to the release of excess water from the Lagdo Dam in Cameroon, which cascaded into Nigeria through River Benue and its tributaries, thereby inundating communities. In our view, the ongoing challenge Is a downside risk to agric GDP growth and upside risk to inflation.

On the heels of the increase in Nigeria's equity risk premium, the third consecutive upward adjustment to the monetary policy rate, and a revision to the cash reserve ratio requirement for banks, we move to isolate the first and second-order effects on coverage companies. This report assesses the impacts of the following broad model adjustments on listed companies within our purview:

This report adopts a relative valuation methodology to estimate a 12- month Target Price (TP) for GEREGU following its recent listing on the stock exchange. In arriving at our TP, we used comparable power-generating companies across select emerging market economies as our peer universe. The asset base of these companies ranges from $132.7 million to $1.6 billion. This peer universe has grown revenue and PAT by an average 3-year CAGR of 16.0% and 9.9%, respectively. These performance numbers pale compared to GEREGU's 26.5% and 23.0%, respectively. This disparity in earnings growth could be explained by the age and growth phase of GEREGU (16 years vs the mean of 34 years for peers).

With the flourish in H1’22 seemingly a distant memory, investors’ pessimistic disposition toward domestic equities accelerated throughout September. While the first half of the month was generally lulled, market entropy amplified thereafter following the stubbornly elevated inflation print and the market anticipation of a more hawkish outcome from the MPC meeting.

We maintain our 12-month target price at N3.86 and our HOLD recommendation on the counter. While we continue to be encouraged by management’s initiatives to optimize balance sheet to maximize the benefits of the high-yield environment, we are wary of the potential impact of higher costs on earnings growth momentum.

Following a stellar H1'23 performance on the back of the material FX revaluation gains, we expect GTCO's FY'23 earnings to surpass our prior estimate of N251.6 billion to reach N338.72 billion. Our adjusted FY'23 earnings (+100.2% YoY) account for the higher-than-expected revaluation gain of N357.1 billion reported in H1'23 and the accretive impact of higher yields on the bank's net interest income (NII).