By SESAN LAOYE
The market has shown signs of a bullish trend this year having already gained 9.6 per cent in the first ten trading days. The negative returns of -14.60 per cent have been put behind as many investors are looking forward with expectations for the better. Despite the impact of the weak macroeconomic landscape; fiscal and monetary policy direction; underwhelming trends in Foreign Portfolio Investments; concerns around the stability of the naira, moderate corporate earnings, the price of crude among other factors, some big companies will still play a huge role in determining market trends this year.
However, the stocks which have shaped the market in recent times include Dangote Cement Plc, Airtel Africa Plc, MTN Communications Plc, BUA Cement Plc and Nestle Nigeria Plc.
These according to experts, are heavy-duty stocks which influence the market outcome daily, in terms of the bears and bulls disposition. Research has shown that if these stocks decline in prices they drag down the market while the market gains or gets a lift when the converse happens.
These heavy-duty stocks have huge capitalization which enables them influence the daily market outcome. For instance, the highest capitalized stock at the trading chart is Dangote Cement with N2.896 trillion. This is followed by MTN whose capitalization stood at N2.452trillion as at January 15, 2020. BUA Cement’s stock ranks third on market capitalization with N1.286 trillion while Nestle Nigeria also boasts of N1.165 trillion. The Airtel African took the fifth position with a market capitalization of N1.123 trillion.
A combination of these five companies comes to a capitalization sum of N6.216 trillion. This represents 41 per cent of the capitalization of the N15.141trillion market capitalization as at January 16, 2020. So a downtime for these stocks constitutes a down time for the market.
However, individually, the stocks have proved to be strong among other characteristics that give them the big stature they assume in the market place.
For instance, with a capitalization of N2, 896 trillion, Dangote Cement is the most capitalized company on the Premium Board of the price chart. It accounts for 19.1 per cent of the market capitalisation with outstanding shares of 17,040,507,405 million as at January 15, 2020.
With the capitalization of N2,452,718,822,525.00, MTN Communication Plc is ranked second in that order. It accounts for 16.1 per cent capitalization of the equities market and outstanding shares of 20,354,513,050 million. The third position is occupied by BUA Cement Plc with a market capitalization of N1.286 trillion, representing 8.4 per cent of the total market capitalization. Its outstanding shares stood at 33,864,354,060 shares.
Nestle Nigeria used to be the most capitalized stock at some point when Dangote Cement and others had not come to compete in the market. But today, Nestle Nigeria is the fourth most capitalized stock in the market. The company’s market capitalization stands at N1.165trillion, representing 7.6 per cent of the total market capitalization. Its outstanding shares stood at 792,656, 252 million.
Airtel, one of the largest telephone networks, ranks number 5 in the top most capitalized stocks with N1.123million, representing 7.4 per cent of the total market capitalization. Airtel’s outstanding shares stood at 3,758,151,505 million.
These firms appear solid and with strong fundamentals. This is reflected in their scorecards below.
Nestle Nigeria Plc
Though Nestle Nigeria’s stock closed flat in the last 8 trading days at N1,469.90 per share, it is a blue chip given its antecedents. It is the highest valued stock on the Nigerian Stock Exchange with history of sustained payment of dividends to its shareholders. Though it can prove to be illiquid sometimes, but investors in its shares hardly sell their stake. Nestle Nigeria belongs to the F&B family with strong fundamentals.
Nestle Nigeria recorded a revenue of N211.3 billion – a growth of 4.0 percent over the same period in the previous year and a profit after tax of N36.8 billion. Its unaudited financial statements reveal that Nestlé Nigeria Plc posted revenue of N69.4 billion and profit after tax of N10.6 billion in Q3 2019.
Consequently, its Board approved an interim dividend of N25 per share.
Mr. Mauricio Alarcon, Managing Director and CEO of Nestlé Nigeria Plc said, “We are pleased to have again, recorded revenue growth in the increasingly volatile business environment.
“This indicates the strength of our brands and our consumers’ appreciation of the high quality affordable nutritious food and beverages we offer to Nigerians every day.
“As we approach the last quarter, we will maintain focus on efficient execution while we accelerate our marketing investments to expand the accessibility of our products.’’
Nestle Nigeria Plc began trading operations in Nigeria in 1961 and has grown into the leading Food and Beverage Company in West Africa.
It employs around 2,400 people and three world-class factories.
The company manufactures and markets a range of highly nutritious brands, including Nestle Pure Life, Golden Morn, Milo, Kitkat, Maggi, Nescafe and Cerelac.
Dangote Cement has been tipped as one of the stocks to bet on in 2020. The company records huge sells every year. It is a popular brand that has dominated the African Cement market leaving its competitors like very far behind. Dangote Cement accounts for over 60 per cent of the cement market in Nigeria.
Whereas it declared N154. 35bn Profit After Tax in third quarter 2019, its revenue also declined by 0.8 to N679billion due high cost of operations. The company’s unaudited result for September 30, 2019 shows that profit before tax also declined by 20.1 per cent as asset also eased by 13.3 per cent to N856billion.
The low performance had been blamed partly on bad road that especially that of Apapa where the Port is located. The company said it lost over N50bn to bad road and congestion of the ports. But things may be looking up for the company given the construction of Oshodi –Apapa road which Dangote himself is handling for the government. This will ease transportation and timely evacuation of the company’s raw materials which are usually delayed at a high cost to the company.
