United Capital Research I Nigeria I Markets

Transcription

1 United Capital Researc I Nigeria I Markets Macro Higligts and Outlook During te week to January 18t, te National Bureau of Statistics (NBS) publised Nigeria s inflation report for te mont of Dec-18. Contrary to expectations of a faster rise of 11.53%y/y by Bloomberg s consensus estimate, te eadline inflation rate rose to 11.4%y/y - 16bps iger tan te rate recorded in Nov-18 (11.28% y/y). Te sarp rise in te eadline rate was driven by te food inflation sub-index wic rose 26bps to settle at 13.6% wile core inflation stayed flat at 9.8%y/y. Te significant pressure on food inflation was not surprising and can be attributed to te seasonal rise in te demand for food tat trailed te yuletide season. Meanwile, te stability in te core inflation component was traceable to sustained improvement recorded in te foreign excange (FX) market amid CBN s interventions during te period. Elsewere, as te January 23rd deadline set by te Federal Government (FG) for passing te new minimum wage bill to te National Assembly for approval draws near, talks between te FG and oter stakeolders intensified during te week. Notably, te Nigerian Governors Forum (NGF) gave two conditions to pay te proposed N30,000 minimum wage. Tis includes a review of te revenue saring formula from te Federation Account to boost allocations to State governments or downsizing of te workforce. In oter developments during te week, te Presidential Enabling Business Environment Council (PEBEC) announced its goal to move Nigeria to one of top 100 countries te World Bank Doing Business Index (DBI) for 2020 from te current 146t position of 190 countries. Tis week, te Monetary Policy Committee (MPC) will old its first policy meeting for 2019 on te 21st and 22nd of January. We expect te committee to keep all policy rates uncanged. Nigeria Asset Class Returns (YTD, W-o-W) Equities Bonds FX Oil Price 5.0% 3.9% 3.5% 2% 0.7% 0.3% 0.0% -0.1% -1.4% Global Equities: S&P 500: +2.9% NASDAQ: +2.7% DJIA: +3.0% Nigerian Equities: NSE Market Cap. (N bn): 11,562.1 NSE Market Cap. ($ mn): 37,557.6 YTD Return (%): -1.4% W-o-W Return (%): +3.9% P/E (x): 8.8x Fixed Income: Overnigt: 16.2% Open Buy-Back: 15.3% Treasury Bills Yield 90 days: 11.86% 180 days: 14.27% 360 days: 17.19% Bonds Yield 3-Year: 15.03% 10-Year: 15.36% Excange Rate (NGN/USD): I & E FX window: W-o-W Cange: +0.6% -5.0% -5.8% -10.0% YtD Return w/w Return Sources: 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 - 1 S&P/FMDQ Nigeria Sovereign Bond Index (NGN)

2 United Capital Researc I Nigeria I Markets Global Market Review and Outlook Hopes of a trade resolution provides fillip for global equities In te past week, te performance of global equity indices was buoyed by furter indications of a tapering in trade tensions between te two largest economies in te world. Reports tat officials in te US were weiging a possible ease in tariffs on Cinese imports amid ongoing discussions aead of te Marc deadline and te onset of Q4-18 earnings season bolstered sentiments for US equities wit notable names suc as Bank of America and Goldman Sacs printing strong earnings growt. Overall, te DJIA, S&P 500, and NASDAQ rose 3.0%, 2.9% and 2.7% w/w despite te continued impasse of te US government sutdown. In Europe, a series of events unfolded wit regards te BREXIT. Not only was te BREXIT deal, presented to te House of Commons by te Britis Prime Minister, confronted wit te biggest defeat for a Britis leader in modern istory, but te incumbent government also was subjected a vote of no-confidence wic was narrowly escaped. Beyond events in te UK, te German economy narrowly escaped trudging into a recession in 2018 as te country s statistical body reported a 1.5% expansion, its weakest in five years. Amid te political drama tat unfolded, equity indices found solace in te broader global equity uptrend. Hence, te Pan-European STOXX (+2.2%), Germany s DAX (+2.9%), France s CAC (+2.0%) and UK s FTSE (+0.7%), all closed te week upbeat. All emerging market equity indices also rose w/w led by Brazil s IBOV (+2.6%) and Russia s RTSI (+2.4%), wile Cina s SCHOMP (+1.7%), India s SENSEX (+1.0%) and Sout Africa s JALSH (+0.1%) followed respectively. Notably, Sout Africa s central bank left policy rates uncanged at 6.75% noting improvements in te near-term inflation outlook wile Cinese autorities continued to calm te market wit promises of more stimulus amid inflow of economic reports signaling weakening of te economy. Crude prices appreciated 3.7% w/w to settle at $62.7/b as reports from OPEC and IEA sowed a fall in OPEC s supply in December as agreed OPEC+ cuts took off at te beginning of Jan-19. Te OPEC MOMR sowed tat OPEC supply fell 751,000 barrels in December, led by Saudi Arabia. 2

