Stock buys at the end of year (in the last one week of the year) are usually tied strategically to new year positioning with blue chip companies getting most favourable trades.
Consequently, many investment houses, notably, Afrinvest West Africa and Greenwich Trust Limited, have drawn up top picks for investors between last week and this week as follows:
Dangote Cement Plc
The company is the largest cement manufacturing company in Sub-Saharan Africa with a production capacity of approximately 40.0m MT per annum.
The company has the largest market share in Nigeria with the largest installed plant capacity (29.3m MT per annum).
Also the largest publicly traded stock on the NSE by market capitalization (30.8% of the capitalization-weighted All Share Index -ASI).
The company has also embarked on comprehensive CAPEX investment on plants and import terminals to expand operation to other Sub-Saharan Africa countries.
Commercial scale production has commenced in Integrated plants built in South Africa, Senegal, Zambia and Ethiopia. Grinding plants have also opened in Cameroon and Delmas, South Africa.
The company has consistently delivered solid profitability and efficient performances. In the third quarter, 2016, gross revenue rose 21% year-on-year, YoY, to N442.1 billion, whilst profit after tax, PAT, contracted 15.5% YoY to N133.5 billion.
The company’s diversified operation across the Sub-region is expected to reduce exposure to the slowdown in sales volume in Nigeria. Nevertheless, the company faces downside risk of the falling exchange rate impact on production cost.
The company also has a consistent dividend payment history.
Just before last week’s recommendations Dangote Cement was trading at a price of 170.00 (16/12/2016) and 14-day RSI of 66.1 and analysts say it is still an attractive entry point for medium to long-term investors.
The company has a huge public sector portfolio which includes: Permanent Site of the National Institute for Legislative Studies, Abuja, New Residences for Presiding Officers of the National Assembly, Abuja, Rehabilitation & Extension of Airport Expressway, Abuja, Rehabilitation of Badia Roads,Lagos, Lagos–Badagry Expressway,Lagos, Lagos–Ibadan Dual Carriageway, Section 1, Lagos–Shagamu, and many more. (these are all on-going).
We expect that with the focus of the government on infrastructure development a lot of the alloted N1.8trillion (30% of the total budget for 2016) will go to ongoing projects across the country. This will boost JB’s revenue base and profitability for the 2016 fiscal year.
With further increases in budgetary allocations to this sector in 2017 proposed budget, the company is expected to do better in the years ahead.
In addition to the on-going projects, the company has also won new projects: Asokoro Conference Centre, Abuja, Dangote Jetty Apapa, Lagos, Uyo–Etinan Road, Akwa Ibom, Upgrade of NLNG MOF Jetty, Bonny Island,Dualisation Oil Mill Elelenwo Akpajo Road, Port Harcourt, No Potholes Programme, Port Harcourt. These in addtion to the company’s other business arms will ensure sustainability in revenue base going forward.
Despite the challenges in the Nigerian financial services sector, with rising loan loss provisions as a result of their exposure to the oil and gas sector as well as the potentially toxic power sector, doubts about asset quality and weakening Capital Adequacy Ratio, CAR, we still see opportunities in the tier one banks.
Zenith bank has one of the strongest CAR’s in the sector and continues to leverage on its stringent risk assessment framework to mitigate capital erosion. The Bank’s balance sheet size is a major incentive for us at this time because we believe that its size/liquidity is a competitive edge in an economy awash with opportunities like the Nigerian economy.
The bank also has strong brand acceptability and a wide branch spread
Okomu Oil Palm
Currently stands as one of the lead quoted firm operating in the agricultural sector. Its operations primarily covers oil palm and rubber production, extraction and processing.
With the increasing efforts by the government to boost activities in the agricultural sector in order to provide effective diversification of the economy from oil, the company is well positioned to benefit from this.
Towards this goal, it recently acquired 11,400 hectares of land with a plan to establish 10,000 hectares of oil palm plantation on it within the next 3 years.
This is expected to lead to a doubling of its Crude Palm Oil (CPO) output. The Company’s refinery capacity has also been increased to 100 metric tonnes per day, while its fractionation plant capacity and refined products capacity have both increased to 60 tonnes per day.
Okomu refining and oil mill expansion initiatives will enable the company alleviate the local palm oil production shortage and in turn acquire a greater share of the Nigeria market.
Total Nigeria is one of the foremost oil and gas companies in the Nigerian oil sector. The company is one of the largest in terms of retail outlets across the country and leverages on these outlets to push sales volume.
The company has also benefitted from the deregulation of the downstream sector where it operates as a result of its retail presence in the volume driven oil marketing space. The company pays consistent dividend and is a firm pick with PFA’s and FPI’s .
The strong growth in its 9M-2016 revenue and PAT has heightened expectation for a strong dividend payment when FY 2016 numbers are released.