Many industry analysts believe that the sector may be favoured this year given the capital budget of over N2.5 trillion for infrastructure. More interesting is that the Company has just head hunted the Managing Director of its main competitor, Lafarge Cement.
Ever since the Nigerian economy began to slip into very slow motion in growth terms, it has become difficult for firms to sustain a good profit position on the shrinking Gross Domestic growth (GDP) which stood at 2.3 percent in the third quarter of 2019. It share closed at N175.00 per share.
Although the Nigerian Stock Exchange’s All Share Index (ASI or All Share Index) posted a negative return of -14.60% to close the year at 26,842.07, the ASI reached a year-high of 32,715.20 in February 2019. Furthermore, the equity market capitalization increased by 10.55% to N12.97Tn from N11.73Tn in 2018, largely due to sustained primary market activities throughout the year, most notably the listings of MTN Nigeria Communications Plc and Airtel Africa.
To support the equity market in 2019, The Exchange rolled out various initiatives such as:
- A new market structure to enhance liquidity and ensure overall market stability alongside efficiency,
- The launch of the beta version of the X-Mobile (a dynamic and user-friendly mobile app) to boost retail investors’ participation.
The fixed income market performed exceptionally well in 2019, as market capitalization increased by 20.42% to N12.92Tn from N10.72Tn in 2018. Turnover also increased by 389.26% when compared to 2018 although capital raising was dominated by the Federal Government, being responsible for 60% of bond issuances during the period in a bid to finance fiscal and infrastructure deficits.
MTN Communications Plc
MTN’s revenue grew by 12.04 per cent in the third quarter 2019 from N746.46billion in the previous year. Profit before tax grew by 23.95 per cent to N212billion from N171billion in the corresponding period.
The Company’s profit after tax grew by 28.94 per cent to N148.32 billion from N115.o3 billion.
However, Net Asset also declined by 58 per cent to N90.66 from N219.35 billion as at December 31, 2018.
The MTN Group sustained some momentum in its results for the 9 months to September 2019 with service revenue growing 9,6% and its EBITDA margin improving by 0,6% to 35,1%. During the quarter the group added 3,5m subscribers and now serves 244 million customers across its 21 markets.
Commenting on the update, MTN Group CEO Rob Shuter said: “Service revenue growth and improvements in our EBITDA margin continued into the third quarter. We remain committed to driving access to internet and financial services and in Q3 we added 4.7 million active data users and 2.2 million Mobile Money subscribers across the portfolio. Our Ayoba messaging platform is now available across five markets and is already recording 515,000 active users per month.”
He explained, “Although conditions have been tougher in the year, we have sustained our performance in 2019 and looking forward, we are focussed on executing our BRIGHT strategy to deliver sustainable growth in our operations and to simplify our portfolio to reduce risk and improve returns. We remain resolute and committed to building our digital operator strategy and delivering on our medium-term targets and dividend policy.
BUA CEMENT Plc
BUA Cement is the latest company to join the likes of MTN, Dangote Cement, Nestle and Airtel as stocks with a market capitalization in excess of N1 trillion. BUA became a member of that club by a merger of three Cement making companies. The cement company just listed on the floor of the Nigerian Stock Exchange 33.86 billion ordinary shares at N35 per share.
CCNN and Kalambaina were both owned by BUA Cement, one of Nigeria’s leading building materials company and a dominant force in the Cement Business, in the northern part of Nigeria. Its share price closed at N36.00 per share on Friday January 17, 2020.
AIRTEL AFRICA PLC
Airtel Africa Plc grew its customers base grew by 10.4% to 104 Million in the half year ended October 2019. At the close of the second quarter its revenue increased by 8.4% to $ 1,640 Million in H1 with Q2 growth accelerating to 9.8% •
In constant currency terms revenue grew 11.4% in H1 and 12.6% in Q2. This was the 7thconsecutive quarter of double-digit constant currency growth. The constant currency revenue growth of 11.4% was driven by double-digit growth in Nigeria and East Africa, partially offset by a slight decrease in Rest of Africa •
The company’s growth was broad based across all services, with revenue in Voice, Data and Mobile Money up by 3.2%, 37.8% and 46.5% respectively •
Reported underlying EBITDA was $ 719 Million in H1, up 10.9%, while constant currency underlying EBITDA growth was 13.7% over the same period •
Underlying EBITDA margin in reported currency was 43.9% in H1, an increase of 100 bps, while there was an increase of 90 bps in constant currency terms •
Operating profit increased 8.6% • Free cash flow was $ 237 Mn, up by 28% in H1 •
EPS before exceptional items was $ 4.1¢ and Basic EPS was $ 6.3¢ • Net debt to EBITDA was 2.3x, compared to 5.1x as of September 2018 • The board declared an interim dividend of 3 cents per share. Its share price closed the week at N298.90 per share.
Analysts consider these stocks as the giants in the market which determine the direction of the market each there is movement in them.
“Any little movement in any of those stocks will determine the direction of the market.
They are the premium stocks and they are highly rated. They are the giants of the market any time they cough or sneeze the market will catch cold,’’ said Mr. David Adonri, Managing Director of High Cap Securities limited.