Global Economic Overview Nigeria Review 5/13/2013. Introduction

Transcription

1 Business and Economic Review RTC Advisory Services Ltd* *Formerly Resources and Trust Company Ltd APRIL 2013 Outline Introduction Global Economic Overview Nigeria Review Policy and Politics Policy Updates Economy and Business Implications for Business Conclusions 2 1

2 3 Introduction This month, on the global front we focus on the April 2013 World Economic Outlook just released by the International Monetary Fund (IMF) and weakening oil prices. Domestically terror-related insecurity is worsening despite talk of dialogue and amnesty to the Boko Haram fundamentalist group; and tensions are intensifying over the 2015 elections which is already shaping out like warfare. We also review the CBN Q Economic Report and present two reviews of our own-on capital market valuations as well as banking sector performance. 4 Global Overview RTC Business and Economic Review April

3 IMF World Economic Outlook (WEO) April 2013 The IMF revised 2013 global output growth projection to 3.25% keeping 2014 projection at 4% The outlook for global growth remains better, but bumpy and divergent especially for advanced economies Economic activity is re-accelerating in emerging and developing economies Though old dangers remain, and new turbulence occasionally emerges, the near term risk picture has improved 5 6 IMF WEO April 2013 (contd.) 3

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5 9 10 5

6 11 12 Oil Market Review 6

7 13 Daily Oil Price Movement: 27/03/13 to 03/05/ Source: OPEC, RTC Research DAILY BASKET PRICE 14 Weekly Oil Price Movement: 01/12/12 to 03/05/ Source: OPEC, RTC Research WEEKLY BASKET PRICES 7

8 15 Monthly Oil Price Movement: May 2012 to May May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Source: OPEC, RTC Research Yearly Oil Price Movement Source: OPEC, RTC Research YEARLY BASKET PRICES 8

9 17 US Energy Market Dynamics 18 US Energy Market Dynamics (contd.) 9

10 19 US Energy Market Dynamics (contd.) 20 Oil Market Summary The OPEC reference basket declined for the second consecutive month in April 2013 by 5% to stand at $ per barrel. At some points during the month, prices approached $95 per barrel, for a moment appearing to threaten Nigeria s budgeted oil price expectations, before rising again. The OPEC MOMR May 2013 attributed the declines to a vulnerable global economy, the prospect of moderate demand growth, rising crude production and high stocks as well as cross-commodity and equity market herd behaviour 10

11 21 World Food Situation Report The FAO Food Price Index averaged points in April 2013, up 2 points (1.0 percent) from its revised March value of points and from April last year. At that level, the index is only 9 percent below the peak reached in February Source: FAO The increase was driven exclusively by a sharp rise in dairy quotations, as meat prices rose marginally while those of the other food commodities fell. 22 World Food Situation Report (contd.) The FAO Cereal Price Index averaged points in April, down 10 points (4.1 percent) from March, but nearly 11 points (4.9 percent) above the corresponding period last year.. The FAO Oils/Fats Price Index averaged points in April, down 2 points (1.5 percent) from March. The FAO Dairy Price Index averaged points in April, a sharp rise of nearly 34 points (14.9 percent) from March. The FAO Meat Price Index averaged points in April, a level which it has maintained since the latter part of 2012, moving within the narrow band of Source: FAO The FAO Sugar Price Index averaged points in April, down over 9 points (3.6 percent) from March. 11

12 23 World Food Situation Report (contd.) The FAO Cereal Price Index averaged points in April, down 10 points (4.1 percent) from March, but nearly 11 points (4.9 percent) above the corresponding period last year. The decline was triggered by weaker maize prices and favourable 2013 crop prospects. Wheat prices changed little, and rice prices were marginally down, depressed by falling Indica rice quotations, while Japonica and, especially, fragrant rice prices moved upwards. The FAO Oils/Fats Price Index averaged points in April, down 2 points (1.5 percent) from March. The decline was mainly led by palm and soy oil. Palm oil prices eased further reflecting abundant stocks held both by exporting and importing countries, and an expected acceleration in production. The decrease in soy oil prices reflects good progress in South America s record soybean harvest, larger than anticipated inventory levels in the United States and initial forecasts of a record US soybean crop later this year. Furthermore, weakening energy prices and persistent global macroeconomic concerns continued to weigh on the vegetable oil complex as a whole. 24 World Food Situation Report (contd.) The FAO Dairy Price Index averaged points in April, a sharp rise of nearly 34 points (14.9 percent) from March due mainly to a steep decline in New Zealand s milk production, following an abnormally prolonged dry period at the start of the year leading to farmers drying off or culling milk cows early, which in turn caused a reduction in the processing of dairy products. The price hike partly reflects absence of commercial stocks to cater for unavailability, rather than a more profound shortage of supplies, as New Zealand s overall output for the 2012/2013 (June-May) production year is projected to finish at record levels. The FAO Meat Price Index averaged points in April, a level which it has maintained since 2012, moving within the narrow band of Nevertheless, meat prices overall remain high by historical standards: from the early part of 2011, the index has stayed above its previous peak of 170 reached in mid Quotations for the different types of meat showed some variation in April, with poultry and pork rising by 1 percent and 3 percent respectively, despite a limited reduction in feed prices, and those of ovine meat and beef falling slightly. The FAO Sugar Price Index averaged points in April, down over 9 points (3.6 percent) from March. After rebounding in March, prices fell sharply in April mostly on expectation of a significant recovery in cane crop for the new crushing season in Brazil. 12

13 25 Global Commodity Prices Commodity Benchmark Measure Feb Price Wheat*WB US No 2 Hard Red Winter fob Gulf Mar Price Apr Price b/$/mt Wheat*WB CBOT (Chicago Board of Trade) Soft Red Winter Sep Futures $/mt Maize US Yellow No 2 fob US$/Ton * May Maize CBOT Dec Futures * May Maize *WB b/$/mt Global Commodity Prices (contd.) Commodity Benchmark Measure Feb Price 26 Mar Price Apr Price Oil Seeds & Oils Soybeans b/$/mt Soybean Oil b/$/mt 1, , ,095.0 Palm Oil b/$/mt Soybean Meal b/$/mt Groundnut Oil b/$/mt Sugar Sugar EU b/ /kg Sugar US b/ /kg Sugar World b/ /kg

14 27 Global Commodity Prices (contd.) Commodity Benchmark Measure Feb Price Mar Price Apr Price Milk & Dairy Butter US$/Ton NA NA NA Skim Milk Powder US$/Ton NA NA NA Whole Milk Powder US$/Ton NA NA NA Cheddar Cheese US$/Ton NA NA NA Meat *WB Beef b/ /kg Chicken b/ /kg Sheep /kg Steel*WB Aluminum b/$/mt 2, , ,861.7 Global Commodity Prices (contd.) Commodity Benchmark Measure Feb Price 28 Mar Price Apr Price Beverages Cocoa b/ /kg Coffee, arabica b/ /kg Coffee, robusta b/ /kg Tea, auctions (3) avg. Tea, Colombo auctions Tea, Kolkata auctions Tea, Mombasa auctions b/ /kg b/ /kg b/ /kg b/ /kg

15 Global Unemployment 30 Global Unemployment (contd.) Source: IMF WEO April

16 US Unemployment Source: Bureau of Labor Statistics UK Unemployment 16

17 Nigeria Review RTC Business and Economic Review April Policy and Politics RTC Advisory Services Ltd

18 35 Policy and Politics Insecurity threatened to reach pure anarchy in Nigeria s upper North-East regions of Borno and Yobe States where Boko Haram authority runs by-and-large unchallenged! As we expected, the discussions of dialogue and/or amnesty has been meaningless to the fundamentalists who have retorted tonguein-cheek that it is the government that needs forgiveness (since they are doing God s work!) The helplessness of government in the face of terrorists is evidently also encouraging others prone to violence and terror-the Ambatse cultists in Nasarawa State killed over 40 policemen, and some ex- Niger-Delta militants are threatening fire and brimstone, literally, if President Jonathan is not re-elected. 36 Policy and Politics (contd.) The posturing towards the 2015 elections is already shaping out like regional warfare, fully two years ahead of the polls as pro- Northern and Niger-Delta adversaries make incendiary comments on the consequences for the nation if they don t have their way. Some say the President has unleashed the full weight of his office and powers of coercion against his enemies within the party and governors and it does appear Jonathan s adversaries underestimated the depth of his desire to stay in office and the ferocity he is prepared to deploy in aid of that objective. Meanwhile the ACN/CPC/ANPP have all ratified their intended merger into the APC and the stage may now be set for a motherof-all-battles! 18

19 37 Policy and Politics (contd.) Meanwhile the Presidency is motivating the troops as boards and governing councils of corporations, universities, teaching hospitals and sundry government agencies are being appointed and vacant executive positions in MDAs are filled. On the policy front, government is proceeding apace on the power sector front, holding a Presidential Power Reform Transactions Signing Ceremony on April 22, 2013 to showcase progress in power reform, and sign transactions covering gas, generation, transmission, distribution and privatisation. Clearly power sector reform in Nigeria is crossing a significant Rubicon! 38 Policy and Politics (contd.) In addition, the Niger Delta Power Holding Company (NDPHC) a SPV owned by the federal, state and LGs to hold their joint investments in the National Integrated Power Projects (NIPP) has through its transaction adviser, CPCS Transcom International of Canada, requested Expressions of Interest (EoI) for 80% of the shares of each of its ten power generation subsidiaries:- 19

20 39 Policy and Politics (contd.) s/n Generating Asset MW 1 Calabar Egbema Ihovbor Gbaran *Sapele Omoku Alaoji *Olorunsogo Phase *Omotosho Phase Geregu Phase Total MW 4775 *Already contributing to National Grid Policy Updates RTC Advisory Services Ltd 40 20

21 41 Policy Updates Why GDP Rebasing is Delayed: The National Bureau of Statistics (NBS) has explained that GDP rebasing is being delayed to enable the Bureau conduct 9 additional surveys and 2 censuses on agriculture and industrial business which are to be incorporated in the overall GDP report. Launch of Mobile Number Portability: The National Communication Commission (NCC) launched the first phase of mobile number portability on April 22, 2013 involving the GSM companies. The second phase will include fixed wireless operators such as Visaphone, Capcom. NCC also designated MTN as dominant operator for voice, and directed that it charge subscribers same rates for on-network and off-network calls thus probably negating the probability of subscribers migrating to MTN for cheaper rates. 42 Policy Updates (contd.) NCC deems MTN s control of 44% market share in the GSM voice segment detrimental to competition in the industry and may now take whatever measures it deems necessary to prevent abuse of MTN s dominant market power. The N220billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) sponsored by the CBN and expected to be operated through Microfinance Banks is to commence in June 2013 according to the Central Bank. 60% of the funds are to be dedicated to women entrepreneurs. 21

22 Economy and Business RTC Advisory Services Ltd CBN Q Economic Report 22

23 45 CBN Q Economic Report 46 CBN Q Economic Report (contd.) 23

24 47 Q CBN Economic Report (contd.) 48 24

25 49 External Reserves Banking Sector Performance: League Tables RTC Business and Economic Review April

26 51 Banking Sector Review Sanusi Lamido s re-making of the banking industry in his own image is bearing fruit, Rand Merchant Bank, investment banking division of FirstRand Bank Ltd opened in February 2013 FSDH Merchant Bank has receieved operating license from CBN and commenced operations Heritage Banking Corporation, a remake of the distressed Societe Generale Bank Jaiz Bank Plc, (non-interest bank) is now operational and reportedly considering applying for a national license. Meanwhile the results show improving profitability, modest asset growth and healthy equity levels. 52 Total Assets Nbn s/n Bank First Bank of Nigeria Plc 2,770 2,471 2 Zenith Bank of Nigeria Plc 2,436 2,169 3 Guaranty Trust Bank Plc 1,620 1,523 4 Access Bank Plc 1, Ecobank Nigeria 1,325 1,085 6 Diamond Bank Plc 1, Fidelity Bank Plc FCMB

27 53 Total Assets (contd.) Nbn s/n Bank Union Bank of Nigeria Plc Stanbic IBTC Bank Sterling Bank Standard Chartered Bank Unity Bank Citibank Nigeria Enterprise Bank FSDH Merchant Bank Profit before Tax Nm s/n Bank Guaranty Trust Bank Plc 100,142 64,745 2 Zenith Bank Plc 94,048 57,144 3 First Bank of Nigeria Plc 83,289 39,672 4 Access Bank Plc 37,028 12,141 5 Diamond Bank Plc 28,364 (27,183) 6 Standard Chartered Bank 21,682 17,124 7 Fidelity Bank Plc 21,349 1,474 8 Citibank Nigeria 17,029 11,749 9 FCMB 12,417 (13,372) 27

28 55 Profit before Tax (contd.) Nm s/n Bank Enterprise Bank 11,286 (5,211) 11 Union Bank of Nigeria Plc 8,119 (102,633) 12 Sterling Bank 7,499 5, Unity Bank 6,456 3, Ecobank Nigeria 5,227 18, Stanbic IBTC 3,764 4, FSDH Merchant Bank 1,690 2, Total Equity Nm s/n Bank Zenith Bank Plc 438, ,017 2 First Bank of Nigeria Plc 372, ,244 3 Guaranty Trust Bank Plc 288, ,181 4 Access Bank Plc 237, ,037 5 Union Bank of Nigeria Plc 171, ,902 6 Fidelity Bank Plc 161, ,073 7 Ecobank Nigeria 153,628 75,362 8 FCMB 130, ,018 28

29 57 Total Equity (contd.) Nm s/n Bank Diamond Bank Plc 107,316 84, Standard Chartered Bank 74,607 56, Stanbic IBTC 64,188 69, Unity Bank 51,457 43, Citibank Nigeria 49,172 39, Sterling Bank 46,642 41, Enterprise Bank 33,702 14, FSDH Merchant Bank 19,396 15, Inflation Rate 14.0 Inflation Rate 8.6% Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Inflation Rate 29

30 59 Inflation Trends Nigeria Capital Market Review: Are Stock Valuations Overvalued? RTC Advisory Services Ltd 60 30

31 61 NSE Market Capitalisation Source: NSE 62 NSE All Share Index Source: NSE 31

32 63 Nigerian Capital Market Review The analysis will be based on the BGL 50 dataset which represents 95.45% of market capitalisation as at May 8, The dataset is credible; is consistent with the principle of materiality; is publicly available and verifiable; and very current. The data includes Price-Earnings (PE) ratios which is our primary analytical tool in this review. We use PE ratios as a simple, easy-to-understand and sound indicator of the relationship between company fundamentals (earnings) and market valuations (price). We carry out our analysis on a sectoral basis to capture industry variability and business comparability. 64 Nigerian Capital Market Review (contd.) We generally assume an acceptable PE band not beyond 12-15, with over 20 PEs probably reflecting over-valuation (except there is some earnings-significant information the market is factoring into the price to justify current price levels. PE ratios under 5 in our view probably suggest either under-valuation or weak corporate performance, or both. Note however that PE ratios though a very useful and penetrating indicator can not eliminate the need for broader analysis of a company or sector s fundamentals. There might be perfectly rational reasons why a PE ratio is high or low! 32

33 Nigerian Capital Market Review (contd.) CONSUMER GOODS: Beverages- Brewers/Distillers s/n Company PE Ratios 1 Guinness Nigeria Plc International Breweries Plc Nigerian Breweries Plc Average Sector PE CONSUMER Goods: Beverages-Non Alcoholic 1 7-UP Bottling Company Plc Nigerian Capital Market Review (contd.) CONSUMER GOODS: Food Products s/n Company PE Ratios 1 Dangote Flour Mills (146.13) 2 Dangote Sugar Refinery Flour Mills Nigeria Plc Honeywell Flour Mills National Salt Company Average Sector PE (19.43) Average PE excluding Dangote Flour Mills

34 Nigerian Capital Market Review (contd.) CONSUMER GOODS: Food Products- Diversified s/n Company PE Ratios 1 Cadbury Nigeria Plc Nestle Nigeria Plc Average Sector PE CONSUMER GOODS: Personal/Household Products 1 PZ Cussons Nigeria Unilever Nigeria Plc Average Sector PE Nigerian Capital Market Review (contd.) AGRICULTURE: Crop Production s/n Company PE Ratios 1 Okomu Oil Palm Plc Presco Plc 7.06 Average Sector PE Ratio CONGLOMERATES-Diversified Industries 1 UACN Plc Transnational Corp of Nigeria 5.56 Average Sector PE Ratio 7.95 CONSTRUCTION 1 Julius Berger Nigeria Plc UPDC Plc

35 Nigerian Capital Market Review (contd.) INDUSTRIAL GOODS: Building Materials s/n Company PE Ratios 1 Dangote Cement Plc Lafarge WAPCO Ashaka Cement Co Cement Co of Northern Nigeria CAP Plc Average Sector PE Ratio Average Sector PE Ratio excluding CAP Plc Nigerian Capital Market Review (contd.) FINANCIAL SERVICES: Banking s/n Company PE Ratios 1 GTBank Zenith Bank FBN Holdings Access Bank UBA Plc ETI Stanbic IBTC Union Bank Diamond Bank

36 Nigerian Capital Market Review (contd.) FINANCIAL SERVICES: Banking (contd.) s/n Company PE Ratio 10 FCMB Fidelity Bank Skye Bank Sterling Bank Unity Bank 3.94 Average Sector PE Ratio 7.75 Average PE Ratio excluding UBN & Stanbic IBTC Nigerian Capital Market Review (contd.) FINANCIAL SERVICES: Insurance s/n Company PE Ratio 1 Mansard Insurance Continental Re-Insurance Custodian and Allied Insurance AIICO Insurance 4.69 Average Sector PE Ratio

37 Nigerian Capital Market Review (contd.) OIL AND GAS s/n Company PE Ratio 1 Total Nigeria Plc Mobil Oil Nigeria Plc Oando Plc Conoil Plc MRS Oil Nigeria Plc 5.02 Average Sector PE Ratio Average PE Ratio excluding Conoil Plc Nigerian Capital Market Review (contd.) OTHERS-HEALTHCARE: Pharmaceuticals/ SERVICES: Transport-Related/ Hotels s/n Company PE Ratio 1 Glaxo Smithkline NAHCO Plc Capital Hotels

38 Nigerian Capital Market Review (contd.) Overall market valuations do not yet appear too high, particularly given the modest PE ratios in the banking sector. However there may be cause to examine valuations in some sectors, specifically CONSUMER GOODS: Brewers; Diversified; and Personal/Household Products. Some specific stock values also stand out for further review. 75 Implications for Business Global risks appear to be easing somewhat, but vulnerabilities remain. Businesses still have to have a keen eye on global risk management Markets reminded Nigeria s National Assembly of how volatile oil prices can be, and why decent discounts should be applied in fixing the budget oil price benchmark. For some days in April, our $79 per barrel benchmark did not look so impregnable! While oil prices show weakening, food prices are rising again, and may fuel another round of global food inflation and accompanying socio-political instability 76 38

39 Implications for Business (contd.) Nigerian macroeconomic indices are looking stronger-lower inflation, rising external reserves, fiscal moderation, stable exchange and interest rates, and strong GDP growth. But country risk may rise again as insecurity escalates and political risk rises as 2015 approaches. We continue to monitor capital market price trends, but generally valuations are not yet excessive though some sectors and stocks appear over-priced banking sector performance looks strong. The big winners are GTBank, First Bank, Zenith and Access Bank. Conclusion Two sharply divergent faces of Nigerian scenario outlooks are emerging:- 78 One of a country reforming its power sector, attracting FDI, amassing reserves, growing GDP strongly and surging ahead economically. This Nigeria looks increasingly like a medium power, both economically and politically The other is burdened by a terrorist insurgency, corruption, a dysfunctional elite and appears headed for an implosion! 39

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