Investment One Top 10. A 2018 report on 10 great places to invest in Nigeria

Transcription

1 Investment One Top 10 A 2018 report on 10 great places to invest in Nigeria

2 Table of Contents Welcome 1 Our Top 10 Investment Recommendations Treasury Bills Commercial Papers Sovereign Debt Issuance OR Sovereign Bonds Sub-National or State Bonds Corporate Bonds Eurobonds Equities Mutual Funds Real Estate Venture Capital How do I Invest and What are the Next Steps? Key Investment Terms and De nitions

3 Welcome In Nigeria, there are lots of investment opportunities to bene t from, some of which as at last year, have increased the wealth of many savvy investors. However, there are a good number of people who are still not aware of these opportunities. I believe that knowledge about investing should not be limited to a select few - everyone deserves to know about investment opportunities that exist in this day and age. There are a good number of people who are still not aware of investment opportunities. And so, in this report, Investment One has compiled a detailed list of ten pro table investment vehicles that anyone can invest in, no matter how large or small their portfolio is. It is our core belief at Investment One that anyone can be an investor, including you and it is our desire to help you to create wealth. Let's delve a little bit into some economic indicators was re ective of a signi cant improvement in Nigeria's oil sector. This led to the country's exit from a recession, a boost in foreign exchange (FX) availability and an increase in foreign investor participation in the nation's capital markets. Nicholas Nyamali Group Managing Director In 2018, we expect a continuous oil sector-led improvement in economic activities, with Gross Domestic Product (GDP) growth of about 2.50%. Our view is premised on increased government engagement in the Niger Delta and stability in Brent oil price on the back of the Organization of Petroleum Exporting Countries (OPEC) and non-opec agreements to extend oil production cuts until the end of Furthermore, the non-oil sector may see support from the administration's commitment to Capital Expenditure (CAPEX), election spending and Central Bank of Nigeria's (CBN) potential shift to a more accommodative monetary policy. 1

4 National Bureau of Statistics National Bureau of Statistics 2

5 The ongoing increase in oil production; likelihood that Brent oil price would remain high; and the proposed increase in the Value Added Tax (VAT) rate on luxury items should also support an increase in government revenues. Government's spending capacity should also be aided by the continued efforts to re nance $2.5 billion worth of domestic debt with foreign borrowings, which may further reduce the nation's debt service to revenue ratio. However, the US Federal Reserve's hawkish stance may pressure the cost of offshore borrowing. The potential success in offshore borrowings and increases in oil proceeds may see the nation's FX reserves move closer to about $45 billion in the First Half (H1) of 2018, supporting CBN's FX policy and the Naira. The scarcity of Premium Motor Spirit (PMS) and election spending may pose a downside risk to the outlook of investments. Stability in the NGN/USD rate and the high base effect of 2017 could see headline in ation trend towards the CBN's about 11-12% target. However, the scarcity of Premium Motor Spirit (PMS); the administration s expansionary scal policy and election spending may pose a downside risk to our outlook. Nonetheless, as the increase in consumer prices slow, we could see the monetary policy authority reduce the benchmark interest rate by as much as 2%. This combined with the FG s intention to re nance local borrowings with offshore debt could see yields in the xed income space decline. This should be a positive for the performance of the equities market in H This is in addition to the recent retention of Nigerian equities in the Morgan Stanley Capital International s (MSCI) Frontier index and the upbeat outlook for the economy, which may support corporate earnings. This is a great year for everyone, both new and existing investors, to create wealth. As such, I hope you nd this compendium practicable and suited to help you to meet your nancial goals for the year. Should you need further clari cation about any of the instruments stated in this report, we are available to help. At the end of the report, you ll nd our contact details through which you can reach us. Sincerely, Nicholas Nyamali Group Managing Director Investment One Financial Services 3

