United Capital Research I Nigeria I Markets

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1 United Capital Researc I Nigeria I Markets Nigerian equities start te year bullis...nse-asi up 1.8% w/w In line wit its global counterparts, te domestic equities market also started 2018 on a bullis note. Consequently, te All Sare Index (ASI) advanced 1.8% w/w and YTD to settle at points. However, market capitalization added N242.0bn w/w to close at N13.9tn. Performance across te sectors we track was broadly bullis all sector indices ended te week in te green. Te Financial services [Banking (+6.3%); Insurance (+4.7%)] led te week s gainers, recording a total of 11.0% gain w/w as investors unt for bargains in ZENITH (+8.8%), UBA (+6.8%), GUARANTY (+5.5%), ACCESS (+2.3%), MANSARD (+16.6%) and AIICO (+9.6%). Te Industrial Goods index followed, calking 3.5% gain w/w on te back of price appreciation in WAPCO (+11.4%). Similarly, te Consumer Goods (+1.5%) and Oil & Gas (+1.0%) indices, trended nortward w/w owing to upticks in NB (+2.4%), SEPLAT (+3.8%) and FO (+5.8%). Te system was awas wit liquidity during te week, buoyed by OMO maturities estimated around N193bn. By te close of trading on Tursday, OBB and O/N rates printed at 3.7% and 4.5% respectively. In te week aead, we expect some profit taking from investors in te early session as money market rates price in liquidity dynamics. Equities: NSE Market Cap. (N bn): 13,851.5 NSE Market Cap. ($ mn): 47,273.7 YTD Return (%): 1.8% W-o-W Return (%): 1.8% P/E (x): 12.5x Fixed Income: Overnigt: 19.0% Open Buy-Back: 18.3% Treasury Bills 90 days: 13.0% 180 days: 15.1% 360 days: 15.5% Bonds 3-Year: 14.1% 10-Year: 13.4% Nigeria Asset Class Returns (YTD, W-o-W) 5.0% Equities Bonds FX Oil Price Excange Rate (NGN/USD): N W-o-W Return: 0.0% 0.0% 1.8% 1.8% 0% 0.0% 0.1% 2% 1.3% -1.0% -5.0% YtD Return w/w Return 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 Access Bond Index 1

2 Global and Macroeconomic Market update United Capital Researc I Nigeria I Markets Global equity rally continues Global equity indices started te year on a positive note as all te 16 indices we track closed te first trading week of 2018 in te green, buoyed by optimism, over prospects of te global economy in te coming year. In te U.S. market, equity bencmarks trended furter into record territory, srugging off underwelming job data reports in te prior week. Overall, te tec-laden Nasdaq Composite Index, S&P 500 Index and Dow Jones Industrial Average, all inced iger w/w by 3.4%, 2.6%, and 2.3% respectively. European stocks were largely bullis in te previous week despite political worries in Germany, UK, and Spain. Tus, Germany s DAX (+3.1%), France s CAC (+3.0%), Pan-European STOXX 600 (+2.1%) and UK's FTSE (+0.5%) all trended iger w/w. Emerging market equities performance was overly bullis, as all indices witin te BRICS classification trended nortward. Russia's RTSI (+5.7%) amassed te most gains w/w, trailed by Brazil's IBOV (+2.9%) and Cina's SCHOMP (+2.6%) wile Sout Africa's FTSE/JSE (+0.4) and India's BSE (+0.3%) recorded modest gains w/w. In te African market region, equity indices performance started te year strong, wit Gana's GSSECI (+2.2%) and Kenya's NSE (+1.7%) picking up from were tey left off last year wile Egypt's EGX100 (+0.5%) and Sout Africa's FTSE/JSE (+0.4%) also closed te week in te green. 2

3 Value Traded N'bn Domestic Financial Markets Review and Outlook Equities start te year bullis, NSE-ASI up 1.8% w/w United Capital Researc I Nigeria I Markets In line wit its global counterparts, te domestic equities market started te first week of 2018 on a bullis note as bargain unters dominated proceedings on te local bourse. Consequently, te market ended 3 of te week's 4 trading days in te green as te All Sare Index (ASI) advanced 1.8% w/w and YTD to settle at points. However, market capitalization added N242.0bn w/w to close at N13.9tn. 45,000 40,000 35,000 30,000 25,000 20,000 15,000 Nigeria All Sare Index and Market Turnover TOP GAINERS PRICE (N) % CHANGE 100 STERLNBANK % 90 FCMB % 70 DIAMONDBNK % 60 SKYEBANK % 50 ETERNA % 40 TOP LOSERS PRICE (N) % CHANGE 30 MOBIL % 20 NEM % 10 NEIMETH % - NESTLE % Turnover All Sare Index 30-Day Moving Avrg DANGCEM % Source: NSE, United Capital Source: NSE, United Capital Performance across te sectors we track was broadly bullis as all sector indices ended te week in te green. Te Financial services [Banking (+6.3%); Insurance (+4.7%)] led te week s gainers, recording a total of 11.0% gain w/w as investors unt for bargains in ZENITH (+8.8%), UBA (+6.8%), GUARANTY (+5.5%), ACCESS (+2.3%), MANSARD (+16.6%) and AIICO (+9.6%). Te Industrial Goods index followed, calking 3.5% gain w/w on te back of price appreciation in WAPCO (+11.4%). Similarly, te Consumer Goods (+1.5%) and Oil & Gas (+1.0%) indices, trended nortward w/w owing to upticks in NB (+2.4%), SEPLAT (+3.8%) and FO (+5.8%). Investor sentiment strengtened as market breadt settled at 5.6x (relative to 1.3x in te previous week), 56 stocks appreciated against 10 decliners. Also, activity level improved as average volume and value traded rose 38.4% and 11.7% to 604.1mn units and N4.7bn respectively. In te week aead, given te previous week s bullis performance, we expect to see some profit taking from investors in te early session. 3

