Meristem Wealth Management Limited 02 February, Issue on Offer/Summary. Outlook on Yields /Advised Stop Rates

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1 Summary of Previous Auction T-bills Auction Scheduled 3 rd February, 2016 Issue on Offer/Summary Stop Rate: 91-Day 4.29% 182-Day 7.59% 364-Day 9.33% Amount: 91-Day NGN36.79bn 182-Day NGN39.18bn 364-Day NGN120.00bn Summary of Current Auction Auction Date 3/2/2016 Settlement Date 4/2/2016 Auction Size: 91-Day NGN45.18bn 182-Day NGN30.00bn 364-Day NGN117.22bn Meristem Advised Stop Rates 91-Day % 182-Day % 364-Day % Maturing TB Instruments 91-Day NGN45.18bn 182-Day NGN30.00bn 364-Day NGN117.22bn The Central Bank of Nigeria (CBN) is scheduled to hold a Treasury Bills (T-Bills) Primary Auction on the 3 rd of February, T-Bills worth NGN195.96bn will mature, while an equal amount will be issued in 91-day, 182-day and 364-day instruments. The CBN is expected to auction NGN45.18bn, NGN30.00bn and NGN117.22bn in the 91-day, 182-day and 364-day instruments respectively. Outlook on Yields /Advised Stop Rates Since the last Treasury bills Primary Market Auction (PMA) on the 20 th of January 2016, yields on Treasury Bills instruments advanced across most tenors save for the 6M instrument which declined marginally by 0.06%. The average yield across tenors currently pegs at 6.06%. The yield advancements across the 1M, 2M, 3M, 9M, and 12M instruments were 2.75%, 2.08%, 0.15%, 0.06%, and 0.13% accordingly. Much in line with our expectations, yields on Treasury Bills have been on the rise in the period since the last auction. As the apex authority has increased the frequency of its Open Market Operations (OMOs) and system liquidity has been paring, demand levels have also tempered. We expect this trend to be maintained over the near future period, especially given that liquidity levels have pared significantly in the Year-to-Date (NGN329.97bn vs. NGN948.79bn as at 31 st December 2015). Also, investors have seemingly started to price in the anticipated levels of borrowings expected from the Federal Government, in line with the recently released budget. Thus, we anticipate that yields will continue to trend upwards for the rest of the quarter, with a lower bound on the rise coming after real rates of return revert to the positive region. Based on the foregoing, we anticipate that stop rates will be higher than that recorded at the last auction, and expect investors to focus on the mid-tenor instrument (182-day), followed by the shorter tenor instrument (91-day). 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 NGN45.18bn 4.20% 4.45% 182-Day NGN30.00bn 7.25% 7.50% 364-Day NGN117.22bn 8.75% 9.00% 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 91-Day 1 1 J-14 S-14 D-14 M-15 J-15 S Day 1 1 J-14 S-14 D-14 M-15 J-15 S Day J-14 A-14 O-14 D-14 F-15 A-15 J-15 A-15 O-15 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