Weekly Report. Global Economy

Transcription

1 Global Economy In the outgone week, the ongoing trade war continued to deepen with the US government threatening another round of tariff on imports from China. Also, Canada, an ally to the US, announced it would slam tariffs on US imports in retaliation to the tariffs imposed by the US government on steel and aluminium imported from the country. Nonetheless, Brent oil price continues to strengthens, up 4% w/w, as OPEC and non-opec allies agree to increase oil output in its recently concluded meeting. As China begins to lower or cancel tariffs on thousands of goods from India, South Korea, Sri Lanka, Bangladesh and Laos effective from July 2018 as alternative sources for goods that it previously imported from the US, while imposing sweeping tariffs on numerous goods from the US, it appears the bruising trade war between the two largest economies in the world has not seen its worst of times. On Thursday, in the outgone week, the US President, Donald Trump, threatened to put new tariffs as much as US$450billion of imports from China with the second vowing to retaliate accordingly. Notwithstanding the trade war, the price of oil in the global market continued to strengthen (up 4% w/w) despite the decision by OPEC and non-opec members to increase oil supply by as much as 1million barrels per day. We highlight that the current uptrend in the oil price may not be unconnected with unplanned disruptions from Libya, Venezuela, Canada as well as potential shortfalls from Iran on the back of US s sanction. Nonetheless, the current trade wars may adversely affect global growth which may be negative for global oil demand. In our view, we believe the strengthening price of oil in the global market is positive for the Nigerian economy which is still largely oil driven. Thus, with oil price benchmarked at US$50.5/b in the approved 2018 budget, the Brent current price level of US$79.44 may continue to support the Nigerian economy. Contacts: Ayodeji Dawodu Ayodeji.Dawodu@Investment-One.com Moses Hammed Moses.Hammed@Investment-one.com Olayemi Olamofe Olayemi.Olamofe@investment-one.com Abayomi Ajayi Abayomi.Ajayi@invvestment-one.com Oluwatobi Elegbede Oluwatobi Elegbede@investment-one.com Douye Mac-Yoroki Research@investment-one.com Ikenna Ihebuzor Research@investment-one.com

2 Nigerian Economy On Wednesday, the Federation Account Allocation Committee (FAAC) meeting, which was convened to consider and approve statutory allocation for the month of May, was postponed as a result of revenue discrepancies. On the other hand, the World Bank Group on Thursday through the International Development Association (IDA) approved a total of US$2.1 billion in concessionary loans to fund projects in Nigeria aimed at improving access to electricity and promoting governance. We highlight that the inability of the NNPC to generate and remit accurate revenue to the Federation Account had been a major cause for concern for the committee thus prompting the postponement of the FAAC meeting. The postponement of the FAAC meeting may be negative for economic activities especially Consumer Goods and Agro allied sectors in the near term. Our opinion is premised on the fact that this could delay salaries of public servants for this month thus having a negative effect on the consumer spending in the near term. However, the Minister of Finance has given assurance that the issues will be resolved soon. We highlight our concern over the continuous reoccurrence of this issue given the importance of FAAC allocation for consumption expenditure which is a key driver of growth in the economy. Thus, we expect the government to seek a lasting solution to the continuous delay in approval of FAAC allocation to support growth in the economy. Elsewhere, we believe the concessionary loans from the International Development Association (IDA) should serve as impetus towards the achievement of the Economic Recovery Growth Plan (ERGP) by the target date The loan is geared towards supporting initiatives for the power sector, climate change projects and boosting fiscal transparency. We opine that this may lead to a resultant growth in the non-oil sector, which accounts for about 90% of total GDP, in the long run. Furthermore, the recent passage of the 2018 budget, which includes a capital expenditure of about N2.87trillion (22% higher than 2017 budget) and FG initiatives to grow the agricultural sector, may be supportive of growth in the non-oil sector (+0.76% in Q1 2018). However, we highlight that the late approval of the 2018 budget and ongoing unrest in the North East region of the country could reduce the expected growth in non-oil sector within the short to medium term.

3 Equities Market Despite losing in three out of the five trading sessions, the Nigerian equities market closed positive in the outgone week. We highlight that the gain on Friday outweighed the losses in the previous trading sessions. As a result, NSE-ASI gained 1.10% week-on-week, with market capitalization up to N13.87trillion from N13.72trillion the previous week. The week s performance was largely driven by gains in bellwether stocks; DANGCEM (+189pts), NESTLE (-176pts), STANBIC (+91pts), NB (+82pts) and WAPCO (+30pts) which offset the losses in ZENITHBANK (-78pts), SEPLAT (-57pts), and INTBREW (-39pts). Sectors performances were mixed in the outgone week with Consumer Goods (+2.69%) having the best performance. While Industrial (+2.67%) closed in the green, Oil & Gas (-1.73%) and Banking(-1.09%) all closed in the red. Under our coverage, HONYFLOUR (+9.57%) was the best performing stock while DIAMONDBNK (-6.54%) had the worst performance. In terms of activity, daily average volume and value increased by 46% w/w and 12% w/w as investors traded an average daily total volume of 401million units worth N4.32billion. Going into the week, we expect the market to remain volatile in the absence of positive news flow. With this said, we highlight the potential for the market to gain as the recent downtrends presents a decent entry opportunity into some of our quality names. NSE-ASI One-week Performance Sector performance Source: Bloomberg, NSE, Investment One Research

4 Fixed Income and Currencies Money Market Money market rates increased in the outgone week as the O/N and OBB rate rose by 1050bps and 1034bps w/w to 14.08% and 13.17% respectively. This may not be unconnected with the OMO auction worth of N207.04billion on Monday which could have mopped up system liquidity. In the outgone week, CBN sold N342.70million and N206.69billion of the 87-day OMO bill and 213-day OMO bill at respective stop rates of 11.05% and 12.15%. We expect system liquidity to improve as N238.65bn worth of OMO bills will hit the system next Thursday. Bond Market In the outgone week, the bond market was somewhat bearish as yields increased across some tenors. Consequently, the yields on the 7yr benchmark bonds closed flat at 13.40% while the yields on the 5yr benchmark bond shed a marginal 2bps to close at 13.66%. However, yields on the 10yr benchmark bonds increased by 45bps to close at 14.02%. In the near term, we expect market activities to be influenced by liquidity levels as well as foreign investor participation. Foreign Exchange Market The Naira maintained its N305 levels against the USD at the interbank market as it continues to see support from CBN s intervention sales. Similarly, in the parallel market, the Naira closed flat against the USD to close at N362. Money Market rates Tenor 22-Jun 29-Jun Chg Overnight 3.58% 14.08% +105bps 1month 12.56% 14.46% +107bps 3month 12.23% 15.00% +150bps 6month 12.86% 16.27% +149bps Treasury Bill Tenor 22-Jun 29-Jun Chg 91D 12.51% 12.79% +28bps 182D 13.17% 13.07% -10bps 364D 13.75% 13.90% +15bps FGN Bond Yields Tenor 22-Jun 29-Jun Chg 5yr 13.68% 13.66% -2bps 7yr 13.40% 13.40% 0bp 10yr 13.57% 14.02% +45bps Foreign Exchange rate Rates 22-Jun 29-Jun Chg Interbank (N/US$) % Parallel (N/US$) % Futures contracts Last week Since inception Opened (US$'m) , Matured (US$ m) N/A 9, Outstanding(US$ m) N/A 4, Macro Indicators In the near term, we expect the FX market to continue to see support from CBN s intervention sales despite the increase in demand pressure. Inflation as at May % GDP growth as at Q % External reserves as at 13/06/2018* US$47.63bn *Based on 30-day moving average

5 The Week Ahead Nigeria The PMI readings for the month of June 2018 will be released on the 3rd of July United States The PMI readings for the month of June 2018 will be released on the 2nd of July The Unemployment rate as at June 2018 will be released on the 5th of July The Balance of Trade report for the month of May 2018 will be released on the 6th of July United Kingdom The PMI readings for the month of June 2018 will be released on the 2nd of July Canada The PMI readings for the month of June 2018 will be released on the 3rd of July The Unemployment rate as at June 2018 will be released on the 6th of July Russia The PMI readings for the month of June 2018 will be released on the 2nd of July The CPI report for the month of June 2018 will be released on the 6th of July Eurozone The Unemployment rate as at May 2018 will be released on the 2nd of July France The Balance of Trade report for the month of May 2018 will be released on the 6th of July Italy The PMI readings for the month of June 2018 will be released on the 2nd of July China The Caixin PMI readings for the month of June 2018 will be released on the 2nd of July 2018.

6 Investors & Exporters FX (IEFX) Window and Parallel Market Rates 25-Jun Jun Jun Jun Jun-18 NAFEX Opening rate (NGN/USD) NAFEX Closing rate (NGN/USD) Parallel Closing rate (NGN/USD) NAFEX Turnover (US$ m) Source: FMDQ, AbokiFX, Investment One Research Foreign Exchange Interbank rate, 3M Forward rate and *External Reserves Movement *Based on 30-day moving average Source: CBN, Bloomberg, Investment One Research Weekly Turnover at the Investors & Exporters FX Window Source: FMDQ, Investment One Research

7 Weekly Stock Performance 29-Jun Jun w Low 52w High Return (%) YTD (%) NGSEINDX INDEX 38, , , , % 0.09% BANKING ACCESS % -0.96% DIAMONDBNK % -4.67% ETI % 17.65% FBNH % 20.45% FCMB % 47.30% FIDELITYBK % -6.50% GUARANTY % -0.61% SKYEBANK % 38.00% STANBIC % 25.30% STERLNBANK % 29.63% UBA % 1.94% UBN % % WEMABANK % 40.38% ZENITHBANK % -2.50% -0.03% 5.76% CEMENT CCNN % % DANGCEM % -0.43% WAPCO % -8.78% 2.01% -0.05% OIL AND GAS CONOIL % 7.14% FO % % MOBIL % -5.96% OANDO % 6.84% SEPLAT % 3.80% TOTAL % -8.68% -2.52% 0.13% BREWERIES GUINNESS % 3.99% NB % % INTBREW % % 1.17% % CONSUMERS CADBURY % % DANGFLOUR % % DANGSUGAR % -5.00% FLOURMILL % 10.34% HONYFLOUR % 9.05% NESTLE % 1.22% PZ % 0.49% UACN % % UNILEVER % 28.05% 3.92% 5.07% AGRICULTURE OKOMUOIL % 35.91% PRESCO % 9.49% -0.16% 23.74% CONGLOMERATES TRANSCORP % -4.11% -4.11% -4.11% Source: Bloomberg, Investment One Research

8 Equity Market Indices Africa Value DOD MOM YTD 52 WK LO. 52 WK HI. DAILY VOL. MKT CAP. (x) P/BV (x) D.Y NGSEINDX INDEX 38, % -1.95% 0.09% 32, , % JALSH INDEX 57, % 2.99% -3.18% 51, , % NSEASI INDEX % 0.81% 2.51% % EGX 30 INDEX 16, % -3.87% 8.85% 12, , % MAURITIUS 2, % -0.52% 1.93% 2, , % MOROCCO % -2.36% -4.51% % MSCI FM % -3.37% % % Emerging Value DOD MOM YTD 52 WK LO. 52 WK HI. DAILY VOL. MKT CAP. (x) P/BV (x) D.Y SHANGHAI SE 2, % -8.75% % 2, , , % S&P BSE SENSEX 35, % 1.36% 4.01% 30, , % KARACHI , % -1.67% 3.56% 37, , % IBOV INDEX 72, % -4.39% -4.80% 61, , % INDEXCF INDEX N/A N/A N/A N/A 1, , N/A N/A N/A N/A N/A MSCI EM 1, % -7.06% -9.65% 1, , , % Developed Value DOD MOM YTD 52 WK LO. 52 WK HI. DAILY VOL. MKT CAP. (x) P/BV (x) D.Y DOW JONES 24, % 0.49% -0.97% 21, , % S&P 500 INDEX 2, % 1.83% 2.45% 2, , % FTSE 100 INDEX 7, % 0.38% -0.34% 6, , % CAC 40 INDEX 5, % -1.90% 0.42% 4, , % DAX INDEX 12, % -2.77% -4.66% 11, , % NIKKEI , % -0.24% -2.02% 19, , % HANG SENG 28, % -5.02% -3.22% 25, , , % FTSE STR TIMES % -2.19% -8.15% % MSCI U.S 2, % 1.03% 1.85% 2, , % Source: Bloomberg, Investment One Research

9 Stock Valuation and Peers Banks Source: Bloomberg, Investment One Research Sector TP (N) Price (N) Up/Downside MCap. (US$'m) EPS Growth 2018 (y/y) P/BV Access Bank Nigeria Banking % % % 8.09% ETI Nigeria Banking % 1, N/A % 1.81% FBNH Nigeria Banking % 1, % % 4.32% GTBank Nigeria Banking % 3, % % 6.78% Diamond Bank Nigeria Banking % N/A % 4.20% FCMB Nigeria Banking % % % 6.10% Fidelity Bank Nigeria Banking % % % 8.26% Stanbic Nigeria Banking % 1, % % 3.43% Sterling Bank Nigeria Banking % N/A 66.67% % 2.14% UBA Nigeria Banking % % % 8.84% UBN Nigeria Banking % N/A N/A 2.54% % N/A Wema Bank Nigeria Banking % N/A N/A % % N/A Zenith Bank Nigeria Banking % 2, % % 11.00% Barclays South Africa Banking 20, , % 9, % % 7.08% Nedbank South Africa Banking 29, , % 9, % % 5.69% Equity Bank Kenya Banking % 1, % % 4.86% KCB Kenya Banking % 1, % % 6.78% ADCB UAE Banking % 9, % % 6.36% Gulf Bank Kuwait Banking N/A N/A 2, % % 4.22% BPI Phillipines Banking % 7, % % 2.08% SHB Saudi Arabia Banking N/A N/A N/A N/A N/A 25.81% N/A 9.92% N/A 2, , % 2, % % 5.67% Industrials Sector TP (N) Price (N) Up/Downside MCap. (US$'m) EV/EBITDA EV/EBITDA EPS Growth 2018 (y/y) DY Dangote Cement Nigeria Industrials % 10, % 5.35% Lafarge Wapco Nigeria Industrials % N/A 2.12% Siam Cement Thailand Industrials % 15, % 4.62% Cemex Mexico Industrials % 10, % 0.00% Ultratech Cement India Industrials 4, , % 15, % 0.36% Semen Persero Indonesia Industrials 9, , % 2, % 2.57% PPC Ltd South Africa Industrials % % 0.00% Holcim Indonesia Industrials % N/A 8.99 N/A N/A % N/A 2, , % 7, % 2.15% Agriculture Sector TP (N) Price (N) Up/Downside MCap. (US$'m) EV/EBITDA EV/EBITDA EPS Growth 2018 (y/y) DY Okomu Oil Palm Nigeria Agriculture % % 2.52% Presco Nigeria Agriculture % N/A % 2.40% BW Plantation Indonesia Agriculture N/A N/A N/A N/A N/A 52.27% N/A United Malacca Malaysia Agriculture % % 2.31% Sampoerna Agro Indonesia Agriculture 2, , % % 0.86% Kwantas Malaysia Agriculture N/A 1.32 N/A N/A N/A N/A N/A N/A % % 2.02% ROE 2018E DY

10 Oil & Gas Sector TP (N) Price (N) Up/Downside MCap. (US$'m) EV/EBITDA EV/EBITDA EPS Growth 2018 (y/y) DY Forte Oil Nigeria Oil & Gas % % 3.81% Conoil Nigeria Oil & Gas % N/A N/A N/A N/A % N/A Mobil Nigeria Oil & Gas % % 4.90% Oando Nigeria Oil & Gas N/A 6.40 N/A N/A N/A Total Nigeria Oil & Gas % % 6.74% Seplat Nigeria Oil & Gas % 1, N/A 4.62% Zhejiang Haiyue China Oil & Gas N/A 9.18 N/A N/A N/A % N/A Grupa Lotos Warsaw Oil & Gas % 2, % 2.27% Erg Spa Italy Oil & Gas % 3, % 4.01% Hindustan Pet. Corp India Oil & Gas % 5, % 5.69% Shell Oman Oil & Gas N/A 1.65 N/A N/A N/A N/A % N/A Turcas Petrol Turkey Oil & Gas N/A 1.73 N/A % N/A % 1, % 4.58% Breweries EV/EBITDA EV/EBITDA EPS Growth 2018 Sector TP (N) Price (N) Up/Downside MCap. (US$'m) (y/y) DY Nigerian breweries Nigeria Breweries % 2, % 4.08% Guinness Nigeria Breweries % N/A 1.70% International BrewerieNigeria Breweries % 1, % 1.34% Heineken Netherlands Breweries % 57, % 1.82% Ghana Breweries Ghana Breweries % N/A N/A N/A N/A AEFES Turkey Breweries % 3, N/A 1.23% EABL Kenya Breweries % 1, N/A % 3.43% CCU Chile Breweries 9, , % 4, % 2.60% 1, , % 8, % 2.31% Consumer Goods EV/EBITDA EV/EBITDA EPS Growth 2018 Sector TP (N) Price (N) Up/Downside MCap. (US$'m) (y/y) DY PZ Nigeria FCMG % N/A % 1.92% Unilever Nigeria FCMG % 1, % 1.77% Cadbury Nigeria FCMG % N/A 1.50% Dangote Sugar Nigeria FCMG % % 7.11% Dangote Flour Nigeria FCMG % N/A N/A 2.00% Flour Mill Nigeria Nigeria FCMG % % 5.42% Nestle Nigeria FCMG 1, , % 3, % 3.17% UACN Nigeria FCMG % % 5.59% Strauss Group Israel FCMG 8, , % 2, N/A % 1.94% Illovo sugar South Africa FCMG N/A N/A N/A N/A 7.94 N/A N/A N/A % N/A Tongatt Hullet South Africa FCMG 10, , % % 4.97% Jollibee Food Phillipines FCMG % 5, % 0.96% 1, , % 1, % 3.30% Source: Bloomberg, Investment One Research

11 Commodities Screen Sheet Energy Price (USD) Absolute Chg Chg WTD Chg MTD Chg QTD Chg YTD Chg 3M Chg 6M Chg 52 WK HI. (USD) 52 WK LO. (USD) Brent Crude (Spot) % 5.15% 2.38% 13.05% 18.80% 13.05% 18.80% Gas Oil Futures % 4.84% -1.28% 9.20% 12.74% 9.20% 12.74% Natural Gas (Futures) % -1.02% -1.25% 6.66% -1.29% 6.66% -1.29% WTI Crude (Spot) % 7.83% 10.31% 13.87% 22.39% 13.87% 22.39% Precious Metal Price (USD) Absolute Chg Chg WTD Chg MTD Chg QTD Chg YTD Chg 3M Chg 6M Chg 52 WK HI. (USD) 52 WK LO. (USD) Gold (Spot) $/OZ % -1.46% -3.58% -5.55% -3.90% -5.55% -3.90% Silver (Spot) $/OZ % -2.39% -2.39% -1.25% -6.30% -1.25% -6.30% Platinum Spot $/OZ % -2.44% -6.38% -8.12% -8.80% -8.12% -8.80% Copper 3MO ($) % -2.45% -3.34% -1.36% -8.61% -0.63% -9.14% Food Price (USD) Absolute Chg Chg WTD Chg MTD Chg QTD Chg YTD Chg 3M Chg 6M Chg 52 WK HI. (USD) 52 WK LO. (USD) Wheat (CBT) Future % 1.37% -5.37% 10.42% 16.63% 10.42% 16.63% Sugar #11 (WORLD) % -2.32% -7.97% -4.70% % -4.70% % Cotton No.2 Futures % 0.70% -7.64% 5.61% 9.41% 5.61% 9.41% Source: Bloomberg, Investment One Research

12 Disclaimer This publication is for general information only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed in this article represent the current, good-faith views of the author(s) at the time of publication. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by INVESTMENT ONE Financial Services to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy, completeness or otherwise. Opinions expressed are our own unless otherwise stated. INVESTMENT ONE Financial Services and its affiliates may trade for their own accounts, the company may decide to take a long or short position on any securities, and/or may take the opposite side of public orders. Past performance is no guarantee of future results. The inclusion of past performance figures is for illustrative purposes only. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. This is not in any sense a solicitation or offer of the purchase or sale of securities. Neither INVESTMENT ONE Financial Services nor any officer or employee of INVESTMENT ONE Financial Services accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents. Investments in general and, equities, in particular, involve numerous risks, including, among others, market risk, counterparty default risk and liquidity risk. The ratings and company profile assessments reflect the opinion of the individual analyst and are subject to change at any time. This material has been issued by Investment One, which is regulated by the Securities and Exchange Commission. Further information on any security mentioned herein may be obtained by ing:research@investment-one.com Address: Investment Management & Research INVESTMENT ONE Financial Services Limited 37, Karimu Kotun Street, Victoria Island, Lagos. Nigeria research@investment-one.com Visit us at: