MAKING THE BEST USE OF Q2 EARNINGS:

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475
earnings

 

Ibikunle olorunyomi 

 July 27, 2017 was sure a remarkable day for Guaranty Trust Bank Plc as its stock price on the floor of the Nigerian Stock Exchange touched a price of N41, nine and half years after the previous height of the 40.76 was attained on March 05, 2008. As if that was not enough, two days later, on July 29, 2017, the price touched, for the first time in history, an all-time high of N42 per share. Guess what? The stock does not look tired but rather set for higher height though in a subtle manner. Like earlier stated, these dates- July 27, 2017 and July 29, 2017 were significant as a full recovery in price was achieved after about nine and half years of struggles, persistence and consistent attempts at breaking the barrier set by the 2008 price levels before the market crash.

 

It suffices to state categorically that significantly, in price performance, Guaranty Trust Bank Plc is the first bank stock to totally wipe off the losses arising from the Nigerian stock market crash of 2008. Nestle, Nigerian Breweries, 7up, Unilever, Guinness, Okomu and Presco are others that had, earlier broken and considerably surpassed the 2008 price limit.

 

In view of the foregoing, it is unarguable to infer that the best investment possible anywhere is the stock market because, recovery is possible after a loss regardless the length of time it takes. In addition, the best strategy as far as the stock market in concerned still remains the long-term hold BUT in the stock of a good company and industry. Of course, short term profits could be taken at interval but advisably, though finding the good stock might be difficult but when such is found, holding on to it could be tremendously profitable.

For example, between the crash and recovery of Guaranty Trust Bank Plc’ stock price, there was a low of N7.90 on January 28, 2009. Investing and holding on to the stock, not even calculating the cash dividend payout within the period would have seen an investment of N79,000:00 amounting to N410,000:00 today or about 490%. Spreading this over a nine and half year’s period gives an annual growth of 44%. To that extent, it becomes a classic approach to investing buy purchasing stocks of good company and take higher risk should the price of such stock comes below cost.

The stock market is a mono-item entity but these identical items are of varied capabilities and status. Consequently, if you miss out in Guaranty Trust Bank’s recovery, why not seek others with such potential opportunities particularly in same industry? Truth is, if Guaranty can perform this much, there a few others in same industry too with possibilities. Please note, the waiting might take years as in the case of Guaranty but it will surely come. In same industry, ACCESS, ZENITH and UBA in that order stand out.

PICKING THE BEST OF Q2 EARNINGS:

  • Midyear performance is significant because it tells of possibilities going forward. This is so because it is generally understood that events that will shape the year would have been in force that what the first quarter portrays.
  • In a typical Q2 earnings release, profit growth must of necessity match price to earnings ratio to make investment. In other words, look for stocks of companies with significant earnings growth and lower P/E ratio.
  • Tracing previous performances to current level of performances in earnings is necessary.

 

Below are the earnings updates released last week.

Wapic Insurance Plc

Wapic Insurance Plc in a notice to the Nigerian Stock Exchange said that its six months 2017 gross premium written being the second quarter ended June 2017 appreciated by 31% per cent to stand at N5.89 billion when compared to N4.49billion recorded in same period of 2016.

The Profit after Taxation also appreciated from N168.6million in second quarter of 2016 to N395.6million in same quarter of 2017, this representing an increase of 135%.

The improved bottom-line figure consequently boost the insurer’s earnings per share to 3kobo, about 200% higher than the 1kobo earned in the previous period.

The pe ratio stands at 16.67x having an earnings yield of 6% as at the end of the period under review.

Great Nigeria Insurance Plc

As revealed in its half year result released to the Nigerian Stock Exchange (NSE) and made available to the public, the insurer’s gross premium written was up to about N2billion, which is remarkably about 94% improvement in turnover when compared to the previous year gross premium written which stood at about N1billion.

The insurance company reported a declined profit after tax of N345.8million in the period under review, which is a 24% dropped from the N453million net profit reported in the preceding year.

The earnings per share for the period under review stood at 9kobo, 24% decline away from the 12kobo earned in the last same period.

The pe ratio is estimated to be 5x with an earnings yield of 18%.

CORNERSTONE INS

Top underwriter, Cornerstone Insurance Plc.’s revenue declined marginally by 6% at the end of 30, June 2017, examining its year to date turnover vis-à-vis its 2016 performance of the same period.

According to the reports submitted to the Nigerian Stock Exchange (NSE) , cornerstone’s N1.1billion  reported profit after tax in the last period plummeted 176% to arrive at a loss of N866.5million

The company loss N8.33kobo per share within the period under review.

MCNICHOLS

McNichols consolidated plc reported 60% fall in profit to N14.2 billion compared to N35.8 billion in the previous period, as the revenue was lower at N470.8billion against the N554.6billion recorded a year earlier. This represents a 15% decline in turnover growth.

Earnings per share also declined 60% from 10 to 4kobo in the corresponding period.

The pe ratio stood 33x and the stock has an earnings yield of about 2%

FORTE OIL

The half-year (H1) results for the period ended June 30, 2017 of the oil and gas empire was on Monday released to the Nigeria Stock Exchange (NSE).

The oil marketer in its filling shown that its revenue dropped 22% from N84.4billion recorded in same period of 2016 to N65.7billion of 2017.

However, the profit after tax of the company increased to N4.1billion from N2.2billion reported in the previous period of 2016, this indicating a growth of 84% in the corresponding year.

A critical examination of the results revealed that, reductions in the cost of sales amounting to about N72billion in 2016 to about N53.5billion in 2017, and income tax expenses of about N2billion in 2016 to N628million in 2017are responsible for the enhanced bottom-line digits in spite of the drop in gross sales income.