6 Our Top 10 Investment Recommendations

7 1. Treasury Bills

8 Investment One Top 10 Report 2018 Treasury Bills Treasury bills (T-bills) are government securities used to provide short-term funding for the government's activities. These instruments fall under the category of money market securities, which have a maturity of one year or less and are sold at a discount to face value, so you essentially receive your returns up front. Given that T-bills, which are the most liquid money market securities, are backed by the guarantee of the Federal Government, they tend to be risk-free. Yields on one- year T-bills were as high as about 22% in 2017 but have trended to the about the 15.5% level thus far in T-bills are expected to have their 2018 highs around this level owing to the decision of the Debt Management Of ce (DMO) to re nance maturing Treasury Bills with the just concluded US $2.5 billion Eurobond issuance exercise. Treasury bills tend to be risk-free as they are backed by the guarantee of the Federal Government. Treasury Bills Market Performance in 2017 Source: FMDQ, InvestmentOne Research 6

9 2. Commercial Papers

10 Investment One Top 10 Report 2018 Commercial Papers Commercial papers are unsecured short-term money market instruments issued by blue-chip companies (large banks and corporations) to nance their short-term liabilities or working capital. The maturities do not exceed 270 days. While commercial papers (CP) are similar to T- bills, in that they are both issued at a discount to face value and present relatively low risk, commercial papers tend to be slightly riskier than T-bills, which are issued by the Federal Government. Also, CPs fall under the xed income investment category. In 2017, several banks and large corporations issued CPs including Lafarge, Nigerian Breweries and Access Bank at yields between 14-19% depending on the tenor and the issuer's credit rating. While we have seen yields in this space moderate at the end of 2017, CPs still offer attractive yields of about14-16%. While commercial papers (CP) are similar to T-bills, they tend to be slightly riskier and fall under the xed income investment category. Issuer Description Issue Date Issue Yield (%) Outstanding Value (N'bn) Maturity Date FSDH MERCHANT BANK LIMITED FSDH CP IV 20-FEB May Feb-18 ACCESS BANK PLC ACCESS CP IX 27-FEB Jun Feb-18 ACCESS BANK PLC UACN PROPERTY DEVELOPMENT COMPANY PLC ACCESS BANK PLC ACCESS CP XI 26-FEB Aug Feb-18 UPDC CP XIX 15-MAR Sep Mar-18 ACCESS CP XII 25-MAY Aug May-18 WEMA BANK PLC WEMA CP 30-MAR Sep Mar-18 WEMA BANK PLC WEMA CP II 26-JUN Sep Jun-18 DUFIL PRIMA FOODS PLC DUFIL CP V 18-JUN Dec Jun-18 DUFIL PRIMA FOODS PLC DUFIL CP VI 14-SEP Dec Sep-18 8

11 3. Sovereign Debt Debt Issuance OR Sovereign Bonds

12 Investment One Top 10 Report 2018 Sovereign Debt Issuance Or Sovereign Bonds Government bonds are xed income instruments which are used to fund government's de cit (either for recurrent or capital expenditure). These instruments have a de ned maturity, more than one year, and promise periodic cash ow payments based on the coupon rate, and the repayment of the face value of the bond at maturity. The return on a bond is the yield, which would equate to the coupon rate if the bond is held to maturity, the issuer does not default and interest payments are reinvested at the coupon rate. Given the backing of the Federal Government; these instruments are default risk-free but are subject to interest rate risk. The wholesale Sovereign Bond issuance at the primary auctions has a minimum investment value of N50 million. whilst the retail issuance minimum bid size is N5,000. In 2017, the Federal Government sold N1.2trillion worth of bonds at coupon rates ranging from about 13-17%, depending on the tenor. The wholesale Sovereign Bond issuance at the primary auctions has a minimum investment value of N50 million, whilst the retail issuance minimum bid size is N5,000. Federal Government Bond Yield Movement in 2017 Source: FMDQ, InvestmentOne Research 10

13 4. Sub-National or State Bonds

14 Investment One Top 10 Report 2018 Sub-National Or State Bonds State Bonds are similar to Sovereign Bonds in attributes. The offer yields are dependent on the issuer rating and the tenor. The rating assigned to a State is principally a function of the viability of its revenue stream (Federal Allocation and Internally Generated). State Bonds often have an Irrevocable Standing Payment Order to guarantee payment of the bond obligations (coupons and face value at maturity). This, allows the Trustee to the Bond issuance access repayment cash ows directly from the allocation from the Federal Government. State Bonds are dependent on the issuer rating and the tenor. They also often have an Irrevocable Standing Payment Order to guarantee payment of bond obligations. 12

