United Capital Research I Nigeria I Markets

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1 Macro Higligts and Outlook In te week to 22nd of February 2019, talks around te postponement of te 2019 general election dominated eadlines, as te Independent National Electoral Commission (INEC) ad te extra obligation to reassure citizens tat te election would old as planned. True to tis, te election eld on Saturday 23 rd of February. According to te INEC report released during te week, 86.6% of te total registered voters of 84.0mn collected teir Permanent Voters Card (PVC), wit Lagos (5.5m) and Kano (4.7m) wit te largest number PVCs collected and te Nort West zone wit te igest collection rate. Elsewere, te National Bureau of Statistics (NBS) released some key sector and economic statistics, including its selected banking sector data for Q4-18, wic indicated tat te total value of credit allocated by te bank to te private sector sank by 3.9%y/y to close 2018 at N15.1tn. Furtermore, te Bureau publised a sectoral distribution of value-added tax report for Q4-18 and FY-18, sowing tat VAT revenue for 2018 jumped 14.0% y/y to N1.1tn and improved for te second consecutive quarter, up 9.0%q/q to settle at N298.0bn in Q4-18. Finally, te NBS publised its power sector statistics report for Q4-18. According to te data, an average of 68,625MW and 27,913MW of energy was generated daily by termal and ydropower stations respectively. Additionally, te Advisory Power Team in te Office of te Vice President disclosed tat te nation s power sector lost N69.1bn between January 1 and February 19t, 2019, as a result of insufficient gas supply to power generating plants as well as inadequate distribution and transmission infrastructure. Tis week, we expect media attention to be focused on election results, wit te NBS sceduled to release furter sector and economic data reports for Q4-18 and FY-18 respectively. Nigeria Asset Class Returns (YTD, W-o-W) Global Equities: S&P 500: +0.6% NASDAQ: +0.7% DJIA: +0.6% Nigerian Equities: NSE Market Cap. (N bn): 12,125.5 NSE Market Cap. ($ mn): 39,522.6 YTD Return (%): +3.5% W-o-W Return (%): -0.6% P/E (x): 9.4x Fixed Income: Overnigt: 14.6% Open Buy-Back: 13.67% Treasury Bills Yield 90 days: 11.96% 180 days: 14.99% 360 days: 17.32% Bonds Yield 3-Year: 14.88% 10-Year: 14.89% 30.0% 25.0% 20.0% 15.0% Equities Bonds FX Oil Price 24.7% Excange Rate (NGN/USD): I & E FX window: W-o-W Cange: +4bps 10.0% 5.0% 0.0% -5.0% 3.5% 3.8% 4.4% 0.7% YtD Return 0.7% -0.1% w/w Return 3.9% 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 Global Market Review and Outlook Te Fed reiterates ''patient'' tone amid tawing trade tensions Te US Fed released te minutes of its Jan-19 policy meeting, were it igligted its wait and see approac after it left rates uncanged at its last meeting. Also, te Fed made comments on te possible flexibility of its balance seet normalization process later in te year. Additionally, positive sentiments from te US-Sino trade negotiations filtered into te market, even as te Marc 1 st tentative deadline approaces. On te back of tis, major indices in te US market closed upbeat w/w wit te NASDAQ (+0.7%) leading te pack. In Europe, jitters surrounding unfolding BREXIT negotiations continued to grip te market as fears of a possible no-deal BREXIT looms. Meanwile, Fitc as signaled a possible downgrade of te UK's credit rating aead of te Marc 31st deadline. However, major indices closed in te green as te market focused largely on global trade negotiations, wit little more tan a week left before a U.S-imposed deadline for an agreement wit Cina expires. Hence major indices in te region closed nortwards save for te UK's FTSE (-0.7%). Emerging markets were not left out of te bullis euporia. All BRICS-classified markets trended iger w/w except Brazil's IBOV (-0.1%) as investors started to re-price teir expectations of te new administration. Reports tat Cinese banks opened te credit tap wit autorities striving to avert a sarp slowdown in te economy also buoyed sentiments. Crude prices retained its uptrend from te preceding week, gaining 1.4%w/w to settle at $67.2/b. In te week aead, sentiments around global crude supply (weter OPECled production cuts and involuntary cuts from Libya, Iran, and Venezuela can tigten te market furter) in te face of growing US oil production, will guide sentiments. On te demand side, te outcome of Sino-US trade negotiations and wat it would mean for global growt and oil demand could also weig. 2

3 Domestic Financial Markets Review and Outlook Equities dip 0.6%w/w on election postponement Driven by eigtened political risks (following te one-week postponement of te Presidential and National Assembly elections from te initial scedule of February 16t, 2019), stocks slumped 0.6% last week, despite amassing a wopping 6.8% in te two weeks run-up to te original date sceduled for te elections. In te process, te index settled at 32,515.5 points wit YTD return closing te week at 3.5%. 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 DANGCEM % BUY x 4.3x % 45.3 PRESCO % BUY x 0.8x % 75.5 SEPLAT % BUY x 0.6x - 0.0% 55.7 UNILEVER % BUY x 3.0x % 11.7 ZENITHBANK % BUY x 1.0x % 30.1 Source: United Capital Researc Agricultural stocks (+3.8%) led te way last week and ave been te best performing sector YTD (+11.1%) as bargain unting in PRESCO (+13.6%) buoyed te sector. Similarly, Banking stocks (+0.5%) closed in green territory, following impressive earnings from ZENITHBANK (+4.0%), wic declared a dividend of N2.5 per sare. On te flip side, it was a difficult week for te oter sectors; Industrials (-1.4%) took te biggest it on te backdrop of profit-taking in bellweter DANGCEM (-0.8%), wile Consumer names (0.9%) also took a plunge following unimpressive earnings from NB (-3.6%) wic stoked a bearis teme across te sector. Oil & Gas (-0.4%) and Insurance (-0.2%) tickers also lagged, as sell-off in NEIMETH (-12.9%), AIICO (-5.3%), TOTAL (-4.9%), and MOBIL (-3.3%) weiged on te sectors. Market sentiment (measured by market breadt 0.8x) remained downbeat as only 29 stocks appreciated against 35 decliners. Furtermore, market activity level was relatively weaker as average turnover of 296.2mn sares wort N3.5bn were traded by investors on te floor of te Excange in contrast to an average of 566.9mn sares valued at N5.6bn tat excanged ands in te preceding week. Politics and earnings sould be te two biggest temes tat would guide trading sentiments tis week. In te wake of te just concluded Presidential and National Assembly elections, markets would ave to come to terms wit uncertainties around te probable economic direction of te new (or old) government, even as earnings continue to trickle in. 3