3 Domestic Financial Markets Review and Outlook Bulls gain ground as NSEASI soars 3.9% w/w United Capital Researc I Nigeria I Markets In wat seemed like te bulls grabbing te baton from te bears, te domestic bourse traded in green territory on all five trading days of te week and consequently gained 3.9%w/w to close well above te 30,000points tresold at 31,005.0 points. Activity level for te week emerged mixed as average volume traded rose 0.4% to 254.0mn units wile average value traded sed 4.3% to settle at N2.7bn. Top Stock Recommendations for te Week Sectors 12M TP So Mkt Price Mcap Up/Down- Side Rating EPS BVPS P/E P/B DPS Div. Yield RSI DANGCEM % BUY x 4.3x % 45.3 GUARANTY % BUY x 1.8x % 40.8 NB % BUY x 3.9x % 47.7 UNILEVER % BUY x 2.6x % 11.7 ZENITHBANK % BUY x 0.9x % 30.1 Source: United Capital Researc A glance at activities across sectors underscored te strengt of te bullis run as all sector indices except te banking index closed te week upbeat. Te Industrial Goods (+12.7% w/w) led te gainer s camp on bargain unting in bellweter DANGCEM (+10.1%), CCNN (+25.5%) and WAPCO (+4.5%). Te Insurance (+5.5% w/w), Consumer Goods (+2.7% w/w), and Oil & Gas (+0.6% w/w) indices also trended nortwards w/w as gains in CUSTODIAN (+21.7%), MANSARD (+3.3%), GUINNESS (+7.6%), NESTLE (+3.5%), OANDO (+3.5%) and FO (+3.5%) provided support. Te Banking (-1.0%) index stood as te lone loser owing to declines in GUARANTY (-4.6%), ZENITH (-1.6%) and FBNH (-1.4%) - barring te upticks in UBN (+12.5%), FCMB (+3.5%) and ETI (+3.7%). Investors sentiment was upbeat as market breadt closed at 1.5x (previously 0.5x); as 37 stocks advanced wile 25 declined w/w. In te week aead, we expect some profit taking to trail te observed bullis run as jitters surrounding te polity remains on te orizon. 3

4 United Capital Researc I Nigeria I Markets Money Market: Offsore inflow drives moderation in yields In te week to 18t January saw renewed offsore interest in te market following te significant rise in turnover at te I & E FX window to te tune of $1.7bn (compared to N945.5mn in te preceding week), wit a corresponding compression in rates to a 4- Mont low of N362.8/$. Consequently, average yield on te sort end of te curve moderated markedly 40bps to settle at 14.9%. More specifically, te 91-day bill closed 246bps lower to end at 11.9%; te 182-day bill closed 115bps iger to finis at 14.3% wile te 364-day bill closed 13bps lower to close at 17.2%. On anoter note, te CBN conducted tree OMO auctions during te week, mopping up a total of N574.6bn wit stop rates remaining uncanged (91-day: 11.9%; 180-day: 13.5%; and 364-day: 15.0%). Additionally, te apex bank net-repaid N73.5bn, following a re-allotment of just 67.4% of te 225.4bn NTB maturity. Demand was modest wit an average bid-to-cover ratio of 1.1x and wit te 91-day bill mostly demanded (bid-tocover ratio of 3.0x). Te auction was carried out at te following stop rates: 91-day (11.0 % vs. 10.9% at te last auction), 182-day (13.1% vs. 13.1% at te last auction) and 364- day (15% vs. 14.5% at te last auction). We expect te renewed foreign interest tat caracterized most of last week to be sustained tis week, considering te fact tat most of te risks te market priced in last year (e.g. US rate ikes) are playing out less tan te market expected. Noneteless, election uncertainties sould provide a cap to any uptrend in prices. Bond Market: Lull teme caracterizes sentiments In te bonds space, renewed offsore interest and te relatively liquid environment (average money market rates at 20.9% compared to 25.1% in te preceding week) in ligt of coupon payments and te CBN s NTB repayment elped to spur some bargain unting. Consequently, average FGN bonds trended soutwards to close at 15.3% (vs. 15.4% in te preceding week). Similarly, average yield for FGN Eurobond edged lower from 7.6% to 7.3% wile average yield in corporate Eurobonds decreased to 9.3% from 9.4%. Tere is a better balance of risk for te market as some of te factors tat predicated Emerging & Frontier Market fund outflows in 2018 seems to be abating. Noneteless, te FGN is expected to float its January bond auction tis week and we expect te tempo of tis event to drive te direction of average bond yields during te week. 4