15 5. Corporate Bonds

16 Investment One Top 10 Report 2018 Corporate Bonds Corporate bonds are similar to government bonds in regards to periodic payments (coupon rate) and the repayment of the face value of the bond at maturity. These bonds may be used to fund the company's operating requirements or boost capital to enable the company to make cash dividends to shareholders. Corporate Bonds are riskier than FGN Bonds and tend to pay a higher coupon rate. Unlike FGN Bonds, Corporate Bonds are riskier depending on the creditworthiness of the issuer. As such, to compensate for the higher risk, corporate bonds tend to pay a higher coupon rate than government bonds. Outstanding Corporate Bonds Rating/Agency Outstanding Value Issuer Issue Date Coupon (%) Rating/Agency (N'bn) A+/GCR LAFARGE AFRICA PLC 15-Jun Jun-19 A-/GCR FCMB 06-Nov Nov-20 A+/Agusto; /GCR NAHCO 14-Nov Nov-20 Bbb-/Agusto C & I LEASING 25-Nov Nov-20 Bbb/Agusto; A-/GCR TRANSCORP HOTELS PLC 04-Dec Dec-20 A+/GCR LAFARGE AFRICA PLC 15-Jun Jun-21 BBB/GCR FCMB 20-Nov Nov-21 A-/GCR FORTE OIL PLC 02-Dec Dec-21 A/GCR UBA 30-Dec Dec-21 Aaa/Agusto MIXTA REAL ESTATE PLC 17-Jan Jan-22 BBB/GCR A-/GCR FIDELITY 13-May May-22 DUFIL 31-Aug Sep-22 14

17 6. Eurobonds

18 Investment One Top 10 Report 2018 Eurobonds Where an investor has access to Foreign Currency (FCY) and also has obligations in currencies other than the local currency, it is imperative to maximize such funds. Eurobond investment is a viable outlet for FCY. at yields ranging from 6.5% % depending on the maturity, while Fidelity Bank issued a $ 500 million Eurobond with a 10.75% yield. Eurobonds are bonds issued by governments and corporates in currencies that differ from the other than domestic currency. They are named after the currency in which they are issued, the most common being the Eurodollar. While all other characteristics of a Eurobond are similar to that of government and corporate bonds, the fact that the bond is issued in a foreign currency, provides a hedge against exchange rate uctuation of the domestic currency for investors, while being exposed to all other risk factors associated with bond investing. Nigeria issued $4.5 billion worth of Eurobonds in 2017 The fact that Eurobonds are issued in a foreign currency, provides a hedge against exchange rate uctuation of the domestic currency for investors, while being exposed to all other risk factors associated with bond investing. Outstanding Federal Government Eurobonds Description Issue Date Coupon (%) Outstanding Maturity Value Date (N'bn) Yeild Maturity Date 6.75 JAN 28, 2021 PT 07-Oct Jan JUL 12, 2018 PT 12-Jul Jul JUL 12, 2023 PT 12-Jul Jul NOV 28, Nov Nov NOV 28, Nov Nov FEB Feb Feb JUN Jun Jun Source: FMDQ, InvestmentOne Research 16

19 Investment One Top 10 Report 2018 Eurobonds contd. Outstanding Corporate Eurobonds Issuer Description Issue Date Outstanding Coupon Outstanding (%) Value Value ($'mm) (N'bn) Maturity Date Yield (%) Closing Price FIDELITY BANK PLC 6.88 MAY 09, 2018 PT 09-May May GTBANK PLC 6.00 NOV 08, 2018 PT 08-Nov Nov ZENITH BANK PLC 6.25 APR 22, 2019 PT 22-Apr Apr DIAMOND BANK PLC 8.75 May 21, 2019 PT 21-May May FIRST BANK PLC 8.25 AUG 07, 2020 PT 07-Aug Aug

