Nigeria | NGX

In its H1'22 results, UACN reported a N716 million loss driven by higher cost and a temperance in revenue growth across its key business segments. This underperformance and an increasing consumer sensitivity to price adjustments have necessitated an adjustment to our full-year projections and a reduction in our 12-month target price for UACN to N11.18 (vs 14.88 previously). In particular, we now project a five-year revenue CAGR of 5.9% (vs 11.5% in previous communication).

ZENITHBANK has delivered significant improvements from its retail strategy, which, most notably, resulted in a 2.5x increase in retail deposits to N2.6 trillion between 2017 and H1'22. Cost-of-funds (CoF) has also plunged from 5.8% in FY'17 to 1.5% in H1'22, aided by the aggressive retail tilt.

Following the release of H1'22 financials and subsequent conversations with management, we lower our EBIT expectations for DANGCEM across our forecast horizon. Specifically, we now expect an average EBIT of N737.7 billion over the next five years (vs N899.5 billion previously). Our cautious position primarily reflects the cumulative impact of higher energy prices and expected temperance in the pace of cement price increases as competition intensifies. We have a new 12-month target price (TP) of N322.58 (vs N349.76 previously).

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.