4 Money Market: Secondary market bulls resurface amid a slowdown of liquidity mopups During te week under review, te direction of system liquidity was mixed as sustained weekly wolesale FX (c. $210mn) sales by te CBN constrained overall liquidity levels at te start of te week. Meanwile, added to a No Sale OMO auction on Monday, te CBN failed to float furter OMO auctions in te following two days, as it provided room for liquidity to build up aead of te FG s February bond auction. By Tursday, wit te bond auction out of te way and wit c. N579.0bn OMO maturity itting te system, te CBN resumed its liquidity tigtening role, successfully mopping up c. N668.0bn via OMO wile also keeping stop rates uncanged; 91-day: 11.9%, 182-day: 13.5%, and 364 -day: 15.0%. Overall, aving started te week averaging 24.7%, average inter-bank rates (OBB and overnigt rates) remained largely elevated at 19.5% by te close of te week, compared to te prior week s closing average of 16.7%. Te secondary treasury bills market was caracterized by a tussle between te bulls and te bears. Cumulatively, te bulls overturned te bears as te CBN s slowdown of OMO auctions gave room for market bulls to unt for bargains at te secondary T-Bills market. Overall, average yields trended lower by 41bps to settle at 14.3% [90-day (down 48bps to 11.7%), 202-day (down 11bps to 15.2%) and 349-day (down 16bps to 17.2%)]. Looking into te new week, we expect money market rates to continue to track te trajectory of overall system liquidity, wic is expected to be buoyed by OMO repayments (N349.6bn), NTB maturities (N115.1bn) and bond coupon payments (N39.0bn). Bond Market: A largely bullis week In te bonds space, te Debt Management Office (DMO) conducted its February bond auction during te week, offering N150.0bn - sared equally between its existing 5-year, 7-year and 10-year notes. Te auction was largely oversubscribed, wit demand eavily skewed to te 10-year note wic made up c. 83.6% of te total subscription of N234.4bn. Te fiscal autority ended up selling te total offered amount wit stop rates clearing lower across board: 5-year (14.52% vs % at te last auction), 7-year (14.80% vs % at te last auction) and 10-year (14.94% vs % at te last auction). On te corporate side, Access Bank Plc announced te commencement of its book building exercise towards raising up to N15.0bn via a 5- year fixed rate senior unsecured Green Bond to be listed on te NSE and FMDQ. 4

5 Elsewere, daily secondary bond market performance was largely tepid as players positioned for te primary bond market auction. On a w/w basis, te bulls sligtly outweiged te bears as average bond yields compressed by 4bps to settle at 15.0%. Tis was as some players unted for quick bargain buys. Similarly, average yields on FGN Eurobonds decreased by 16bps to 7.0% and average yield for Corporate Eurobond trended lower by 40bps to 8.8%. Wit te week being te first-week post-election, trading sentiments in te secondary market would likely improve as players dig deeper into te policies of te winner. Foreign Excange: Mixed temes across FX windows In te past week, parallel market FX rate opened te week on a positive footing and appreciated 0.6%w/w to settle at N358.5/$1. Contrariwise, rates at te I&E window segment started on a bearis footing but recovered mid-week to close c.4bps iger w/w, settling at N Average daily turnover at te I & E Window rose 26.0% to end at $295.2mn wile a total of $1.5bn was traded. At te CBN window, excange rate declined marginally by 2bps to N Tis week, wile we expect sentiments to be guided by te outcome of te general elections, more focus would be on te level of tranquility or oterwise tat trails te declaration of te next president. Yet, we expect te CBN to retain its stance to defend te naira via its interventions and we retain our expectations for N365-N370 at te I & E Window. 5

6 Stock Recommendations for te Week Banking Sectors 12M TP (N) So (bn'n) Mkt Price (N) Mcap (bn'n) Source: Company filings, NSE, United Capital Researc, UR= Under Review Prices as at Friday 22nd February 2019 Up/Down- Side Rating EPS BVPS P/E P/B DPS ACCESS % HOLD x 0.4x % 26.0 FBNH % BUY x 0.4x % 45.8 FCMB % BUY x 0.2x % 46.9 FIDELITYBK % BUY x 0.4x % 45.6 GUARANTY % BUY x 2.2x % 40.8 ZENITHBANK % BUY x 1.0x % 30.1 DIAMONDBNK % BUY (0.7) x 0.3x STANBIC % BUY x 2.3x - 0.0% 46.4 Consumer Goods DANGSUGAR % HOLD x 1.7x % 59.7 INTBREW % BUY x 6.3x - 0.0% 67.6 NESTLE 1, % HOLD x 22.3x % 48.2 UNILEVER % BUY x 3.0x % 11.7 FLOURMILL % BUY x 0.6x % 56.6 NB % BUY x 3.8x % 47.7 GUINNESS % BUY x 1.6x % 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 2.6x % 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 2.0x % 67.0 OANDO UR NA UR x 0.4x FO UR NA UR x 2.1x 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 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.*