Meristem Wealth Management Limited 20 October, Issue on Offer/Summary. Outlook on Yields /Advised Stop Rates

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1 T-bills Auction Scheduled 21 st October, 2015 Summary of Previous Auction Issue on Offer/Summary Stop Rate: 91-Day 182-Day 12.20% 364-Day 12.25% Amount: 91-Day NGN25.40bn 182-Day NGN33.49bn 364-Day NGN68.18bn Summary of Current Auction Auction Date 21/10/2015 Settlement Date 22/10/2015 Auction Size: 91-Day NGN36.79bn 182-Day NGN35.00bn 364-day NGN66.39bn Meristem Advised Stop Rates 91-Day % 182-Day % 364-day % Maturing TB Instruments 91-Day NGN36.79bn The Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Auction on the 21 st of October, T-Bills worth NGN138.18bn will mature, while an equal amount will be issued in 91-day, 182-day and 364-day instruments. The CBN is expected to auction NGN36.79bn, NGN35.00bn, and NGN66.39bn in the 91-day, 182-day and 364-day instruments respectively. Outlook on Yields /Advised Stop Rates Since the last auction of the Nigerian Treasury bills on the 7 th of October, 2015, heightened investor sentiments have continue to permeate the treasury bills space as yields sustained a southward trend across all tenors. On the average, yield across all Treasury bill instruments in the period pared by 1.73% to settle at 8.27% as at 19 th of October, The 2M T-bill recorded the largest decline in yield (-2.11%), followed by the 1M (-2.04%), 6M (-2.03%), 12M (-1.92%), 9M (-1.59%), and 3M (-0.71%) tenors accordingly. The successive decline in yields is largely attributed to the improved liquidity in the financial system, with the Bank/Discount Houses opening deposit reaching a 4-year high of NGN1.08 trillion during the period under review. Furthermore, the Central Bank of Nigeria increased the liquidity in the system, through an Open Market Operation (OMO) repayment worth NGN283.65bn on the 15 th of October, This further availed market participants the opportunity to increase their demand and investment participation in the Treasury bills market. Similar to the participation recorded at the previous T-bills auction, we expect the offer to be oversubscribed, with a larger demand skewed towards the 364-Day instrument, given the anticipated higher offer yield. Against this backdrop, we expect yields to remain tempered at the Nigerian Treasury bills market going forward. Consequently, we advise rates with the dual purpose of achieving the best possible yields as well as ensuring the success of the bid. The advised stop rates for the respective instruments are listed below: 91-Day NGN36.79bn 9.00% % 182-Day NGN35.00bn % 364-Day NGN66.39bn 11.20% % 182-Day 364-day NGN35.00bn NGN66.39bn 1 P a g e

2 Investing through Meristem Wealth Management Limited Meristem Wealth Management Limited charges a transaction fee of 0.25% of the principal amount invested, and there will be three (3) days prior notification before maturity for all Treasury Bills investments. The income from investing in T-Bills is tax free, so interest received is not subject to withholding tax, and you will receive an immediate Investment confirmation letter for the Treasury bills. Also note that the T-Bills certificates can be used as collateral for securing loans. Participation Process The T-bills Primary Auction bid holds twice in a month (i.e. every other Wednesday). The above likely stop rates are our estimates and might not necessarily hold true, as the final decision always lies with the CBN based on the auction process. Recent Stop Rates on Past Auctions for 91-Day and 182-Day Instruments Stop Rate Yield 1 91-Day 04-Jun Oct Feb-15 2 Stop Rate Yield Day 04-Jun Aug Oct Dec Feb Apr-15 1 Jun-14 Stop Rate 364-Day Dec-14 Yield Source: CBN, FMDQ, Bloomberg, Meristem Research 2 P a g e

3 About Treasury Bills Treasury Bills (T-bills) are marketable money market securities that serves the purpose of raising money for the government and also helps in monetary policy management of the Central Bank. T-bills are short-term securities that mature in 1 year or less from their issue date. They are usually issued with 3-month, 6-month and 1-year maturities. How is Return Determined? T-bills are purchased for a price that is less than their par (face) value; when they mature, the government pays the holder the full par value. Effectively, your interest is the difference between the purchase price of the security and what you get at maturity. For example, if you bought a 90-day T-bill at N9, 800 and held it until maturity, you would earn N200 on your investment. This differs from coupon bonds, which pay interest semi-annually. The determination of rates on the instruments in the secondary market solely depends on the forces of demand and supply as occasioned by the prevailing macro- economic environment. How does the Auction Process work? Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at auctions. Primary market trading of Treasury bill instruments entails auctions by the country s monetary authority The Central Bank of Nigeria. T-bills are auctioned at established rates which determine the return to investors. Purchasing these instruments in the primary market and holding it till maturity would mean that the investor gets a fixed interest payment. Benefits of T-bills The biggest reasons that T-Bills are so popular are that they are one of the few money market instruments that are affordable to the individual investors. Other positives are that T-bills (and all Treasuries) are considered to be risk-free investments because the Federal Government backs them. Also, T-bills are tax free unlike equities. The only downside to T-bills is that investors will not get a great (alpha) return because Treasuries are considered exceptionally safe. 3 P a g e

4 Contact Information Wealth Management ( ) ( ) ( ) Tel: Brokerage Services ( ) Trustees ( ) ( ) Tel: Client Services ( ) 4 P a g e

5 Disclaimer Notice: Meristem and any of its associated or subsidiary companies or the employees thereof cannot be held responsible for any loss suffered by relying on the said information as this information as earlier stated, is based on publicly available information, analysts estimates and opinions and is meant for general information purposes and should not be construed as an offer to buy or sell or a solicitation of an offer to buy or sell securities or any financial instruments. The value of any investment is subject to fluctuations, i.e. may fall and rise. Past performance is no guide to the future. The rate of exchange between currencies may cause the value of investment to increase or diminish. Hence investors may not get back the full value of their original investment. Meristem Wealth Management Limited is licensed and registered with the Securities and Exchange Commission (SEC). Meristem Wealth Management Ltd s registered office is at 3, Norman Williams Street, South West, Ikoyi, Lagos, Nigeria. Website: crmwaelth@meristemng.com. Meristem Wealth Management Limited P a g e