United Capital Research I Nigeria I Markets. Equities in year-end bullish streak. 19 December as the ASI extends gains w/w.

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1 Equities in year-end bullis streak...as te ASI extends gains w/w Tis past week saw te equities market extend gains as sentiment picked up amidst rising oil prices and bargain trading in value stocks. As suc, at 26,707.1 points, te ASI closed te week 3.4% iger from te previous week, trimming YTD losses to -6.8%. Te money market was relatively tigt, wit key rates trending iger. Specifically, te Open Buy Back (OBB) and Overnigt (ON) rates closed te week at 3.9% and 4.4% respectively vs. 3.2% and 3.9% in te previous week, on te back of N100bn OMO auction wic followed a Primary Market Auction (PMA) were spot rate for te 91d bills came in at 14.0%, 10bps iger tan te last PMAs, wile te 182d and 363d rates maintained status quo at 17.5% and 18.7% in tat order. Lately, te market as ridden on te positive momentum triggered by te recent rally in crude oil prices, wit te energy and financial counters leading te pack as investors continue to unt for bargains. For te week, we expect sentiment to be mixed wit intermittent profit-booking as investors lock-in gains wile closing teir books for te year. We see scope for yields to inc up on average tis week. An impending bill maturity, and an already ealty level of system liquidity as suggested by low interbank rates raise expectation for increased OMO auctions by te CBN. Nigeria Asset Class Returns (YTD, W-o-W) Equities: NSE Market Cap. (N bn): 9,189.3 NSE Market Cap. ($ mn): 30,128.8 NSE All Sare Index (points): 26,707.1 YTD Return (%): -6.8% W-o-W Return (%): 3.4% P/E (x): 10.3x Fixed Income: Overnigt: 4.4% Open Buy-Back: 3.9% Treasury Bills 90 days: 16.0% 180 days: 19.1% 360 days: 20.9% Bonds 3-Year: 15.6% 10-Year: 16.3% 20-Year: 27.6% 60.0% 40.0% 20.0% 0.0% -20.0% EQUITIES FX Oil Price 48% 3.4% 0.0% 1.6% -6.8% Excange Rate (NGN/USD): N305 W-o-W Return: 0.0% -40.0% -60.0% YtD Return -53.0% w/w Return Source: Bloomberg, United Capital Researc Equities NSE All Sare Index; FX NGN/USD Interbank Rate; Oil Price Brent Crude oil price 1

2 Global and Macro-economic market update Markets sentiment mixed as te Fed assumes awkis stance U.S. stocks ended te week lower (Dow Jones -0.04%, S&P % and Nasdaq -0.8%), as investors grappled wit te prospect of a faster pace of rate increases in 2017 tan ad been previously forecast. In a widely expected move, te US Fed raised its key sort-term rate to a range of 0.5%-0.75% from 0.25% to 0.5%, wit a forecast of tree rate increases in 2017, compared wit te two tat ad been anticipated at its previous meeting in September. Wile te revised outlook could be taken as a positive sign, it added an element of uncertainty to te market as te tree rate increases next year is someting of a surprise, and it may take some time for investors to digest. European stocks ended te week on a bullis note, wit te Stoxx 600 notcing its igest close of te year at in te wake of a bullis interest rate outlook for A slide in te euro against te dollar to 14-year lows also contributed. Nikkei Stock Average closed up 0.7%, aving reaced its igest level since last December at 19, points earlier in te session. On te domestic scene, te Headline CPI rose by 18.5% y/y for te mont of November, from 18.3% in October, wit anoter deceleration in te mont-onmont (m/m) inflation rate from 0.8% to 0.7% in October. Housing, Energy and energy related prices continue to be te largest increases reflected in te Core sub-index. We expect iger oil prices to be supportive of te Naira in te sort term, tus furter tapering te rate of m/m increase in eadline CPI, barring unanticipated socks. 2

