Nigeria | NGX

As an asset class, domestic equities largely outperformed global peers in H1’22, with the NGX All-Share index delivering a 17.9% local currency gain. Our diagnosis primarily revealed the impact of FY’21 & Q1’22 earnings releases, conflict-induced hike in commodity prices, and FX repatriation demand for dual-listed tickers. Notwithstanding, performance was largely lacklustre in July (-2.8%; 7M’12: +17.9%), which coincided with the Monetary Policy Committee’s second MPR increase of 2022 and relatively uninspiring Q2’22 earnings.

Dangote cement’s Revenue in H1 was impacted by the current inflationary pressures, FX depreciation and supply chain disruptions as its group volumes declined 5.5% y/y to 13.4m MT in H1 2023. However, the combination of increases in prices and strong volume growth from its Pan African operations came to the rescue, resulting in Revenue growth of 17.7% y/y in H1 2023. Net Income was N178.6bn in H1 2023, a 3.8% y/y growth compared to H1 2022.

In its latest communique, the Central Bank of Nigeria (CBN) announced an increase in the minimum interest rate on savings deposits to 30% of the monetary policy rate (MPR), currently pegged at 14.0%. Thus, savings depositors would effectively get a minimum of 4.2% per annum on their investments (vs 1.4% previously). This material revision was linked to the satisfactory recovery of the economy from COVID-19-related concerns. We, however, believe that the adjustment may be linked to the apex bank’s prior stated objective to arrest demand side triggers of inflation via a tighter monetary policy stance.

FCMB's H1'22 performance reflected sustained improvements from the previous quarter. As expected, the result rode on higher yields and better NIR. In this report, we examine the impact of the bank's continued efforts to drive its digital initiative and its intention to improve capital ratios.

DANGSUGAR's H1'22 results revealed sturdy revenue growth and operating efficiency. The robust top-line primarily reflected the impact of higher-than-expected volume outturn and pricing. Specifically, the company recorded a 40.5% and 60.6% surge in revenue PAT to N91.0 billion and N11.3 billion, outpacing our projections. Following adjustments to our model and assumptions, we revise our FY'22 topline and PAT forecast to N365.2 billion and N33.8 billion, respectively (vs N358.9 billion and N26.5 billion previously). We revise our gross margin expectations 3.5 ppts higher to 18.5ppts on a back of a pacier growth in revenue and improved production efficiency. Our revised revenue projection primarily reflects higher price assumptions, cued by the outcome of our retail price survey, which indicates that 50kg sugar prices have risen by 25.1% YoY in July 2022. In our view, this higher pricing dynamic underscores DANGSUGAR's ability to transfer costs to its customers. On costs, while we expect commodity prices to remain elevated year-on-year, the observed Q2 moderation in raw sugar prices (-5.7% QoQ) suggests that these pressures are likely to be relatively tamer in H2'22 (vs H1'22). ...

Following the release of its H1'22 unaudited results and subsequent conversations with management, we raise our earnings forecast for FY'22 to N24.1 billion (vs N20.1 billion). Our PAT adjustments reflect projected volume increases and sustenance of higher CPO prices on the back of parallel market FX weaknesses. These adjustments resulted in an increase in our 12-month target price (TP) to N223.25 (N183.22 previously) and a HOLD rating on the counter. ...