MARKET SENTIMENTS FOR THE WEEK ENDED JUNE 22, 2007

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1 Meristem Securities Limited 124 Norman Williams,Ikoyi South/West. Lagos, Nigeria. Tel: , , , Fax: MARKET SENTIMENTS FOR THE WEEK ENDED JUNE 22, 2007 SYNOPSIS The market opened the week with the All Share Index falling slightly relative to last Friday s closing values. It then succumbed to downward pressures and dipped on Tuesday. The Nigerian Labour Congress (NLC) strike started on Wednesday but despite this, the market rose due to extraordinary high volume transactions in the shares of Transcorp. The Index rose on Thursday and climbed again on Friday to close the week at 51, points with a market capitalization of N7.83trillion. The Exchange was buoyed this week by activity in the shares of Diamond Bank, FirstInland, Wema Bank, Lasaco, Fidelity and NASCON. NASCON shares recorded high volumes traded with about 50million units traded this week in comparison to almost 160 million shares exchanged the previous week. Investors reacted positively to the special sale of the stock on June 15, 2007 and also bought large volumes on the stock as 154,379,721 shares exchanged hands in trades worth N3.4 billion. The banking sector soared with renewed activity in the shares of most banks. Access Bank shares sold in anticipation of its impending offer. GTBank was well received by investors due to speculation of it been listed on a foreign stock exchange and a possible offer for subscription. UBN was mopped up by 1

2 investors in view of anticipated benefits in relation to its end of year results. The shares of WemaBank, Fidelity, FirstInland, Skye Bank and Sterling Bank continued to be investors delight as they were purchased based on sentiments of good investment potentials. Shares of the Insurance sector were relatively on the recovery path as most stocks bounced back in prices. Mutual Benefit and Cornerstone Insurance returned on bid (even though weak) and demand was also noticeable in other peer shares. The shares of Continental Re Insurance and Custodian and Allied Insurance continued to appreciate as investors were drawn by the companies future prospects and the view of some market analysts that both stocks are undervalued. The shares of BCC were subscribed this week due to speculation of a future Offer for Subscription. Flour Mills began to fall as its upward momentum in relation to the news of its cost-saving plant could not be sustained. WAPCO and Ashaka observed marginal dips and gains but seemed to find mutual support levels at N67 and N77 respectively. We present below brief highlights of market events and sentiments for the week and some of the stocks investors should watch closely for investment decisions in the week ahead DIAMOND BANK PLC Diamond Bank Plc has emerged as a force to be reckoned with in the Nigerian Banking Sector. The Bank s shares were recently lifted of technical suspension following the ratification of Actis Group US$130m investment in Diamond Bank. The shares have observed steady demand and witnessed vigourous price appreciation to reach an all time high price of N21.68 on Friday June 22,

3 The shares which 12 months ago were trading at N4.32 have thus witnessed a price appreciation of 400% in the last one year. Analysts have rated the stock as a good buy based on its fundamentals and long-term prospects. The Bank recently released its Q results on the floor of the Exchange. Profit After Tax grew by 82.5% to N4.6bn from N2.52bn. Current EPS stands at N0.80k and P/E ratio is The Bank has also strategically placed itself as a prime funder of SMEs. Currently the Bank has over 100 branches and has put plans in place to grow its branch network. About 35% of the Bank s earnings are non-retail banking based. Diamond Bank has thus placed itself in a position to maximize opportunities in fee-based income through its subsidiaries Diamond Pension Fund Custodian Limited (Diamond PFC), Diamond Mortgages, ADIC Insurance and Diamond Bank Benin S.A. It is expected that these subsidiaries will enable the Bank grow and diversify its income base in this era of shrinking margin on banking based income. MUTUAL BENEFITS ASSURANCE PLC (MBENEFITS) MBENEFITS was one of the first insurance companies to successfully scale NAICOM s recapitalization hurdle. The company is now registered to conduct both life and non life assurance business through its two entities Mutual Benefits Assurance Plc and Mutual Benefits Life Assurance Plc. As part of its consolidation, the firm acquired World Wide Insurance Company Limited and gained a technical partnership with International Co-operative Mutual Insurance Federation (ICMIF) Manchester U.K and is said to be seeking technical assistance from Lloyds especially in terms of special risk management. The shares of MBENEFITS have been in high demand and have appreciated in value over the past few weeks. Analysts have attributed this trend to the recent release of the company s full year 2006 results, which was well received by investors. Profit After Tax (PAT) grew by an impressive 236% from N209m 3

