FSDH Bullish

FSDH kicks out DANGCEM from top picks, positive on Telcos, Healthcare, Agriculture

Research analysts at FSDH Merchant Bank has revealed that it has kicked out Dangote Cement from its top 10 picks amid rising COVID-19 cases.

However, analysts at the firm stated that they have introduced United Africa Company of Nigeria (UACN).

Analysts at the firm explained the company has been undergoing significant rebranding and restructuring, which is positioning it for a significant upsurge in value.

According to FSDH, the list of its 10 top picks include NSE All Share Index with 7.8% dividend yield, GTBank 14.8%, Zenith 19.9% and UBA 16.9%.

Access Bank dividend yield settled at 10.5%, Stanbic Bank 10.5%, UACN 1.6% and NESTLE 7.7%.

Others include Flour mills 5.7%, Dangote Sugar 9.2%, Okomu Oil 5.4% and MTN Nigeria 4.8%.

Analysts explained that there are three key sectors that are expected to outperform target despite the lockdown.

The financial service firm stated that it remains bullish on Telecommunication, Healthcare and Pharmaceutical as well as Food and Agriculture sectors.

FSDH considered the fact that the pandemic has continued to ravage the global economy with the number of confirmed cases & deaths steadily rising.

It stated that economic activity has slowed down as businesses are closed and trade is restricted across various sectors.

Nevertheless, FSDH sees some sectors with huge potential to record growth during this crisis.

Analysts at FSDH said there are three of such sectors that caught its attention for now. These include; Telecommunications, Healthcare & Pharmaceuticals, and Food & Agriculture.

Telecommunications

FSDH stated that measures put in place to curb the spread of the Coronavirus puts the telecoms sector as the biggest beneficiary of the pandemic.

In the telecom sector, analysts there is two service providers MTN Nigeria and Airtel listed on the Nigerian Stock Exchange.

The firm explained that most formal businesses have now moved to working from home, which requires increased data consumption on the part of employees.

“we note that with individuals sitting at home all day, social media activities have received a significant boost while visits to streaming platforms have become a norm in a bid to provide some sort of entertainment”, FSDH stated in the report.

Analysts remarked that over the past 2 years, the telecoms sector grew 11.3% and 11.4% in real GDP terms in 2018 and 2019, driven by increased smartphone penetration and internet adoption.

“We expect the sector to record sustained accelerated growth in 2020 on the back of increased internet usage”, analysts projected.

Healthcare & Pharmaceuticals

FSDH is of the view that health and pharmaceutical industry would enjoy fiscal & monetary interventions to provide significant growth support.

Analysts noted that in Nigeria, the sector is expected to be a major beneficiary of the spillover of interventions in the short and long term.

It hinge the prediction on the fact that the fast spreading pandemic has led to increased demand for healthcare products.

Market has recorded increased demand for immune system boosters, protective gloves, face masks, hand sanitizers and other preventive healthcare products.

FSDH said it expects this to support the revenue of healthcare companies in the near term.

“The big impact, is the expected attention the healthcare sector is expected to receive over the next few years, as government and other stakeholders’ ramp up investments in the sector”, analysts explained.

Analysts recalled that the CBN has laid down the first marker in its series of supportive interventions, amidst several efforts to curb the impact of the COVID19 outbreak.

In its communique on 25th March, the CBN announced the setting up of a N100 billion credit support fund targeted at the healthcare sector.

The fund would provide working capital loans as well as term loans to healthcare players to support expansion activities, research and similar activities.

The loans would come at interest rates of 5% p.a. till 28th February 2021 and climb to 9% for the rest of the loan duration.

“We expect these funding measures to provide significant support for the private led sector like the pharmaceutical industry”, FSDH stated.

Analysts said some of the listed healthcare names such as May & Baker, FIDSON, NEIMETH, and Union Diagnostics etc. are expected to be at the forefront of these growth initiatives.

Food & Agriculture

In the food and agriculture segment, analysts said lockdown induced stockpiling to support growth in the near term.

The Food and Agriculture sector is expected to continue to do well in the face of the challenges posed by the pandemic.

The product offerings of this sector are very inelastic and would always feature at the top of the average consumer’s budget.

“We note that since the announcement of the lockdown measures, we have seen increased stockpiling by consumers ahead of what is expected to remain a lengthy lockdown period, as the Nigerian curve remains far from its peak.

“Thus, we expect sustained buying by consumers would support retails food sales in the near term.

“In the longer term, we see some risks as income levels decline and consumers lose their jobs. However, we expect the inelastic and essential nature of these products to sustain growth”, FSDH explained.

Analysts stated that in the agriculture space, policies have been put in place by governments (Federal & Subnational) to aid continued activities of the sector, while ensuring the food supply chain is not disrupted.

For example, while inter-state travel across Nigeria has been banned, the government has ensured transportation of agricultural inputs & produce to & from farms are not affected after granting special permits.

Furthermore, significant investments are being made in agriculture as efforts continue to be put in place to ensure food sufficiency even as the pandemic continues to ravage on.

Meanwhile, analysts expect mining and quarrying, manufacturing, construction and trade to be impacted negatively.

Others sector that the development would impact negatively include hospitality, transportation, real estate, art and entertainment among others.

FSDH kicks out DANGCEM from top picks, positive on Telcos, Healthcare, Agriculture