Nigeria | NGX

In its recently released FY-2020 scorecard, NB reported a 4.3% y/y growth in Revenue, printing at N337.0bn, from N323.0bn in FY-2019. The growth in Revenue was driven by a solid recovery in H2-2020 where Revenue grew 21.2% y/y compared to 10.8% y/y decline in H1-2020. The company faced significant cost pressures during the year, emanating from inflationary pressures and naira devaluation impact on raw material costs. As a result, Gross profit fell 9.6% y/y to N118.7bn. Despite controlled Operating expenses, higher Finance costs (up 50.8% y/y) pressured profitability during the year as Pre-Tax profits and Net income plunged 50.4% and 54.3% to N11.6bn and N7.4bn, respectively. We review our forecasts for the company and present our outlook below.

Zenith Bank Plc (“ZENITH”) released its FY-2020 results earlier, reportinga 5.2%y/y growth in Gross Earnings (GE) to N696.5bn. Also, PBT and PAT rose 5.2% and 10.4% to N255.9bn and N230.6bn while Loans and deposits expanded by 19.1% and 25.3% to N3.6trn and N5.3trnrespectively. We update our estimates and we review our expectations below.

In the previous week, major activities in the macro space tilted towards growth and fiscal balance. On growth, the IMF stated in its latest Article IV consultation for Nigeria that growth expectation for Nigeria is projected to come in at 1.5% in2021, lower than the 2.0% expectation by the CBN. Revised forecast by the IMF is based onpolicy inadequacy amid the threat of the second wave of Covid-19 infections. Also, the IMF believes that growth in Nigeria can only return to pre-COVID 19 era in 2022. On the fiscal side, the CBN revealed that FG’s fiscal deficit rose by N208.1bn to N620.5bn as of the end of November from N421.4bn at the end of October.

Global growth was brought to a screeching halt, as the impact of the unprecedented event dampened growth forecasts, induced financial market shocks, risk aversions and supply-chain disruptions, prompting broad-based monetary and fiscal responses. The coronavirus pandemic which emerged from Wuhan, China spread over 150 countries, claiming over 2.0mn lives so far, with rising numbers of international cases, that necessitated partial or complete lockdowns. Hence, trickling economic data recorded historic fallouts worse than the aftermath of the 2008-09 Global Financial Crisis (GFC), as the International Monetary Fund (IMF) projects a 3.5% downturn in the global economy in 2020, with an expected rebound of 5.5% in 2021.

Drawing inspiration from the Irish poem "Second Coming", written in the aftermath of the First World War in 1919 amid a rampaging flu pandemic, we argue that the fate of several countries hangs in the balance in the face of the second wave of the deadly COVID-19 virus. The re-opening of economies combined with slack preventive measures and the evolution of mutated strains of the virus opened the doors to the second wave of widespread infections. The globe's economic fate now rests on the success or otherwise of distributing a few vaccines, with broad expectation skewed in favour of a V-shaped recovery. In Nigeria, the V-shaped recovery is likely to be led by the non-oil sector on the impact of 2020 low base effect, a ramp-up of government spending, increase in credit creation and sustained normalisation of economic activities. The current pace of yield increases is likely to moderate in Q1'21 on the impact of excessive liquidity but pick pace in Q2'21. Our expectation of an eventual pick-up in yields reflects lower OMO maturities, lesser dovish inclinations on macro recovery, and a wider budget deficit. Thus, investors are likely to stay short in the fixed income space. The government could also frontload greater than expected domestic borrowing ahead of a potential pick-up in yields, especially if there are signs that external funding conditions could deteriorate. In the equities market, we expect investors to take advantage of bargain hunting opportunities in cheap,

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In 2021, we expect the global economy to take ‘a shot at recovery’, thanks to the announcement and approval of effective Covid-19 vaccines. The risks of re-emerging infections remain high, however, and much will depend on the speed, scale, and long- term effectiveness of vaccination. Away from the virus, the outcome of the recent US presidential election which will see Joe Biden replace President Trump from January 2021 greatly reduces political risk. Also, a Joe Biden presidency is positive for global trade and efforts against climate change.

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