3 Value Traded N'bn Domestic Financial Markets Review and Outlook Equities: market bullis as te ASI extends w/w gains Tis past week saw te equities market extend gains as sentiment picked up amidst rising oil prices and bargain trading in value stocks. As suc, at 26,707.1 points, te ASI closed te week 3.4% iger from te previous week, trimming YTD losses to -6.8%. Nigeria All Sare Index and Market Turnover 40,000 35,000 30,000 25,000 20,000 15,000 Turnover All Sare Index 30-Day Moving Avrg Source: NSE, United Capital TOP GAINERS PRICE (N) % CHANGE HONYFLOUR % ETI % SEPLAT % UCAP % LIVESTOCK % TOP LOSERS PRICE (N) % CHANGE PORTPAINT % UNILEVER % FIDSON % CAVERTON % MOBIL % Source: NSE, United Capital A closer look at te sectoral performance revealed largely mixed patterns, albeit wit a bullis undertone. Te Oil and Gas sector closed te week iger to top te gainers cart wit a positive weekly return of +7.4%. Te Banking sector and te Industrial Goods sector followed suit wit gains of +6.3% and +3.5% respectively. Example of stocks tat drove positive momentum in tese sectors include ETI (+21.1%), SEPLAT (+20.6%), FO (+9.4%) and GUARANTY (+9.3%). On te flip side, te Consumer Goods and te Insurance Indexes closed te week lower wit returns of 1.7% w/w and 0.5% in tat order, underscored by sell-offs in UNILEVER (-12.1%), AXAMANSARD (-4.1%) and CADBURY (-4.0%). Wen compared to te previous week, overall market sentiment owever inced iger wit market breadt settling at 2.1x (relative to 0.7x in te previous week) as 40 stocks appreciated against 19 decliners. Activity level during te week also improved as te average value traded surged by 168% w/w to N3.0bn, just as average volume traded saw a spike of 706% w/w to 491.4m units. Lately, te market as ridden on te positive momentum triggered by te recent rally in crude oil prices, wit te energy and financial counters leading te pack as investors continue to unt for bargains. For te week, we expect sentiment to be mixed wit intermittent profit-booking as investors lock-in gains wile closing teir books for te year. 3

4 Money Market rates moderate marginally w/w In te past week, te money market was relatively tigt, wit key rates trending iger. Specifically, te Open Buy Back (OBB) and Overnigt (ON) rates closed te week at 3.9% and 4.4% respectively vs. 3.2% and 3.9% in te previous week, on te back of N100b OMO auction wic followed PMA were spot rate for 91d bills came in at 14.0%, 10bps iger tan te last PMA s, wile rates on te 182d and 363d instruments maintained status quo at 17.5% and 18.7% in tat order. We expect increased OMO auction tis week as te money market rates suggest a relatively robust system liquidity. Tis sould see rates inc up w/w. FI Market: OMO calls and PMA awake te bears In te past week, yield trended iger in te fixed income market, as OMO calls and PMA drove a bearis close to fixed income assets w/w. Specifically, a N100b OMO call by te apex bank, wic followed PMA, ensured te T-bills market close te week largely bearis wit average yield incing iger by 34bps, to stand at 17.8%. In te same vein, te bonds market was bearis as investors appeared to be booking profit on teir positions in te long dated instruments to take advantage of iger yields especially in te 91day bills. At te end of te week, average yield moved 202bps nort, to end te week at 18.0%. For tis week, we see scope for bond yields to moderate on average wit sentiment likely to be mixed. Te overall FI market dynamics is expected to be saped by te volume of OMO auction by te CBN. Naira flat at te official window, depreciates at te parallel market At te spot market, te naira closed at N305 NGN/USD in te past week, trading flat on previous close. However, te parallel market saw te domestic currency depreciate furter by 62bps w/w on renewed demand pressure, to close at 482/USD. At te international market, Oil price fell to US$54.3pb, (from $54.5pb a week earlier) despite Non-OPEC producers pledge to cut production by 558,000 bpd, providing furter jolt. In te week aead, we expect pressure on te naira to linger especially at te parallel market as unmet demand from te official market continues to stoke imbalances. 4

5 Stock Recommendations for te Week Ticker SHO (bn Units) MCap (N' bn) Source: Company filings, NSE, United Capital UR= Under Review Prices as at Friday 16 December 2016 Mcap ($'mn) Financials Current Price(N) Target Price(N) Upside/(Dow nside) Rating* P/E(x) Div Yield(%) ACCESS % HOLD % DIAMONDBNK % BUY % FBNH % BUY % FCMB % BUY % GUARANTY % BUY % ZENITHBANK % BUY % CUSTODYINS % BUY % Non-Financials 7UP % BUY % CADBURY % BUY % DANGCEM % BUY % DANGSUGAR % BUY % FLOURMILL % BUY % GUINNESS % HOLD % MOBIL % SELL % NASCON % BUY % NESTLE % SELL % PZ % HOLD % SEPLAT % SELL % UNILEVER % SELL % WAPCO % BUY % UACN % BUY % TOTAL % HOLD % 5

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 9%). 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 500bps; i.e. 9%). 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. Analyst Certification Te researc analysts wo prepared tis report certify as follows: 6

7 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 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 re- 7

8 searc 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, UBA 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 2015.* Contacts: United Capital Plc Securities Trading: Securities@unitedcapitalplcgroup.com Asset Management: assetmanagement@unitedcapitalplcgroup.com Trusteesip: trustees@unitedcapitalplcgroup.com 8