Similarly The Company’s earnings per share for the period arrived at N3.16kobo after it grew 84% from the previous N1.72 earnings per share of one year ago.
The stock at the current price has an earnings yield of 5% and the pea ratio at 19x.

AFRICAN ALLIANCE

African Alliance insurance company in its financial report for the second quarter of 2017 recorded N1.2billion net loss. The loss though represents a 62% recovery attempt from the previous loss after tax of about N3billion.

The insurance company’s gross income was N9.9billion in q2 2016 but declined by 68% to N3.2billion as reported in the current period under review.

The company still losing 6kobo per share against the 15kobo loss of 2016.

Pharma-Deko Plc

Pharma-deko financial statement for the half year ended June 30 2016 shows that the company’s sales was up 84% when we compare the reported N697million turnover Of the current period with the previous N379million in 2016.

The improved sale sure impacted the bottom-line of the firm. The previous loss after tax of N138million contracted to arrive at about N45m, a 67% year on year growth.

OKOMU OIL PLC

Okomu Oil’s half year 2017’s results came in strong and project a lot of positive sentiments as expected.

Okomu Oil Palm did not fail to deliver in this second quarter of 2017, effectively validating the federal government’s calls for more focus on agricultural.

We believe that the okomu sales growth can be characterized by rise in both volume and pricing of palm oil, Owing to the CBN’s restriction of foreign exchange to palm oil importers and the devaluation of the currency, Okomu has been able to benefit from reduced competition and favorable pricing.

Okomu’s H1 2017 results shows sales growth of 65% from N7.5billion to N12.5billion in the corresponding year.

The profit after tax advanced by wider margins of 73% yny from N3.59billion to N6.2billion.

The earnings per share grew also by 73% to N6.54kobo from the previous N3.77kobo.

The pe ratio stands at 11x with earnings yield of about 8%.

PRESCO PLC

Presco, similar to what its industry counterpart did, reported its Q2 2017 results last week showing a yny sales growth of 71%, from to N7.5billion to about N12.8billion.

Similarly, profit after tax in the corresponding period increased by 84%% yny, from N3billion to N5.5billion, surpassing slightly the topline growth performance.

The company continued to benefit from increased demand following encouraging government policy on crude palm oil imports. This has also given it increased pricing power.

Year-to-date, Presco earnings per share grew 84%, from N3.01kobo to N.56kobo outperforming the Nigerian all share index by 48.5% in the same period.

presco pe ratio above 10x, by our rating may not be too fantastic as the price at which its trading calls for caution.

THE INITIATES

The Initiates PLC is a Nigerian indigenous company delivering international standard contracting and consultancy services in Waste Management, Industrial Cleaning, and Decontamination to both Private and Public sectors including the Oil & Gas Industry. The company

The initiates in its financial report for second quarter 2017 reported lowered N181.4million revenue against N303million reported same period 2016.

The profit after tax however improved marginal 2%, comparing the current N38.6million to the previous N37.8million

It’s reduced costs of sales and finance cost for the period helped the company stick up to a profit position despite its declined gross income.

The company’s earnings per share stood at 4kobo, with earnings yield of 4% and pe ratio at 20x.

NEWREST-ASL

Newrest ASL Nigeria posted a net profit of N197.9million in its 2017 half year scorecard, against N789million posted in 2016, which represents 75% fall year on year comparison.

Total revenue rose 19% to N2.8billion against N2.3billion reported same period 2016.

Its year to date earnings per share stood at 31kobo against the N1.25kobo realized in the previous period.

The pe ratio stands at 19x with 55 earnings yield.

MRS OIL

MRS Oil Nigeria plc, a major player in the downstream Nigerian oil and gas industry, released its financial statement for the half year 2017, also last week which shows a 16% rise in gross income. The revenue increased from N53.8billion to N62.5billion in the corresponding period.

The Oil marketing firm, MRS Oil Nigeria Plc said in its reports that the company’s post tax profit for the period ended 30th june, 2017 declined 23% from N909.7million to N703.5million in the corresponding period.

Earnings per share decreased by 23% to N2.77kobo from N3.58kobo in HY 2016.

The company’s pe ratio is at 12.8x with earnings yield of 7.8%

STERLING BANK PLC

Sterling Bank PLC, a tier 2 bank, offering commercial and retail banking services is one of the few firms that had weathered well the storm of this evolving economy.
The bank’s net profit for the second quarter of the year under review fell 5% to N3.8billion against the N4billion recorded last year.

Net interest income increased by 14% to N57billion against the N50billion reported in the previous period.

The Nigerian lender’s earning per share at the end of the first half 2017 fell to 13kobo from 14kobo, representing a 7% qnq bottom-line fall in earnings.

The pe ratio

MAY & BAKER

May and Baker Nigeria Plc reported performances for second quarter 2017 revealed that the company’s gross income grew 21% from N3.7billion to about N4.5billion in the corresponding periods.

The pharmaceutical firm’s profit after tax for the period under review was N94.8million, which represent about 215% bottom-line surge, when compared with the N30million recorded in the preceding year.

Earnings per share grew 200% above the 3kobo earned in the previous period, to arrive at 9kobo as computed for the current period.

LAW UNION AND ROCK

Law Union and Rock Insurance Plc recorded N2.7billion gross written premium for the review period, as against the N2.4billion recorded in the previous year, representing 17% annualized turnover growth.

The insurer posted 4% rise in profit to N318.7million for the second half of the year 2017, compared to N307.3 million posted last same period.

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