5 United Capital Researc I Nigeria I Markets Foreign Excange: FX rates appreciate across market segments In te Foreign excange market, te local currency strengtened against te dollar across te 3 windows we actively track; up by 59bps, 14bps and 2bps w/w to close at N362.8/$1, N360.5/$1 and N306.9/$1 at te NAFEX, parallel and official window respectively. Tis was as we witnessed te prevailing interest of FPIs in te fixed income and equities market. Additionally, te CBN s sustained weekly FX intervention in te wolesale and retail FX market provided furter support for te local unit. Also, FX reserves accreted marginally by 9bps w/w to c. $43.1bn as at Tursday, maintaining its recent uptrend despite te Apex banks sustained intervention in te currency market. Meanwile, bencmark Brent price was largely volatile trougout te week, oscillating around $60.0/b for a significant part of te week as te OPEC+ supply cut continued to provide support for prices. Looking aead, we expect te sustained weekly FX intervention by te CBN to continue to support te local unit at N360-N365/$1, at te I & E window. In te meantime, an above $60/b oil and te potential return of FPIs are all positive factors for reserves. 5

6 Stock Recommendations for te Week United Capital Researc I Nigeria I Markets Banking Sectors 12M TP So Mkt Price Mcap Source: Company filings, NSE, United Capital Researc, UR= Under Review Prices as at Friday 18t January 2019 Up/Down- Side Rating EPS BVPS P/E P/B DPS ACCESS % HOLD x 0.3x % 26.0 FBNH % BUY x 0.4x % 45.8 FCMB % BUY x 0.2x % 46.9 FIDELITYBK % BUY x 0.3x % 45.6 GUARANTY % BUY x 1.8x % 40.8 ZENITHBANK % BUY x 0.9x % 30.1 DIAMONDBNK % BUY (0.7) x 0.2x STANBIC % BUY x 2.2x - 0.0% 46.4 Consumer Goods DANGSUGAR % HOLD x 1.7x % 59.7 INTBREW % HOLD x 7.2x - 0.0% 67.6 NESTLE 1, % BUY x 20.4x % 48.2 UNILEVER % BUY x 2.6x % 11.7 FLOURMILL % HOLD x 0.5x % 56.6 NB % BUY x 3.9x % 47.7 GUINNESS % HOLD x 1.8x % 10.9 PZ % HOLD x % 66.5 UACN UR NA UR x 0.4x % 44.2 Indutrial Goods DANGCEM % BUY x 4.3x % 45.3 WAPCO % HOLD (6.3) x 0.9x % 25.8 Agric OKOMUOIL % BUY x 2.7x % 81.7 PRESCO % BUY x 0.8x % 75.5 Oil & Gas TOTAL % HOLD x 2.2x % 63.2 SEPLAT % BUY x 0.6x - 0.0% 55.7 MOBIL % HOLD x 2.1x % 67.0 OANDO UR NA UR x 0.3x FO UR NA UR x 2.3x 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 Div. Yield RSI 6

7 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.*