【powdery mildew on bee balm】Nigeria In 2019: The Investment Banking View
Thepowdery mildew on bee balm central theme in the investment outlooks for 2019 by Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley and Citigroup is for a recovery in emerging market assets, particularly, equities.
JP Morgan Chase, however, was the only one of the five investment banks surveyed by Business Day, Nigeria’s largest English-language newspaper, to adopt a cautious stance, as it cast a worrying look on the impact of a stronger dollar in the early part of the year and volatile oil prices.
While global growth accelerated, 2018 was harsh to emerging market assets, including Nigerian equities. Although the naira was relatively unscathed compared to other currencies, Nigerian equities lost 18 percent, as foreign capital fled emerging markets on the back of rising interest rates in the United States and slower global growth.
The New Year, however, holds better prospects for emerging markets, as asset prices and market expectations have adjusted significantly lower versus a year ago, offering a better deal and creating the potential for positive surprises.
Goldman Sachs
“Valuations look more attractive after a challenging year for assets and we believe 2019 offers some important advantages relative to 2018,” the asset management unit of Goldman Sachs said in an outlook report.
“We remain pro-risk heading into 2019 until we see clearer signs of a deterioration in fundamentals.”
Goldman has a “preference for equities, especially in emerging markets, where the period of growth moderation is likely behind us.” The US-based bank however emphasizes dynamism and selectivity in investing. Goldman also sees potential return particularly in Emerging Market currencies. Based on estimates of fair value, EM currencies appear undervalued by 12 and 23 percent, when aggregated using the MSCI EM and GBI Indexes respectively.
“The magnitude of this undervaluation is similar to what we observed in early 2016 and in the early 2000s. Both periods were followed by good returns for EM currencies. EM equities are trading at an attractive 25 percent discount to DM equities, while offering potentially higher expected earnings growth,” the Goldman team said.
The bearish run is over for emerging markets, according to James Lord, an investment strategist at Morgan Stanley, who says he sees brighter days ahead where total fixed income returns should be comparable with 2017.
“It has been hard slog for EM investors in 2018 but we believe that markets have turned a corner and a better year waits ahead,” Lord said.
According to Lord and his team, weaker growth outlook in the US should help to rebalance capital flows back into EM that in recent quarters have left seeking the higher returns provided by USD assets.
Story continues
The expected rebalancing in global growth and capital flow dynamics comes at a time when valuations in EM are cheap.
“We turn bullish on EM local markets and raise EM credit to neutral from bearish.”
“Our US economists expect the first quarter of 2019 to be the high point, which suggests that the biggest risk to our bullish local markets view is in 1Q,” Lord added.
On appetite for sovereign credit, Lord said credit selection is important in Sub Saharan Africa, as a lot of the cheapness is on back of rising concerns about debt sustainability.
Citigroup
Like the others, Citigroup expects the sharp emerging market equity underperformance in 2018 to reverse, at least partially in 2019.
“Underpinning our view is the likelihood of on-going Asian growth accompanied by contained inflation, moderating US growth limiting the extent of US rate rises and dollar strength, and significant easing in China helping to offset most of the drag from trade tensions,” said David Bailin, the Chief Investment Officer at the American investment bank.
Also, strongly bearish investor positioning – particularly in China – is likely to reverse as investors diversify away from the US market.
“Against this backdrop, we believe the markets and sectors that sold off most heavily in 2018 – but which still have solid growth prospects – are likely to outperform,” Bailin added.
Bank of America Merrill Lynch
BofA Merrill Lynch Global Research forecasts modest gains in equities and credit, a weaker dollar, widening credit spreads and a flattening to inverted yield curve, signaling a tighter squeeze on liquidity that calls for higher levels of volatility.
This comes against a backdrop of slowing, but still-healthy economic growth; mild inflation, except in the U.S. where inflationary pressures are building; and a notable slowing in global EPS growth from the torrid pace of 2017 and 2018.
JP Morgan Chase
JP Morgan was probably the most conservative of the five banks in its outlook.
Expectations of further dollar strength early in the year will likely restrain EM assets, according to David Kelly, Managing Director and Chief Global Strategist at JP Morgan.
However, Kelly admits that as Chinese data stabilizes, the Fed pauses and the dollar’s climb reverses later in the year, EM assets may finally have some room to take off.
He however warns that as global liquidity continues to be drained next year, not all EM planes will fly at the same altitude.
“Investors are likely to continue being very selective, focusing on countries where economic growth differentials are widening versus developed markets, fiscal policy remains responsible and external vulnerabilities are kept in check,” Kelly said.
Moving into 2019, Kelly thinks bond yields may rise relative to stock dividend yields and earnings growth should slow, given that rising interest rates historically drag on equity performance.
In conclusion, JP Morgan fingered good quality fixed income exposure and dimming down credit risk in 2019. The bank will maintain equity exposure but also urges investors to stay diversified in anticipation of elevated volatility.
The post
Nigeria In 2019: The Investment Banking View
appeared first on
Emerging Market Views
.
View comments
(责任编辑:Fashion)
- ·Storms that slammed Central America in 2020 just a preview, climate change experts say
- ·Americans have a mix of concern and hope about the economy
- ·SHAREHOLDER ALERT: Pomerantz Law Firm Investigates Claims On Behalf of Investors of Spirit AeroSystems Holdings, Inc. - SPR
- ·Want to land one of today's record-low mortgage rates? Follow these 4 tips
- ·ROYAL DUTCH SHELL PLC THIRD QUARTER 2020 EURO AND GBP EQUIVALENT DIVIDEND PAYMENTS
- ·Dundee Corporation Declares Quarterly First Preference Shares, Series 2 Dividend
- ·Violet Defense Awarded DIU Subcontract for Prototype of Ruggedized UV Disinfection Product
- ·Here's Why We're Not Too Worried About Luxxu Group's (HKG:1327) Cash Burn Situation
- ·Is Sirius International Insurance (SG) A Good Stock To Buy Now?