4 to N702m. Industry observers have opined that MBenefits has already carved a niche for itself as an innovative and dynamic insurance firm dedicated to ensuring returns for its shareholders. An investment of N0.60k per share in the company s public offer of September 2006 was priced N5.35k as at June 12, 2007 when it attained the all time high price. The company is also set to be the first insurance company to pay interim dividends. Dividends estimated at about N800m are set to be paid twice this year with a dividend payment set for September and a final set to be paid after the Annual General Meeting. Shareholders were also delighted with the news of the finalization of a $10m foreign investment in the company by the Augustos Group. The Group had injected the funds in October 2006 and its investment is now worth $90m. Analysts have opined that the future of the company is very bright. The company has a growing and consistent income stream, it will be launching new products which are expected to generate even more revenue and there is speculation that Mutual Benefits will be listed on a foreign exchange. We make a buy recommendation for both traders and Long-term investors SKYE BANK PLC Skye Bank Plc was formed from the merger of Prudent Bank, Eko International Bank, Reliance Bank, Cooperative Bank and Bond Bank. Analysts initially feared that the Bank would have problems due to integration of processes of the amalgamated banks but Skye Bank allayed these fears and came to the fray as an emergent bank full of prospects. The recent release of its 18-month financials for the period ended December 31, 2006 revealed an increase in Profit After Tax (PAT) by 297.8% from N493m to N1.96bn. Its Q results were very impressive with PAT growing to N1.88bn in comparison to N530m the same period prior year. This performance has spawn demand for the stock. Analysts have also commended the Bank on its 4

5 corporate action of not paying dividends in 2006 but concentrating on building up funds as goodwill from the consolidation exercise was written off its books as mandated by the CBN. Market watchers see Skye Bank as a Bank to look out for in the near future. The Bank is expanding its branch network and has also signed a technical partnership with Deutsche Bank securing a line of foreign credit. The Bank has launched N2bn shelter fund to which the public will be open to subscribe in the third quarter of 2007 and it has also secured a $150m facility from African Import and Export Bank (Afrexim) and Standard Chartered Bank London to support the development of telecoms in Nigeria. There is also speculation that Skye Bank is been considered by a group of foreign investors as a potential investment. UNION BANK OF NIGERIA PLC (UBN) There has been considerable activity witnessed on the floor of the exchange in relation to the shares of UBN. The shares rallied last week to reach a new all time price high of N This represents a 50% price appreciation in the past 12 weeks (N30.00 in March 2007). Analysts have posited that this surge in price is due to speculation over the Bank s full year 2007 results which will soon be released to the investing public. Many market speculators are of the belief that the Bank will reward its customers with twin benefits of dividend and bonus declaration. Based on UBN shares outstanding of N9.382b and projected profit after tax of N18.53b for 2007 financial year, we estimate that given a 60% payout ratio UBN can pay a dividend of N1.15k which would be a 15% increase on the N1 dividend paid prior year. It is also expected that the Bank could declare a bonus of 1 share for every 6 held. This would take the Bank s total shares outstanding to 10.95b and would represent a 16.66% increase in the number of shares, which is closer to the 15.2% expectation for PAT growth in Industry insiders acknowledge that UBN has consistently been one of 5

6 Nigeria s biggest and most profitable banks, a leading fund provider for SME financing. Many are of the opinion that the Bank is lagging behind competitively in the Nigerian Banking arena. It has not been able to grow its profits as fast as its rivals such as Zenith Bank (which is set to surpass it in earnings this year), GTBank and Intercontinental Bank with PAT of N13.19bn and N15.48bn, and income growth rates of 35% and 104% respectively. We therefore suggest a Hold recommendation for the stock. CONTINENTAL RE-INSURANCE PLC Continental Re-Insurance was officially listed on the Nigerian Stock Exchange on May 30, A total of 10.3bn ordinary shares of 50kobo each were listed by introduction at N1.26k. The company was one of the two Re-insurance companies to successfully scale NAICOM s consolidation hurdle. In the process of consolidation, the company raised over N8bn by way of private placement. Over 90% of the funds came by means of foreign direct investment through seven international investors including Liquid Africa of South Africa and EMP Africa of Mauritius. Following listing, the company s shares have been on an upward swing appreciating by an average of 4.95% and attaining a new price high of N2.75k on Thursday June 21, Analysts have asserted that there is a scramble for the company s shares as Continental Re-Insurance is full of hidden potentials and is currently under-priced. Continental Re has a subsidiary operation in Cameroon and has a technical affiliation with Zimbabwe Re. Similarly, the company recently acquired a 19% stake in Mozambique s premier Re insurer Zimre Empresa Moçambicana de Resegurro. Insurance practitioners have commended the company on its continued provision of full professional treaty and facultative reinsurance services. The company is said to be seeking new markets for expansion as a means of buttressing itself as the largest Re insurer in Southern Africa. Continental Re 6

7 has also been awarded a BB- rating by Global Credit Rating of South Africa and was twice voted the Re-Insurance company of the year (2001 & 2002). We therefore recommend the stock as a buy for both long-term investors and traders. CUSTODIAN AND ALLIED INSURANCE PLC (CUSTODIAN) Custodian and Allied Insurance Plc was on Tuesday June 12, 2007 listed on the Nigerian Stock Exchange. Custodian listed 400m shares of 50kobo each at N1.75k per share. The stock has been on bid since listing with an average of 2m units traded per day and closed the week with a new all time price high of N2.55. Market analysts rate the stock as a good buy. The company is one of the fastest growing insurance companies in Nigeria and draws on its key technical advisory relationship with HSBC Insurance Brokers Limited. In the process of consolidating to meet NAICOM deadline it merged with Signal Insurance Company Limited and Fire, Equity & General Insurance Company Limited. Custodian is one of the top insurance firms in terms of profitability and shareholders funds and is well placed in the industry to utilize prevalent opportunities in the insurance arena to generate returns for its shareholders. NATIONAL SALT COMPANY OF NIGERIA PLC (NASCON): On Friday, June 15, 2007, 400m shares of NASCON were offered to the investing public in a special sale. The shares that had a closing price of N27.12 the previous day were offered at N22 representing a discount of 18.88%. The special sale was rationed to stock broking houses and meant for only existing clients with registered CSCS accounts. The sale was over-subscribed with brokers having to ration the shares allotted to them between their clients. The shares rallied after the special sale and closed at N27.00 on Thursday June 21,

8 It would be recalled that NASCON had over the last 10 years accumulated a total debt of more than N400m, which totally eroded its shareholder s funds. The company was thrown a lifeline with the purchase of 95% of its Shareholding (2.1 billion shares) by Dangote Salt Limited a subsidiary of the Dangote Group. Dangote Salt Limited then went into voluntary liquidation transferring all its assets to NASCON. The Shares of NASCON which initially traded before the acquisition at N0.69k were re-issued post acquisition at N5.50k and have rallied to its all time high price of N The funds raised from the sale are expected to increase production capacity, packaging equipment, research and development as well acquisition of other viable entities. Analysts are of the belief that the stock is a good buy. It is said that there has been a total transformation in the fortunes of the company as it has gone from a loss position to possibly paying dividends at the end of its current financial year. It is speculated that the company current production capacity is 400,000 metric tonnes and industry analysts believe the company commands over 50% of the local salt market. It is anticipated that NASCON will soon undertake an aggressive marketing and sales strategy to sensitize its customers and increase its market share. There is also a growing confidence in the venture capital financing ability of the Dangote Group. It is believed by many segments of the investing public that whatever venture the Dangote Group undertakes will be a success. This is also expected to add to the company s shares price appreciation. 8

9 We recommend the following stocks for investment decisions in the week ahead: BUY RECOMMENDATION COMPANIES ENTRY PRICE (N) 1. WEST AFRICA PORTLAND CEMENT FLOURMILL GUARANTY TRUST BANK BENUE CEMENT COMPANY NEIMETH PHARMACEUTICALS ZENITH BANK UNION BANK UBA OCEANIC BANK IBTC DIAMOND BANK RT BRISCOE UN HOMES CORNERSTONE CRUSADER MUTUAL BENEFITS WAPIC DANGOTE SUGAR REFINERY NAMPAK 9.00 SELL RECOMMENDATION COMPANIES CURRENT PRICE (N) 1. CADBURY NIGERIA PLC NIGERIAN BOTTLING COMPANY Meristem Securities Limited weekly market sentiments and its attendant recommendations are prepared based on publicly available information and are meant for general informative purposes. Meristem Securities Limited can guarantee neither the accuracy nor completeness of the information, as they are an expression of our analysts views and opinions. Meristem Securities Limited cannot be held responsible for any loss suffered by relying on the said information as this information as earlier stated is based on estimates and opinions and is meant for general information purposes and not as solicitation to buy securities and financial instruments Meristem Securities Limited. 9