Nigeria | NGX

Given the sustained commodity and exchange rate pressures, we adjust our forecasts for Dangote Sugar Plc. On a year-on-year basis, global raw sugar prices are 21.7% higher (+4.4% YtD), while the Naira has weakened across the different FX markets (I&E: -2.8% YoY; Parallel: -17.1% YoY). Adjustments for these pressures resulted in an 8.8% contraction in our 12-month target price to N17.75 and a HOLD recommendation on the stock.

Unsurprisingly, gross earnings declined by 13.0% in FY’21, following the material contraction of trading income (-74.5%). Available breakdowns indicate that trading income constitutes 34.6% of NIR and 14.6% of gross earnings. Thus, its plunge (a consequence of tamer volatility) was the clearcut driver of earnings pressure in the period. However, improved market activities and volatility appear to have kickstarted the resurgence in the line item. We note the 3.2x surge in trading income in Q1’22, which, per attribution analysis, accounted for 75.3% of gross income growth in the quarter. We expect this momentum to subsist and forecast NIR 21.2% higher YoY at N116.1 billion in FY’22E.

We have revised our FY’22 earnings forecast for FIDELITYBK to N43.4 billion (vs N40.5 billion previously), after adjusting for the insights from the Q1’22 financial results. This new projection reflects changes to our net interest margin expectation (+70 bps to 4.7 %). We now expect the projected improvement in NIM to make up for lower non-interest revenue (NIR) and sustained cost pressures. Between FY’22 and FY’24, NIMs are also likely to average c.5.1% (vs 4.1% in previous projections) on rising yields, improving asset base, and expected temperance in cost of funds. Thus, we raise our 12 -month target price to N3.86 and revise our rating on the stock to a HOLD (BUY previously)

Following the release of the FY’21 and Q1’22 results and investor conference calls, we adjust our forecasts for UAC of Nigeria Plc. These adjustments result in an upgraded target price of N14.88. We retain a HOLD recommendation on the ticker.

We raise our 12-month target price (TP) for DANGCEM to N349.76 (vs N277.02 previously). Our new TP primarily reflects a revision to our 5-year mean revenue growth forecast to an average of 10.2% (vs 5.1% earlier and 18.3% over the last 5 years). We see scope for a 1-year total return of 23.3% (comprising a 16.6% in capital appreciation and 6.7% in dividend yield). Therefore, we upgrade our recommendation on the stock to a BUY.As mentioned in our previous report, prices remain the biggest single driver of DANGCEM's FY'22 earnings. This position is corroborated by the 36.4% YoY growth in domestic rev/tonne, which masked the 1.7% volume contraction in Q1'22 and cascaded to 34.3% sales growth in Nigeria. We expect prices to remain relatively elevated in the interim, given the heightened level of demand and the rise in energy costs such as diesel and gas prices.

Following FCMB’s impressive Q1’22 performance, we revise our FY’22 earnings expectation upwards to N23.8billion (vs N20.8 billion previously). Our robust earnings expectation primarily reflects an expected increase in net interest income on the impact of higher yields and an improved asset base. In addition, we believe that the bank’s digital banking efforts should further bolster revenue from net fees and commissions. Nevertheless, a significant downside risk to our expectation is the bank’s elevated operational cost.