- ·Our Take On Avery Dennison's (NYSE:AVY) CEO Salary
- ·S.Korea's Moon tells Trump he would accept invitation to G7 summit
- ·Here's Why We're Not Too Worried About Luxxu Group's (HKG:1327) Cash Burn Situation
- ·Is Wanda Sports Group (WSG) A Good Stock To Buy Now?
- ·5%, led by a 17% increase in average ticket and a slight decline in traffic. Growth in the quarter reflected the impact of households stocking up on essentials like paper goods and cleaning supplies as the pandemic became a nationwide concern, along with strength in discretionary categories as the quarter came to a close and stimulus dollars and tax refunds were disbursed.
As shown below, the results in the quarter materially changed the trend in two-year stacked comps for each of the banners, along with a significant acceleration for consolidated comps.
The increase in consolidated comps was the primary driver of an 8% increase in revenues to $6.3 billion. The company ended the quarter with 15,370 locations, up less than 1% year-over-year. This reflects a 7% increase in Dollar Tree units, offset by a 4% decline in Family Dollar units.
The top-line results at each banner flowed through to their respective income statements, with Dollar Tree gross margins and operating margins declining year-over-year while Family Dollar gross margins and operating margins expanded year-over-year. On a consolidated basis, gross margins contracted by 120 basis points in the quarter to 28.5%, reflective of a shift to lower-margin consumables, tariff costs and the impact of markdowns from the Easter headwinds at the Dollar Tree banner. The company saw slight operating leverage on SG&A from higher comps, with the net result being an 80 basis point contraction in operating margins to 5.8%, with operating income declining 5% to $366 million. This is not adjusted for $73 million of pandemic-related costs, such as PPE supplies.
In the first quarter, the company opened 85 stores (net of closures) and completed 220 Family Dollar renovations to the H2 format. Importantly, comps at renovated Family Dollar stores continue to outpace the chain average by more than 10%. On the call, management indicated that they plan on reducing both the number of new store openings (from 550 to 500) and the number of H2 renovations (from 1,250 to 750) in 2020.
Personally, given the fact that Family Dollar is seeing material benefits to its business from the pandemic with new or lapsed customers coming into its stores, I think the company should try to get more aggressive with its renovation plans, not less. On the other hand, you could argue that renovations cause short-term disruptions and limit their ability to fully capitalize on the business momentum they are currently experiencing.
As a result of fewer new stores and remodels, management now expects 2020 capital expenditures to total $1.0 billion compared to previous guidance of $1.2 billion. In addition, the company has temporarily suspended share repurchases. At quarter's end, the company had $1.8 billion in cash on its balance sheet compared to $4.3 billion in total debt.
Conclusion
In recent years, Dollar Tree has been a tale of two cities. While its namesake banner has generally delivered impressive financial results, Family Dollar has been a persistent underperformer. This quarter, those results flipped, and given what we've seen in the weeks since quarter's end, there's a decent possibility that we will see something similar in the coming months. As the CEO noted, the second quarter is off to a very good start at Family Dollar.
Here's the important question: how useful is that information is in terms of making future predictions about the business? Will recent success at Family Dollar translate into long-term success for the banner? The optimistic take is that new or lapsed customers, especially those visiting the renovated stores, could become recurring business for the banner. The pessimistic take is that they have experienced short-term success out of necessity as people went to any store that was open to try and find essentials like toilet paper and hand sanitizer that were largely out of stock throughout the retail landscape. From that view, many of these customers could abandon the retailer when life returns to normal. As Philbin noted on the conference call, early on [during the pandemic], folks needed us. Will people still shop as much at Family Dollar when it's no longer a necessity?
Personally, I do not place too much weight on the recent results. I will need to see incremental data points that indicate that Family Dollar has truly won sustained business from these new customers. While I still believe that the Dollar Tree banner is a well-positioned retailer with attractive unit returns, I'm not yet willing to say the same thing for Family Dollar. For that reason, along with the recent run-up in the stock price, I plan on staying on the sidelines for now.
Disclosure: None
Read more here:
Under Armour: A Tough Start to 2020
Walmart: Continued Omni-Channel Progress
Match: An Impressive Start to 2020
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
This article first appeared on
GuruFocus
.
Warning! GuruFocus has detected 4 Warning Signs with DLTR. Click here to check it out.
DLTR 30-Year Financial Data
The intrinsic value of DLTR
Peter Lynch Chart of DLTR
View comments
- ·EXPLAINER-Why automakers are on a drive to sell electric cars in Europe
- ·LeadsRx and WideOrbit Partnership Gives Advertisers Access to Advertising Campaign Data to Maximize ROAS
- ·Livestock Diagnostics Market Worth $1.85 billion by 2027, Growing at a CAGR of 7.8% from 2019- Exclusive Report by Meticulous Research®
- ·Is Begbies Traynor Group plc's (LON:BEG) High P/E Ratio A Problem For Investors?
- ·The Envipco Holding (AMS:ENVI) Share Price Is Down 14% So Some Shareholders Are Getting Worried
- ·National CineMedia (NCMI) Jumps: Stock Rises 10.6%