4 United Capital Researc I Nigeria I Markets Money Market: Rates price in liquidity dynamics Te system was awas wit liquidity during te week, buoyed by OMO maturities estimated around N193bn. By te close of trading on Tursday, OBB and O/N rates printed at 3.7% and 4.5% respectively. Te Apex bank conducted its bi-montly Nigerian Treasury Bill (NTB) auction on Wednesday, werein it successfully re-financed N161.5bn. Bid-cover was 2.4x (91- day: 2.1x, 182-day: 1.3x and 364-day:2.8x). Te auction was carried out at te following stop rates: 91-day (12.5% vs. 13.0% at te last auction), 182-day (13.9% vs. 15.3% at te last auction) and 364-day (14.3% vs. 15.6% at te last auction). By Friday, money market rates ad spiked to 18-19% levels on te backdrop of a significant liquidity mop-up troug an OMO auction, as well as te CBN s first retail auction for te year. Overall, rates closed te week iger; OBB (up 14.5% to 18.3%) and O/N (up 14.5% to 19.0%) w/w. In te week aead, we expect money market rates to price in system liquidity dynamics. Fixed Income Market: Bulls gain ascendancy over yield curve In te T-bills space, sentiment was bullis as players traded in line wit te outcome of te PMA auction tat eld on Wednesday. Yields consequently declined by an average of 10bps across te curve to close te week at 14.6%. (91-day (up 175bps to 13.0%), 182-day (up 2bps to 15.1%) and te 364-day (down 206bps to 15.4%). Te bonds space traded on a significantly bullis note during te week. Specifically, average bond yield edged lower for te week to finis at 13.6%, driven by bargain-unting across te bond tenors. Going into te new week, we expect proceedings in te fixed income space to be guided by te release of te upcoming bond auction calendar, wic would provide some guidance to te FGN s debt mix intent. Currency Market: Naira trades sideways in te parallel market In te Foreign excange market, te naira remained stable, traded sideways w/w across all tree windows we track. (Official market - N306/$1, Investors & Exporters FX window - N361.3/$1 and te Parallel market N361.5/$1. In te oil market, Brent crude rallied by 112bps to close te week at $67.6, compared to $66.9 in te preceding week. tis rally was supported by declines in te number of U.S. rigs drilling for new production, as well as unrest in Iran tat raised concerns about supply risk. Looking aead, te outlook of te naira remains tied to te spate of CBN's intervention in te spot and forward markets as well as te better price discovery in te I&E FX window. 4

5 Stock Recommendations for te Week Banking Sectors TP (N) So (bn'n) Source: Company filings, NSE, United Capital Researc, UR= Under Review Prices as at Friday 8 Janaury 2017 Note: Our target prices are under review and would be publised during te week United Capital Researc I Nigeria I Markets Mkt Price (N) Mcap (bn'n) Up/Down- Side Rating EPS BVPS P/E P/B DPS ACCESS UR UR x 0.7x % FBNH UR UR x 0.6x % FCMB UR UR x 0.2x % FIDELITYBK UR UR x 0.4x % GUARANTY UR ,265.5 UR x 2.4x % ZENITHBANK UR UR x 1.3x % DIAMONDBNK UR UR x 0.2x - - STANBIC UR UR x 2.7x % Consumer Goods NESTLE UR 0.8 1,500 1,189.0 UR x 30.1x % UNILEVER UR UR x 10.6x % FLOURMILL UR UR x 0.8x % NB UR ,044.4 UR x 6.2x % GUINNESS UR UR (3.4) x 3.8x % PZ UR UR x 2.0x % UACN UR UR x 0.7x % Indutrial Goods DANGCEM UR ,801.9 UR x 4.3x % WAPCO UR UR x 3.6x % Agric OKOMUOIL UR UR x 3.2x % PRESCO UR UR x 1.2x % Oil & Gas TOTAL UR UR x 3.0x % MOBIL UR UR x 2.7x % OANDO UR UR (1.1) x 0.6x - - FO UR UR x 5.0x - - Div. Yield 5

6 United Capital Researc I Nigeria I Markets 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 United Capital Researc I Nigeria I Markets 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 United Capital Researc I Nigeria I Markets 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