20 7. Equities

21 Investment One Top 10 Report 2018 Equities The equities or stock market is where shares are issued and traded using the platform of the Nigerian Stock Exchange. It provides companies with access to capital and investors, with an opportunity to own a portion of a company with the potential to earn returns from dividends and price appreciation. Stock markets can also be a leading indicator of a country's economic health. Rising stock prices may be a sign of a healthy economy while falling prices could be re ective of weakening economic fundamentals. Equity markets are subject to volatilities in the short term with the potential for an investor to lose the initial investment. As such investors are advised to take a long-term view to investing in equities with the preference for fundamentally sound quality names. In 2017, the Nigerian equities market returned % following three years in which the Nigerian Stock Exchange had recorded negative returns. In 2017, the Nigerian equities market returned % following three years in which the Nigerian Stock Exchange had recorded negative returns. Equities Market Performance in Source: FMDQ, InvestmentOne Research 19

22 8. Mutual Funds

23 Investment One Top 10 Report 2018 Mutual Funds A mutual fund is an investment vehicle made up of a pool of monies collected from several investors, for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets. Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds and other securities, which are diversi ed and provide a relatively stable return. Examples of mutual funds include Investment One's Abacus Money Market Fund, Vantage Balanced Fund, and Vantage Guaranteed Income Fund. In 2017, Abacus Money Market Fund returned +17.5% net, Vantage Balanced Fund returned +25% net and the Vantage Guaranteed Income Fund returned +18% gross. Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds and other securities, which are diversi ed and provide a relatively stable return. Investment One Mutual Funds Name Description Size (N billion) 2017 Return Abacus Money Market Fund % Vantage Guarantee Income Fund Fixed Income Fund % Vantage Balanced Fund Mixed Fund (Invest in Real Estate, Equities & Fixed Income) % 21

24 9. Real Estate

25 Investment One Top 10 Report 2018 Real Estate Investments in Real Estate can be direct or indirect. One option is the direct ownership of land and buildings for the purpose of receiving rent at a regular interval or selling at an appreciable value. Another option is to invest in funds or investment trusts focused on real estate, such as Real Estate Investment trusts (REITs). REITs are securities that pool investors' funds to invest in real estate either through property ownership/management or mortgages. Real estate investments are historically proven to provide a hedge against in ation. We believe high-interest rates on government instruments in 2017 may not be sustained in 2018, thus investors may consider real estate as an alternative investment in Furthermore, real estate investments are historically proven to provide a hedge against in ation. 23

26 10. Venture Capital

27 Investment One Top 10 Report 2018 Venture Capital Venture capital is nancing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from high networth individuals/investors, investment banks and any other nancial institutions. In addition to offering nancial support, investors may provide technical or managerial expertise. Though it can be risky for the investors who put up the funds, the potential for above-average returns is an attractive payoff. For new companies or ventures that have a limited operating history (under two years), venture capital funding is increasingly becoming a popular even essential source for raising capital, especially if they lack access to capital markets, bank loans or other debt instruments. The main downside for the bene ciary is that the investors usually get equity in the company, and thus may have in uence over the company s management decisions. Though it can be risky for investors who fund startup companies and small businesses, the potential for above-average returns is an attractive payoff. 25

28 Investment One Top 10 Report 2018 How Do I Invest And What Are The Next Steps? For a new client, please contact Investment One at enquiries@investment-one.com or log on to our website and follow the simple steps to open an account. Kindly note that you will be required to upload a passport sized photograph, a valid means of identi cation (preferably National I.D Card, Voters Card, International Passport or Driver's Licence) and a recent utility bill not older than 3 months. Once the online account opening process is successful, an account opening noti cation will be sent to you with the details of your investment account, Relationship Manager and Bank account to credit. On receiving information about the investment, transfer funds to the provided account. Kindly send a mail to enquiries@investment-one.com with proof of payment for your desired investment and an instruction. 26

29 Investment One Top 10 Report 2018 Key Investment Terms and De nitions A Annual report - The yearly audited record of a corporation or a mutual fund's condition and performance that is distributed to shareholders. Appreciation - The increase in the value of a nancial asset. Asset allocation - The process of dividing investments among cash, income and growth buckets to optimize the balance between risk and reward based on investment needs. Asset class - Securities with similar features. The most common asset classes are stocks, bonds and cash equivalents. B Bear market - A bear market is a prolonged period of falling stock prices, usually marked by a decline of 20% or more. A market in which prices decline sharply against a background of widespread pessimism, growing unemployment or business recession. It's the opposite of a bull market. Benchmark - A standard, usually an unmanaged index, used for comparative purposes in assessing the performance of a portfolio or mutual fund. Beta - A measurement of volatility where 1 is neutral; above 1 is more volatile; and less than 1 is less volatile. Bond - A bond acts like a loan or an IOU that is issued by a corporation, municipality or the government. The issuer promises to repay the full amount of the loan on a speci c date and pay a speci ed rate of return for the use of the money to the investor at speci c time intervals. Bull market - Any market in which prices are advancing in an upward trend. In general, someone is bullish if they believe the value of a security or market will rise. The opposite of a bear market. C Capital - The funds invested in a company on a long-term basis and obtained by issuing preferred or common stock, by retaining a portion of the company's earnings from the date of incorporation and by long-term borrowing. Capital gain - The difference between a security's purchase price and its selling price, when the difference is positive. Capital loss - The amount by which the proceeds from a sale of a security are less than its purchase price. Capitalization - The market value of a company, calculated by multiplying the number of shares outstanding by the price per share. Common stock - Securities that represent ownership in a corporation; must be issued by a corporation. Corporate bond - A long-term bond issued by a corporation to raise outside capital. 27

30 Investment One Top 10 Report 2018 Key Investment Terms and De nitions D Default - Failure of a debtor to make timely payments of interest and principal as they come due or to meet some other provision of a bond indenture. Dividend - A dividend is a portion of a company's p r o t p a i d t o c o m m o n a n d p r e f e r r e d shareholders. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends. Dividend yield - Annual percentage of return earned by a mutual fund. The yield is determined by dividing the amount of the annual dividends per share by the current net asset value or public offering price. E EPS - The portion of a company's pro t allocated to each outstanding share of common stock. EPS serves as an indicator of a company's pro tability. Equities - Shares issued by a company which represent ownership in it. Ownership of property, usually in the form of common stocks, as distinguished from xed-income securities such as bonds or mortgages. Stock funds may vary depending on the fund's investment objective. Ex-Dividend - The interval between the announcement and the payment of the next dividend for a stock. F Fixed income security - A security that pays a set rate of interest on a regular basis. Fund - A pool of money from a group of investors in order to buy securities. The two major ways funds may be offered are (1) by companies in the securities business (these funds are called mutual funds), and (2) by bank trust departments (these are called collective funds). G Growth investing - An iinvestment strategy that focuses on stocks of companies and stock funds where earnings are growing rapidly and are expected to continue growing. Growth stock - Typically a well-known, successful company that is experiencing rapid growth in earnings and revenue,, and usually pays little or no dividend. I Index - An investment index tracks the performance of many investments as a way of measuring the overall performance of a particular investment type or category. The NSE All-share index is a total market index, re ecting a total picture of the behaviours of common shares listed on the Nigerian Stock Exchange. Inflation - A rise in the prices of goods and services, often equated with loss of purchasing power. 28

31 Investment One Top 10 Report 2018 Key Investment Terms and De nitions Interest rate - The xed amount of money that an issuer agrees to pay the bondholders. It is most often a percentage of the face value of the bond. Interest rates constitute one of the self-regulating mechanisms of the market, falling in response to economic weakness and rising on strength. Interest-rate risk - The possibility of a reduction in the value of a security, especially a bond, resulting from a rise in interest rates. Investment advisor - An organization employed by a mutual fund to give professional advice on the fund's investments and asset management practices. Investment company - A corporation, trust or partnership that invests pooled shareholder funds in securities appropriate to the organization's objective. Mutual funds, closedend funds and unit investment trusts are the three types of investment companies. Investment grade bonds - A bond generally considered suitable for purchase by prudent investors. Investment objective - The goal of a mutual fund and its shareholders, e.g. growth, growth and income, income and tax-free income. J Junk bond - A lower-rated, usually higheryielding bond, with a credit rating of BB or lower. L Liquidity - The ability to have ready access to invested money. Mutual funds are liquid because their shares can be redeemed for current value (which may be more or less than the original cost) on any business day. Long-term investment strategy - A strategy that looks past the day-to-day uctuations of the stock and bond markets and responds to fundamental changes in the nancial markets or the economy. N Number of Holdings - Total number of individual securities in a fund or portfolio. P Par value - Par value is the amount originally paid for a bond and the amount that will be repaid at maturity. FGN Bonds have a minimum subscription rate of N10,000 and typically sold in multiples of N1,000 thereafter. Portfolio - A collection of investments owned by one organization or individual, and managed as a collective whole with speci c investment goals in mind. Preferred stock - A class of stock with a xed dividend that has preference over a company's common stock in the payment of dividends and the liquidation of assets. There are several kinds of preferred stock, among them adjustable-rate and convertible. 29

32 Investment One Top 10 Report 2018 Key Investment Terms and De nitions Premium - The amount by which a bond or stock sells above its par value. Price-to-book - The price per share of a stock divided by its book value (net worth) per share. For a stock portfolio, the ratio is the weighted average price-to-book ratio of the stocks it holds. Price-to-earnings (P/E) Ratio - A stock's price divided by its earnings per share, which indicates how much investors are paying for a company's earning power. R Ratings - Evaluations of the credit quality of bonds usually made by independent rating services. Ratings generally measure the probability of timely repayment of principal and interest on debt securities. Recession - A downturn in economic activity, de ned by many economists as at least two consecutive quarters of decline in a country's gross domestic product. Risk tolerance - The degree to which you can tolerate volatility in your investment values. S Sector - A group of similar securities, such as equities in a speci c industry. Securities - Another name for investments such as stocks or bonds. The name 'securities' comes from the documents that certify an investor's ownership of particular stocks or bonds. Short-term investment - Asset purchased with an investment life of less than a year. Stock - A long-term, growth-oriented investment representing ownership in a company; also known as 'equity. Stockholder - The owner of the common or preferred stock of a company. Also called 'shareholder'. T Time horizon - The amount of time that you expect to stay invested in an asset or security. Treasury bill - Negotiable short-term (one year or less) debt obligations issued and backed by the Nigerian government. Government bond - Long-term debt obligations issued and backed by the Nigerian government. V Valuation - An estimate of the value or worth of a company; the price investors assign to an individual stock. Volatility - The amount and frequency with which an investment uctuates in value. Y YTD total return - Year-to-date return on an investment including appreciation and dividends or interest. 30

33 Investment One Top 10 Report 2018 Key Investment Terms and De nitions YTD - Year-to-date return on an investment including appreciation and dividends or interest. YTD Return (w load) - Year-to-date return on an investment including appreciation and dividends or interest, minus any applicable expenses or charges. Yield - Annual percentage rate of return on capital. The dividend or interest paid by a company expressed as a percentage of the current price. Yield to maturity - Concept used to determine the rate of return an investor will receive if a longterm, interest-bearing investment, such as a bond, is held to its maturity date. Glossary adapted from JP Morgan 31

34 Contact Details Investment One Financial Services Head Office 37, Karimu Kotun Street, Victoria Island, Lagos. t: , e: w: Maryland Office Plot 10, Olaide Benson Street, Along Ikorodu Road, Maryland, Lagos. t: , Abuja Office 871, Tafawa Balewa Street, Opposite Nicon Luxury Hotel, Area 11, Abuja. t: , Port Harcourt Office 21, Woji Road, Off Olu Obasanjo Rd, GRA, Port Harcourt. t: Ilorin Office Kwara Hotel Ahmadu Bello Way, G.R.A, Ilorin, Kwara State. t: