United Capital Research I Nigeria I Markets

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1 United Capital Researc I Nigeria I Markets 10t December 2018 Macro Higligts and Outlook Te past week started off wit te release of te Q3-18 selected banking sector data by te National Bureau of Statistics, wic sowed tat total banking sector credit to te private sector saw a marginal uptick wen viewed on a quarterly basis but weakened by 1.5% y/y. Furter analysis also sowed tat te banking industry was exposed to ig credit risk as asset quality [Non-Performing Loans (NPL) to Total Loans] deteriorated from 12.5% in Q2-18 to 14.2% in Q3-18. Te CBN also released its montly Business Expectation Survey (BES) wic sowed tat businesses surveyed across te country expressed teir optimism on furter recovery in te domestic economy. In oter news, te Federal Government of Nigeria via te Debt Management Office opened a fres trance of its Sukuk bond series. Te instrument, wort N100bn at a rental rate of 15.74% wit a sevenyear tenure, is targeted at te construction and reabilitation of major road projects across te country. Tis week, we anticipate a barrage of key economic data from te Nigerian Bureau of Statistics. Tis ranges from te Q3-18 GDP numbers and Foreign Trade in Goods Statistics to Nov-18 Inflation, Selected Food Prices and Transport Fare Watc, among oters. Global Equities: S&P 500: -4.6% NASDAQ: -4.5% DJIA: -4.9% Nigerian Equities: NSE Market Cap. (N bn): 11,268.8 NSE Market Cap. ($ mn): 36,724.1 YTD Return (%): -19.3% W-o-W Return (%): -0.02% P/E (x): 9.4x Fixed Income: Overnigt: 26.10% Open Buy-Back: 24.33% Treasury Bills Yield 90 days: 15.11% 180 days: 14.52% Nigeria Asset Class Returns (YTD, W-o-W) 360 days: 17.41% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% -25.0% Equities Bonds FX Oil Price 5.6% 0.1% 1.0% 0.0% -1% -0.7% -6.7% -19.3% YtD Return w/w Return Bonds Yield 3-Year: 15.01% 10-Year: 15.97% Excange Rate (NGN/USD): I & E FX window: W-o-W Cange: -0.3% Source: Bloomberg, Aboki FX (Parallel market rate), United Capital Researc Equities - NSE All Sare Index; FX - NGN/USD Parallel Market Rate; Oil Price - Brent Crude oil price; Bond - S&P/FMDQ Nigeria Sovereign Bond Index (NGN) 1

2 United Capital Researc I Nigeria I Markets Global Market Review and Outlook Global equities caugt in a roller-coaster of geopolitical events Global equities started te week on an upbeat note as investors basked in te euporia of te US-Cina trade ceasefire agreed on te sidelines of te G20 summit. However, te early gains quickly dissipated amid fears of recessionary signals sent by te US bond market and murky details on te significance of te trade agreement tat was earlier celebrated. Adding to te uncertainty, bearis sentiments were furter exacerbated by geopolitical worries tat trailed te arrest of a top executive in a renowned Cinese tec company, Huawei, at te beest of US autorities. In te US, geo-politics overang oversadowed a relatively ceery job report tat sowed tat unemployment still overed at a 59-year low. Consequently, te S&P 500, DJIA and NASDAQ all sed 4.6%, 4.9% and 4.5% respectively in te oliday-sortened week. 10t December 2018 Bearis sentiments also pervaded into European markets as te Pan European STOXX (- 3.4%), France s CAC (-3.8%), and Germany s DAX (-4.2%) all trended soutwards w/w. Sentiments in te EU also weiged in te fuel tax ike protests tat rocked Paris and te run-off to BREXIT parliamentary vote. In te week aead, we will be keeping tabs on te outcomes of BREXIT votes and te ECB monetary policy meeting. Across emerging markets, te Sout African JALSH (+0.7%) rode on te waves of ceery GDP reports, were te African nation expanded 2.2% in Q3-18, ence, exiting a tecnical recession. Russia s RTSI (+2.8%) and Cina s SCHOMP (+0.7%) indices also escaped te global bear's wrat. Meanwile, Brazil s IBOV (-1.6%) and India s SENSEX (- 1.4%) trailed te bearis pat. Beyond te BRICS-classified emerging markets, Turkey s Nov-18 inflation fell from te 15-year ig recorded in Oct-18 to 21.6% wile Mexico welcomed te swearing in of a new president. Te past week was an eventful one for te oil market. Te week kicked off wit a surprise announcement from Qatar to divorce OPEC. Te island nation made te move to exit te cartel, after almost 60 years of membersip, to focus on consolidating its leadersip in gas production. Beyond Qatar s exit, Alberta s unexpected but timely announcement to cut crude and bitumen production by 325,000 barrels a day from next year also boosted sentiments. Te major igligts of te past week for te oil market was wrapped off by te outcome of OPEC+ s meeting. Despite initial reports of an impasse, te cartel and its allies agreed to cut production by 1.2mbpd from te beginning of Tis buoyed crude prices to a 5.0% w/w gain to settle at $61.7/b. 2

3 United Capital Researc I Nigeria I Markets 10t December 2018 Domestic Market Financial Review and Outlook A tepid end to an oterwise great week In wat seemed like a tussle between te bulls and te bears, te domestic market closed te week barely bearis upon a 2bps decline w/w. Altoug te market started te week on a bearis footing, a trend of mixed performance was observed mid-week as te market closed in green territory on tree of five trading days. Market capitalization faltered N2.7bn w/w to settle at N11.3tn wile YTD return stood at -19.3% as at close of te week. Top Stock Recommendations for te Week 12M TP So Mkt Price Mcap Up/Down- Div. Sectors (N) (bn'n) (N) (bn'n) Side Rating EPS BVPS P/E P/B DPS Yield RSI PRESCO % BUY x 0.8x % 13.0 ZENITHBANK % BUY x 1.0x % 26.4 OKOMUOIL % BUY x 2.5x % 27.1 FIDELITYBK % BUY x 0.3x % 32.6 GUARANTY % BUY x 2.1x % 36.6 Source: United Capital Researc Across sectors, te Insurance (-3.1%), Agriculture (-2.4%) and Industrial Goods (-2.1%) indices were te laggards as declines in CONTINSURE (-12.5%), OKOMUOIL (-4.6%), DANGCEM (-1.6%) and WAPCO (-3.9%) weiged. On te oter and, te Oil & Gas (+0.2%), Banking (+0.9%) and Consumer Goods (+0.6%) indices trended nortwards w/ w owing to price appreciation in OANDO (+9.6%), SEPLAT (+1.6%), DIAMOND (+56.9%), WEMA (+7.8%), NESTLE (+4.3%) and DANGSUGAR (+4.3%). In te corporate information front, Lafarge (WAPCO) s sareolders reaced a resolution for te firm to raise N89.1bn via a Rigts Issue. Te transaction would be done by issuing six new sares for every seven sares. Notably, NESTLE, NB and TOTAL s Q3-18 interim dividend would be paid tis week, specifically on te 10 t of December. Te interim dividends are N20.0, N0.6 and N3.0 respectively. Additionally, towards te end of te week, Fitc ratings downgraded DIAMOND from B- (Higly Speculative) to CCC (Substantial credit risk). Tis reflected te rating organization fears on te bank s solvency and liquidity position, as well as te perceived onerous execution of te sale of its London subsidiary tat could amper te banks successful transition to a national bank. Investors sentiment remained underwater as market breadt closed at 0.8x; 30 stocks advanced wile 37 declined. As te domestic bourse overs in an oversold region, we reiterate our expectations of a Santa Claus rally tis mont as year-end portfolio repositioning and bargain unting provides support. Yet, te possibility of an unprecedented rally could be capped by te overang of jitters in te polity. 3

4 United Capital Researc I Nigeria I Markets Money Market: CBN plays ard ball wit four OMO auctions In te week to 7 t December, te CBN was a ball of fire, conducting a total of five OMO auctions (four regular and one special) wort N892.8bn in a bid to curbing system liquidity from maturing OMO bills (N684.8bn) and FAAC payments. Interestingly, stop rates on te 183-day and 351-day maturities were maintained at 13.50% and 15.00% respectively, wile te 92-day bill increased by 25bps to end at 11.90%. Overall, average money market rates (Open Buy Back and Overnigt rates) for te week settled at 12.5% from 16.2% in te preceding week. 10t December 2018 In te secondary market, OMO activities of te week fueled sell-offs as yields tracked iger by an average of 82bps to close at 15.6% [91-day (up 156bps to 15.1%), 182-day (up 130bps to 16.2%) and 364-day (up 64bps to 17.4%)]. Looking into te new week, we expect to see more of OMO auctions, following OMO maturities wort N498.7bn, as well as te directive by te DMO tat NTB s of N78.0bn for bot 13t and 20t Dec-18 would be fully redeemed. We expect te tempo of all tese events to guide trading sentiments in te secondary market. Bond Market: Lull teme caracterizes sentiments In te bonds space, Te DMO issued an offer circular for its N100bn 7-year Sukuk issue priced at %. In oter news, a lull teme caracterized trading activities in te primary market, as FGN bond traded sideways to close at 15.6%. Similarly, average yield for FGN Eurobond edged iger fractionally from 8.3% to 8.2% wile average yield in corporate Eurobonds increased to 10.7% from 11.2%. Tere is a better balance of risk for te market as some of te factors tat predicated Emerging & Frontier Market fund flows during te year seems to be abating. Tese factors coupled wit te 1.2mn barrels per day output cut by OPEC+ (wic portends a firming up for oil prices) sould spur a bullis teme in te near term. Foreign Excange: Naira appreciates at te Parallel market In te Foreign excange market, te local currency strengtened against te dollar at te parallel market, up by 1.0% w/w to average N364.0/$1 at te close of te week. On te flip side, te naira traded sideways in te official market to settle at N306.9/$1 wile rates at te Investors & Exporters (I & E) market depreciated to N365.3/$1, down 34bps w/w. Looking aead, we expect te sustained weekly FX intervention by te CBN to continue to support te local unit at N360-N365/$1, especially at te I&E window. 4

5 Stock Recommendations for te Week United Capital Researc I Nigeria I Markets 10t December 2018 Sectors 12M TP (N) So (bn'n) Mkt Price (N) Mcap (bn'n) Up/Down- Side Rating EPS BVPS P/E P/B DPS Div. Yield RSI Banking ACCESS % BUY x 0.5x % 19.3 FBNH % BUY x 0.4x % 44.2 FCMB % BUY x 0.2x % 43.1 FIDELITYBK % BUY x 0.3x % 32.6 GUARANTY % BUY x 2.1x % 36.6 ZENITHBANK % BUY x 1.0x % 26.4 DIAMONDBNK % BUY (0.9) x 0.1x STANBIC % SELL x 2.3x - 0.0% 46.8 Consumer Goods DANGSUGAR % BUY x 1.6x % 29.9 INTBREW % BUY x 7.0x - 0.0% 38.0 NESTLE 1, % SELL x 27.6x % 43.2 UNILEVER % BUY x 2.8x % 48.9 FLOURMILL % BUY x 0.6x % 29.2 NB % BUY x 3.7x % 33.0 GUINNESS % BUY x 1.9x % 34.9 PZ % BUY x 1.1x % 27.0 UACN UR NA UR x 0.4x % 40.0 Indutrial Goods DANGCEM % BUY x 4.4x % 59.4 WAPCO UR NA UR (9.0) x 0.8x % 26.6 Agric OKOMUOIL % BUY x 2.5x % 27.1 PRESCO % BUY x 0.8x % 13.0 Oil & Gas TOTAL % HOLD x 2.3x % 32.2 SEPLAT % BUY x 0.6x - 0.0% 41.8 MOBIL % HOLD x 2.1x % 52.3 OANDO UR NA UR x 0.3x FO UR NA UR (2.6) x 1.4x Note: TP=Year end Target Price, So= Sare Outstanding, Mcap= Market Capitalization, EPS= Earnings Per Sare, BVPS= Book Value Per Sare, P/E =Price to Earnings Ratio, P/B= Price to Book Value Ratio, DPS=Div idend Per Sare, Div Yield= Div idend Yield, Up/Down-side= potential return, Mkt Price= Current Market Price Source: Company filings, NSE, United Capital Researc, UR= Under Review Prices as at Friday 7t December

6 Investment Rating Criteria and Disclosure United Capital Researc adopts a 3-tier recommendation system for assets under our coverage: Buy, Hold and Sell. Tese generic ratings are defined below; Buy: Based on our valuation and subjective view (if any), te total return upside on te stock s current price is greater tan our estimated cost of equity. Hold: Based on our valuation and subjective view (if any), te total return upside on te stock s current price is less tan te cost of equity, owever, te expected total return on te stock is greater tan or equal to te Standing Deposit Facility rate of te Central Bank of Nigeria (wic is currently MPR 500bps; i.e 10%). We consider tis as te minimum return tat may deserve our olding of a risk asset, like equity. Sell: Based on our valuation and subjective view (if any), te total return upside on te stock s current price is less tan te Standing Deposit Facility rate of te Central Bank of Nigeria (wic is currently MPR 200bps; i.e. 10%). We consider tis as te minimum return tat may deserve our olding of a risk asset, like equity, especially as we consider te average 4.5% total transaction cost for an average retail investor. NR*: Please note tat in addition to our tree rating eads, we indicate stocks tat we do not rate wit NR; meaning Not-Rated. We may not rate a stock due to investment banking relationsips, oter sources of conflict of interests and oter reasons wic may from time to time prevent us from issuing a rating on te sares (or oter instruments) of a company. Please note tat we sometimes give concessional rating on stocks, wic may be informed by tecnical factors and market sentiments. Current Stock Rating Dispersion and Relationsip Conflict of Interest: It is te policy of United Capital Plc and all its subsidiaries/affiliates (tereafter collectively referred to as UCAP ) tat researc analysts may not be involved in activities tat suggest tat tey are representing te interests of UCAP in a way likely to appear to be inconsistent wit providing independent investment researc. In addition, researc analysts reporting lines are structured so as to avoid any conflict of interests. Precisely, researc analysts are not subject to te supervision or control of anyone in UCAP s Investment Banking or Sales and Trading departments. However, suc sales and trading departments may trade, as principal, on te basis of te researc analyst s publised researc. Terefore, te proprietary interests of tose Sales and Trading departments may conflict wit your interests as clients. Overall, te Group protects clients from probable conflicts of interest tat may arise in te course of its business relationsips. Risk Rating Our Risk rating assesses te likeliood of market price deviating significantly from valuation fair prices. Risk factors limit gravitation of market prices towards target prices or result in significant decline in current price and tus swing buy/sell rating from positive to negative or vice versa. Risk factors are broadly grouped into systematic and unsystematic risk. Systematic risk (also called market risk or un-diversifiable risk) captures uncertainties or volatilities inerent to te entire market. Tis also includes macroeconomic socks emanating from government actions or inactions, unanticipated policy pronouncements, external socks and socio-political tensions wic may swing market prices significantly away from targets. Unsystematic risk (specific risk, diversifiable risk or residual risk) on te oter and captures company or sector specific uncertainties wic can mostly be reduced by diversification. Tese include labour union/industrial actions, corporate governance/management inefficiency, litigation, possible liquidation/winding-down of operation, internal labour unrest, government action, policy missteps as well as disruptions resulting from innovation, tecnology and tecnical progress etc. United Capital Researc adopts a 3-tier risk rating for assets under our coverage: Hig, Medium and Low. Te rating scale is ordinal and captures te diverse risks tat we deem applicable te company of focus. Te ratings are defined below; Hig: Hig probability of an imminent systematic risk or/and unsystematic risk Medium: Sligtly ig (but lower compared to Hig ) probability of an imminent systematic risk or/and unsystematic risk Low: Low probability of an imminent systematic risk or/and unsystematic risk Analyst Certification Te researc analysts wo prepared tis report certify as follows: 1. Tat all of te views expressed in tis report articulate te researc analyst(s) independent views/opinions regarding te companies, securities, industries or markets discussed in tis report. 2. Tat te researc analyst(s) compensation or remuneration is in no way connected (eiter directly or indirectly) to te specific recommendations, estimates or opinions expressed in tis report. Oter Disclosures United Capital Plc or any of its affiliates (tereafter collectively referred to as UCAP ) may ave financial or beneficial interest in securities or related investments discussed in tis report, potentially giving rise to a conflict of interest wic could affect te objectivity of tis report. Material interests wic UCAP may ave in companies or securities discussed in tis report are disclosed: UCAP may own sares of te company/subject covered in tis researc report. UCAP does or may seek to do business wit te company/subject of tis researc report UCAP may be or may seek to be a market maker for te company wic is te subject of tis researc report UCAP or any of its officers may be or may seek to be a director in te company(ies) covered in tis researc report UCAP may be likely recipient of financial or oter material benefits from te company/subject of tis researc report Company Dangote Cement Plc Dangote Flour Plc Dangote Sugar Plc Diamond Bank Plc FirstBank Holdings Nigeria Plc Guaranty Trust Bank Plc Guinness Nigeria Plc PZ Nigeria Plc Transnational Corporation of Nigeria Plc United Bank for Africa Plc United Capital Researc I Nigeria I Markets Disclosure g, Disclosure Appendix Disclosure keys a. Te analyst olds personal positions (directly or indirectly) in one or more of te stocks covered in tis report b. Te analyst(s) responsible for tis report (wose name(s) appear(s) on te front page of tis report is a Board member, Officer or Director of te Company or as influence on te company s operating decision directly or troug proxy arrangements c. UCAP is a market maker in te publicly traded equities of te Company d. UCAP as been lead arranger or co-lead arranger over te past 12 monts of any offer of securities of te Company e. UCAP beneficially own 1% or more of te equity securities of te Company f. UCAP olds a major interest in te debt of te Company g. UCAP as received compensation for investment banking activities from te Company witin te last 12 monts. UCAP intends to seek, or anticipates compensation for investment banking services from te Company in te next 6 monts i. Te content of tis researc report as been communicated wit te Company, following wic tis researc report as been materially amended before its distribution j. Te Company is a client of UCAP k. Te Company owns more tan 5% of te issued sare capital of UCAP Disclaimer United Capital Plc Researc (UCR) notes are prepared wit due care and diligence based on publicly available information as well as analysts knowledge and opinion on te markets and companies covered; albeit UCR neiter guarantees its accuracy nor completeness as te sole investment guidance for te readersip. Terefore, neiter United Capital (UCAP) nor any of its associates or subsidiary companies and employees tereof can be eld responsible for any loss suffered from te reliance on tis report as it is not an offer to buy or sell securities erein discussed. Please note tis report is a proprietary work of UCR and sould not be reproduced (in any form) witout te prior written consent of Management. UCAP is registered wit te Securities and Excange Commission and its subsidiary, United Capital Securities Limited is a dealing member of te Nigerian Stock Excange. For enquiries, contact United Capital Plc, 12t Floor, UBA House, 57 Marina, Lagos. United Capital Plc 2016.*