The year 2013 witnessed improvement in global economic activities though Opec Oil Price(US$/barrel) ($)

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1 SKYVIEW CAPITAL Annual Market Report 2013 The year 2013 witnessed improvement in global economic activities though Opec Oil Price(US$/barrel) at a much slower pace than expected as evidenced with positive data from 120 leading economic indicators in respect of output, employment and inflation 115 recorded for most period of the year is not unconnected with prolonged 110 unconventional accommodative monetary policy in terms of quantitative 105 the second world largest economy recorded Gross Domestic Product (GDP) growth rate of 7.7% in Q12013, 7.5% in Q22013 and 7.8% in Q32013 as compared to the same period of Japanese economy recorded expansion in output by 0.1% in Q12013, 1.2% in Q22013 and 2.4% in Q32013 up from contraction of 0.2% in Q32012 and negative growth of 0.3% in Q4 of In UK, output expanded by 0.7%, 2% and 1.9% in first, second and third quarter of 2013 respectively. Similar % in the third quarter relative to the same period in China which is expanded by 1.3% in the first quarter of 2013, 1.6% in second quarter and United States economy which constitutes about 25% of the world economy emerging economies and upsurge in global capital market activities. The percent interest rates in these countries as well as huge investment flow into growth for economies coming out of recession, this had resulted in near zero ($) from advanced economies and emerging markets. The positive trend easing in the United States, UK and Japan as economic strategy to stimulate Member of The Nigerian Stock Exchange Compiled: Jan 02- Dec 31, GLOBAL ECONOMIC SUMMARY Source: OPEC, Skyview Capital Research On the average, OPEC basket traded at $ in the year Nigeria s bonny light crude traded on the monthly average price of between US$ and US$ a barrel and it closed the year at US$ on December 31, 2013 well above the 2013 budget benchmark price of US$76 a barrel. positive trend was observed in India, South Africa, Nigeria and Kenya except External Reserve ($'billion) in EuroArea that is yet to recover fully from recession. The economy of EuroArea contracted by 1.2% in first quarter, 0.6% in second and 0.4% in third quarter of 2013 but improvements were seen on quarterly basis. The slow pace of recovery in Euroarea had remained a drag to global economic recovery with unemployment reaching another high of 12.1% as at November Significant improvement was observed in employment data in US, UK, China and Japan with persistent decline in unemployment rate. In US, unemployment rate declined from 7.9% in January to 7.5% in April, 7.2% in September and 6.7% in December In UK, unemployment rate fell from 7.8% in January to 7.6% and 7.4% in October Similarly, unemployment rate in Japan came down from 4.2% in January to 3.8% in July but close at 4% Source: CBN, Skyview Capital Research in November Inflation rate which measures changes in general price Nigeria s Crude oil production figures exhibited a declining trend in the year level exhibited downward trend across various countries in In US, 2013 owing to increasing wave of crude oil theft and oil pipeline inflation rate came down from 2% in February to 1.1% in April and 1.2% in vandalization, a development which culminated in frequent declaration of September, 1% in October and 1.2% in November. In UK, inflation rate force majeure and production shut down for several periods during the year. declined from 2.7% in January to 2.4% in April, 2.1% in November and 2% in Available data from OPEC website indicated a declining trend from December of Also, in Euro-Area inflation rate fell from 2% in January to 2.036mbpd in January to 1.871mbpd in June and 1.821mbpd in November 1.2% in April, 0.7% in October and 0.8% in December. Similar lower rates were 2013 well below the nation s 2013 budget benchmark of 2.53mbpd of crude observed in China, South Africa and Nigeria. oil production. Consistent drop in Nigeria s crude oil production figures exert Expansion in economic activities recorded in US, China and India helped sustain the average price of crude oil above the US$100 mark for the year 2013 despite increasing shale oil production from the US. The movement in oil prices responded to changes in demand from the oil consuming countries particularly US and China and the supply shocks from oil producing countries as well as periods of crisis in Syria and some other Middle East oil producing regions. According to OPEC reports, the total world crude oil demand increased from 88.9million barrel per day in 2012 to 89.0mbpd in Q2 of 2013 downward pressure on the nation s external reserves as crude oil exports constitute well over 80% of the country s source of foreign exchange earnings. This factor coupled with the persistent use of the reserves by CBN to stabilize the naira against dollar brought about significant drop in foreign reserves. Nigeria s foreign reserves opened at US$44.337billion on January 01, 2013, rose progressively to US$47.385bilion in February, US$48.85billion in April but maintained declining trend thereafter to as low as US43.61billion as at December 31, and 90.3mbpd in Q3 of 2013 while supply also increased from 89.6mbpd to Also, inflation rate was at single digit during the year under review nose 90.1mbpd in Q2 of 2013 and 90.4mbpd in Q3 of 2013 leaving a marginal diving from 9.5% in February to 8.4% in June and 7.8% in October but closed excess supply of 0.1mbpd as at third quarter of The OPEC basket price at 8% in December and 8.52% on the average for the year. The single digit rose steadily within the first two months of the year reaching the year high inflation rate well below the benchmark interest rate of 12% implied positive of US$ a barrel in February but declined sharply between March and real return on fixed income investment and this had been one of the April to a year low of US$96.35 a barrel in April this rose again steadily to enticements for increased flow of foreign portfolio investment into the above the US$100 mark to close the year at US$ a barrel. Nigerian economy.

2 mbpd Source: CBN, Skyview Capital Research Federal Government of Nigeria presented a budget of N4.643trillion for 2014 fiscal year down by 6.90% from N4.987trillion estimate for The lower figure is not unexpected going by dwindling oil revenue as a result of incessant leakages, pipeline vandalization and crude oil theft in oil producing areas of the country. The budget was premised on estimated revenue of N3.73trllion leaving a deficit of N912billion or 19.16% and 1.9% of GDP. Crude oil price assumption of $77.5 a barrel ($76 in 2013), crude oil production of mbpd (2.583mbpd in 2013), real GDP growth rate of 6.75% and average exchange rate of N160/$. The actual crude oil production figures for 2013 ranged between 1.82mbpd to 2.035mbpd according to data obtained from OPEC website, thus the 2014 estimate though conservatively lower than the 2013 estimate can only be achievable if incidences of crude oil theft and pipeline vandalization are efficiently curtailed. EXCHANGE RATES AS AT DEC 31, 2013 CURRENCY NIGERIA'S CRUDE OIL PRODUCTION (mbpd) YEAR START OFFER JAN 1, 2013 YEAR END ( ) Δ (N) Δ (%) year figures. In the third quarter and second quarter of 2013, Nigeria Industrial Production increased by 1.10% and 1.8% year-on-year lower than 4.5% and 8.2% increase recorded in COUNTRY SELECTED GLOBAL ECONOMIC INDICATORS GDP (US$b) GDP Growth y-o-y (%) Q313 INTEREST RATE At its July MPC meeting, CBN introduced 50% Cash Reserve Requirement (CRR) on public sector deposits in Nigeria banks effective August 07, 2013 while retaining 12% CRR on private sector deposit. The new policy unsettled the financial markets with NIBOR Call Rate jumping to as high as 55.83% on September 19, 2013 before moderating down to within a range of 10.55% to 12% and closed the year at 10.62% on December 31, INFLATION Stability of Nigerian naira exchange rate against major foreign currencies was a nightmare for CBN in 2013 while the Apex bank utilized frequently significant volume of nation s foreign currency reserves to ensure stability of the naira, the efforts yielded fruition only at the official rate whereas there was significant depreciation of the naira at other segments of the foreign exchange market particularly at the Bureau De Change and parallel market segments where naira lost N13.00 and N14.50 respectively relative to the year opening figure. The premium between the official rate and the parallel market rate widened from the year opening spread of N2.73 to N17.30 as at December 31, 2013, this is high enough to endear round tripping. POPL (million) United States 15, Euro Area 12, China 8, Japan 5, UK 2, India 1, South Africa Nigeria Egypt Kenya NGN/USD NGN/GBP (1.41) NGN/EUR (3.85) INTERBANK(N/$) (1.99) BDC (8.25) PARALLEL (9.15) Inter Bank Call Rates MONEY MARKET RATES T-Bill Rate 6-Months Deposit 12 Month Deposit Lending Rate Dec Jan Feb Central Bank of Nigeria (CBN) maintained its tight monetary policy stance throughout The monetary policy committee (MPC) of the CBN kept the benchmark interest rate on hold at 12% in all of its six MPC meetings of January, March, May, July, September and November 2013 with standing lending facility and standing Deposit facility put at ±2% of MPR. The benchmark interest rate at 12% is comparably higher than many other frontier, emerging and developed economies, for instance, US (0.25%), UK (0.5%), China (6%), India (7.75%), South Africa (5%), Kenya (8.5%) and Egypt ( 8.25%), this has also boosted interest rate arbitrage and triggered sustained flow of foreign portfolio investment (FPI) into Nigeria as well as significant activities in the bond and treasury bill issue transaction. However, the spread between average lending rates and average deposit rates of commercial banks was about three times. Average six months deposit rate was within a range of 7.15% to 8.56% whereas average lending rate was within a range of 24.5% to 25% in The high lending rate did not bode well for the real sector most especially the manufacturing sectors as measured by Nigeria Industrial production indices which was comparatively lower than the prior Mar Apr May Jun Jul Aug Sept Oct Nov Dec Source: CBN, Skyview Capital Research

3 CAPITAL MARKET REPORT Global stocks closed the year 2013 on a positive note as all equity indices under our purview appreciate in value except BOVESPA index of Brazil which declined by 15.50%, closing in red. Equities in United States, Europe, Asia and Africa trended northward thanks to U.S expansionary fiscal policy which made the US Fed Reserve committed over $1trillion to bond repurchase during the year. Other market drivers were improved economic recovery of the Eurozone coupled with growth in China & Japan. This impacted positively on global equities. In America, Dow Jones Industrial Average (DJIA) which measures manufacturing and industrial growth appreciated by 41.78%. Standard & Poor s (S & P) 500 index added points (29.60%) to close Similarly, National Association of Securities Dealers Automated Quotations (NASDAQ) index advanced by 38.32%. Equities on Wall Street rallied steadily during the year trending in response to market dynamics as well as major economic events and decisions within the period. Similarly, European equities trended northwards during the year under review as the Eurozone gradually recover from its gloomy economic crisis. Equities in European markets advanced till May 2013 but plummeted in June over growing concern about the possibility of the US Federal Reserve tapering its $85billion monthly bond purchase. This decision caused a shock as global equities to decline within the period (June) as investors kept a close eye on the US Fed. Reserve decision. German Dax-30 retreated to a low of before reversing to close the year high with YTD return of 25.48%. SMI of Switzerland added 20.24% over its year opening figure of Other European indices under our purview also appreciated. In London, FTSE 100 closed 14.43% higher while CAC-40 (France) and Euro STOXX recorded a near par return of 17.99% and 17.95% respectively. GLOBAL STOCK INDICES AS AT DEC 31, 2013 GSE NIKKEI NSEASI NSEASI (KENYA) DJIA NASDAQ S&P DAX EGX CASE SMI CAC EURO STOXX JSEASI FTSE BSE H.S.I 2.88 BOVESPA Source: Bloomberg, Skyview Research 41, , , , , Source: Skyview Capital Research Market capitalization added 47.38% (N4.25trillion) while market turnover by value soared by 58.66% from prior year (2012) figure of N657.77billion to N1.044trillion. Volume turnover also trended upwards as a total of billion shares exchanged hands in contrast to billion shares in the prior year representing a 19.51% increase. MARKET INDICATORS Source: Skyview Capital Research NSEASI (Jan-Dec 2013) OPEN (02-Jan-2013) CLOSE ( ) Various sectorial indices appreciated across board with the exception of NSE AseM which dipped marginally by 24bps. NSE Oil and Gas Index was the best performer gaining % during the year. NSE Industrial Index ranked second, appreciating by 81.43%. Others were NSE Lotus, NSE30 and NSE Banking Index which climbed 61.84%, 42.74% and 31.86% respectively from its year opening figure. The Banking Index which had earlier appreciated 21.41% as at Q12013 could not sustain the tempo all through the year, as the Apex Bank in August 2013 increased the Cash Reserve Requirements (CRR) for banks on public funds to 50%, a decision which caused banking stocks to decline as investors weigh possible effect on their full year results. ANNUAL (%) ALL SHARE INDEX 28, , MARKET CAP (Trillion) PREV. YEAR THIS YEAR TURNOVER VALUE N657.77b N b TURNOVER VALUE ($) $4.21b $6.51b TURNOVER VOLUME b b SECTORAL INDICES NSE 30 INDEX 1, , NSE BANKING INDEX NSE OIL/GAS INDEX NSE INSURANCE INDEX NSE INDUSRIAL INDEX 1, , NSE CONSUMER GOODS , NSE LOTUS ISLAMIC INDEX 1, , NSE AseM INDEX (0.24) Equities in African bourses performed impressively during the year under review. Ghana Stock Exchange Composite Index (GSECI) returned 78.81% in 2013 to top our global stock indices return chart. NSEASI (Nigeria) and Sectoral Returns (%) NSEASI (Kenya) returned 47.19% and 44.05% respectively to place third and fourth respectively. Emerging and frontier markets which traditionally have greater potentials to give higher returns attracted more inflow in form of Foreign Portfolio Investment (FPI) over the period. In Egypt, despite an early uprising in the wake of 2013, the EGX CASE30 returned 24.17% after declining continuously in Q In Nigeria, the stock market gauge, NSEASI which measures market performance began the year on a strong impetus as it advanced 13.44% in Q12013 and closed the year by adding 47.19%

4 The market gauge appreciated steadily throughout the year (except in periods from June to September when market indices fell due to concerns of the US Federal Reserve tapering its quantitative easing (QE) and CBN CRR policy which saw the index retreating after reaching the 40,000 index point NSEASI MONTHLY RETURN ( ) 5 TOTAL VALUE TRADED (N'billions) 0-5 DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC , Key contributors to this upward movement of share prices include strong corporate earnings by blue chip companies, such as banks and manufacturers of fast moving consumer goods (FMCG) together with increased capital inflow and portfolio investments and also a tight regulatory oversight, aided by stronger enforcement by the Securities and Exchange Commission (SEC) and the NSE. BOND Y2010 TENOR (YR) Y2011 Y2012 Y2013 FGN BOND FOR JAN-DEC 2013 COUPON (%) YEAR START 02-JAN-13 YIELD YEAR CLOSE 31-DEC-13 LAST.WEEK 02-JAN-13 PRICE THIS.WEEK 31-DEC % FGN MAR YR % FGN MAR YR % FGN JUN YR % FGN SEP YR % FGN APR YR % FGN AUG YR % FGN APR YR % FGN AUG YR % FGN MAY YR % FGN JUN YR % FGN OCT YR % FGN JAN YR % FGN NOV YR % FGN MAY YR % FGN NOV YR % FGN JUL YR CORPORATE BENEFITS FOR THE YEAR STOCK DIVIDEND BONUS CLOSURE DATE Banking Access Bank 85 kobo Nil 17th April, 2013 Access (Interim) 25 kobo Nil 4th September 2013 ETI. 0.4 cents Nil 5th July, 2013 FBNH N1.00 Nil 13th May, 2013 FCMB Nil 1 for 25 5th 7th June, 2013 Fidelity Bank 21 kobo Nil 6th May, 2013 Guaranty N1.30 Nil 11th April, 2013 Guaranty (Interim) N0.25 Nil 3rd Sept, 2013 Skye Bank 50 kobo Nil 6th 10th May, 2013 Stanbic 10 kobo Nil 3rd May, 2013 Stanbic (Interim) 70 kobo Nil 14th August, 2013 Sterling Bank 20 kobo Nil 15th 19th April, 2013 UBA 50 kobo Nil 22nd 24th May 2013 Zenith Bank N1.60 Nil 15th April, 2013 Insurance Custodian (interim) 5kobo Nil 13th November 2013 Mansard 7 kobo Nil 14th May 2013 Custodian 8 kobo Nil 23rd October 2013 NEM 6 kobo Nil 10th - 15th January, 2014 AIICO 8 kobo Nil 2nd September, 2013 Cont. Reinsurance 10 kobo Nil 9th September 2013 Oil & Gas Mobil Oil N5.00 Nil 30th April, 2013 MRS Oil kobo Nil 22nd 26th July, 2013 Oando Plc 75 kobo Nil 8th 9th July, 2013 Conoil N1.00 Nil 2nd - 6th September, 13 Breweries Guinness N7.00 Nil 21st 25th October 2013 Intl Breweries 25 kobo 1 for 85 19th July, 2013 Nigerian Brew. N3.00 Nil 14th 20th March, 2013 Construction AshakaCem 42 kobo Nil 4th June 2013 Dangote Cement N3.00 Nil 6th 10th May 2013 Julius Berger N2.50 Nil 3rd 5th June, 2013 WAPCO N1.20 Nil 6th 10th May, INFLATION RATE (JAN-DEC 2013) JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Conglomerates Cadbury 50 kobo Nil 15th April, 2013 Nestle N18.50 Nil 29th May, 2013 Nestle (interim) N1.50 Nil 25 th November 2013 PZ Cussons 56 kobo Nil 16th September 2013 UAC N for 5 27th May 2013 Unilever N1.40 Nil 8th 12th April, 2013

5 STOCK YEAR OPEN 02-Jan THIS Year Low THIS Year High YEAR CLOSE 31-Dec NIGERIA S ECONOMIC TIPS IN 2013 Change (%) BTW YH & YL Economy expanded by 6.81% in Q3, 6.18% in Q2, and Q1 GDP of 6.56%. Industrial scale theft and sabotage caused oil output to fall consistently from 2.064mbpd in December 2012 to 1.821mbpd as at November Inflation rate averaged 8.52% in 2013 and at single digits for the 12 months of the year. Naira was relatively stable against dollars at official market within CBN band of N155/$ ±3% Naira depreciated significantly against the US dollar at the BDC and parallel markets thus created unprecedented appetite for round tripping and high volatility. Nigeria s external reserves opened the year at $ in January rose progressively to $ in June due to rising crude oil price and increased flow of funds from offshore investors but declined steadily to $43.610b on Dec 31st 2013 upon its use to stabilise the naira. CBN mandated commercial banks to pay minimum of 30% MPR on savings deposit (i.e. 3.6%) compared to traditional range of % per annum. CBN introduced 50% CRR rate on public sector deposits in Nigerian Banks effective August 7 NIBOR CALL peaked at 55.83% on Sept 19th, a fallout of CBN s new CRR policy on public sector deposits, but moderated down subsequently within %. Nigeria s Bonny Light Crude traded US$ /barrel well above 2013 budget benchmark of $76. Bond Yields traded within % higher than % in US, % in UK Foreign and local investors participation in NSE market transaction from January-November stood at 50.94% and 49.06% respectively. Power : FGN successfully sold power GENCOs & DISCOs to private investors to pave way for effective power availability, N50b set aside in escrow account for drawing by GENCOs as buffer against any unsold generated power DANGOTE GROUP kick-started building of private refinery PIB dream still in pipeline for effective reform of the sector YTD (%) JAN-DEC FO EVANSMED TRANSCORP CHAMPION CONOIL JOSBREW LIVESTOCK FIDSON UNIONDICON WEMABANK MRS ETERNA PRESCO CCNN CAP JBERGER CADBURY WAPCO OANDO Financial Sector: FBN, GTB and Access bank and others raised Eurobonds to finance operations at % to insulate their operations from CBN new CRR policy on public sector deposit. BASIC ASSUMPTIONS FOR INVESTMENT CASE IN 2014 Nigeria s single digit inflation rate (2013 average of 8.52%) implies positive real return on fixed income instruments. Nigeria s benchmark interest rate of 12% still remains highest among emerging and frontier markets this will continue to attract significant flow of foreign portfolio investments. CBN naira stability policy stance will continue to support flow of foreign investment into the country. Privatization of power sector is a confidence booster to positive economic prospects in 2014 with increased flow of funds into the sector. Nigeria s stable GDP growth-6.81% as at Q3 of 2013 remains second to China on global scale supported by enhanced revenue generation other than oil sector this makes Nigeria an investment hub in Africa. NSE stock market performance for 2013 of 47.19% is significantly higher than return on investment in other financial assets-tb ( %), FGN Bond (12-13%). NSE new trading platform has enhanced transparency in stock market transactions thus reducing manipulation and boosting investors confidence. Regulatory frame work and oversight functions had been strengthened and enhanced to stimulate confidence in the stock market. Also, advent of market makers had brought about price stability. The stock market will continue to benefit from increased government spending and sustained oil price level above budget benchmark of $76/ barrel which will increase economic activities thus improving the liquidity in the economy. OUTLOOK FOR 2014 Overall the direction of global economic growth is positive though at a slow pace US Fed tapering decisions to influence financial market volatility and global growth Nigeria s Bonny Light crude price to remain well above the 2014 budget benchmark of $77.5/barrel Projection for Nigerian stock market is largely positive for 2014 most especially in Q1 & Q2 while some retracements may occur in Q3. Proposed GDP rebasing is expected to increase the size of the economy thus enhancing available investment opportunities Bond market activities to increase as comparable higher yields will remain a toast for global fund managers Power sector reform and privatization to increase flow of funds into the economy Ahead of 2015 elections, with some taking place between Q2 & Q3 of 2014 there will be increased spending from government and politicians thus increased systemic liquidity Following from above, CBN may further tighten monetary policy especially the use of CRR hike Exchange rate volatility to continue and trade above the CBN +/-3% band above official rate especially at BDC and Parallel markets As the premium between official and parallel exchange rates widen, devaluation of naira may become inevitable RISKS TO WATCH IN 2014 US Fed to commence tapering its bond purchase programme, thus put temporary volatility in stock market prices at every time that Fed is about to meet. Heightened political climate in Nigeria will increase investment risks thus may constrain investment opportunities. CBN may further tighten monetary policy. Nigeria s crude oil production may drop further if leakages remain unchecked. Following from above, further decline in foreign reserves will exert pressure on naira, thus prompting devaluation of the currency.

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