Business and Economic Review May 2014

Transcription

1 Business and Economic Review May 2014 RTC Advisory Services June 9, 2014 Outline Introduction Global Overview Global Economic Conditions Oil and Commodity Markets Nigeria Review Macroeconomic Indicators Real Sector Service Sector Financial Sector Financial and Capital Markets External Sector Policy and Politics Implications for Business Conclusion 2 1

2 Introduction This month, we experiment with a new presentation structure reflecting the diversity of our economy highlighted by the rebased GDP. We also examine government s Agricultural Transformation Agenda (ATA) report card, review financial sector performance league tables, capital market valuations, and other macroeconomic indicators. 3 Global Overview RTC Advisory Services Ltd 4 2

3 Global Economic Conditions RTC Advisory Services Ltd 5 United Kingdom Revised GDP Growth Q

4 United States Revised GDP Growth Q US Unemployment Rate 8 4

5 UK Unemployment Rate 9 Africa s Economic Growth 10 5

6 Africa s Economic Growth: By Regions

7 Oil and Commodity Markets RTC Advisory Services Ltd 13 Oil Markets Daily Price Trend: April 28 - June 5, 2014 DAILY BASKET PRICE Source: OPEC & RTC Advisory Services Ltd. 14 7

8 Weekly Price Trend: Feb. 28-June 6, WEEKLY BASKET PRICES Source: OPEC & RTC Advisory Services Ltd. 15 Monthly Price Trend: May 2013-May Monthly Basket Prices Source: OPEC & RTC Advisory Services Ltd. 16 8

9 Long Term Price Trend: YEARLY BASKET PRICES Source: OPEC & RTC Advisory Services Ltd. 17 Multiple Source Oil Price Projections Long term projections (2025) from multiple sources show price declines or modest increases in oil prices 18 9

10 World Food Situation Report The FAO Food Price Index averaged points in May 2014, down 2.5 points (or 1.2 percent) from April and nearly 7 points, or 3.2 percent, below May After rising to a ten-month high of 213 points in March, the Index fell in April and again in May, pressured by lower dairy, cereal and vegetable oil prices. However, sugar made strong gains in May, while meat remained firm. 19 World Food Situation Report (contd.) The FAO Cereal Price Index averaged points in May, down 2.4 points (or 1.2 percent) from April and 30 points (or 13 percent) below last year. The decline in May was mostly triggered by maize prices, which fell in response to favourable growing conditions and good supply prospects in 2014/15. Rice prices were little changed. However, wheat prices, which had firmed at the start of the month on slow spring planting in the United States and tensions in Ukraine, declined during the second half of the month, with weather conditions improving in the United States and shipments from Ukraine continuing normally. The FAO Vegetable Oil Price Index averaged points in May, down 3.7 points (or 1.8 percent) from April, reflecting lower quotations of palm, soy and rapeseed oils. Palm oil prices fell for the second consecutive month on rising output in Southeast Asia, continued strength in Malaysia's currency and subdued global import demand. The softening of soy oil was caused by strong soybean crushing in South America and initial forecasts of an ample global soybean crop in 2014/15. The drop in rapeseed oil prices mainly stemmed from an improvement in global export availabilities and the prospect of a record harvest in the EU

11 World Food Situation Report (contd.) The FAO Dairy Price Index averaged points in May, representing a second sharp monthly fall, and a decline of 12 points (or 5 percent) over April. The market for dairy commodities is readjusting, following a period of exceptionally high prices in 2013 and early 2014, caused by limited export supplies. In recent months, the production outlook has improved and, in general, buyers are purchasing only for immediate needs, in the expectation that prices may fall further; consequently, average prices for all commodities declined during the month. The FAO Meat Price Index averaged points in May, nearly unchanged from April, as prices of all the products that make up the index moved little. Concerns that export supplies of pigmeat might be constrained by an outbreak of Porcine Epidemic Diarrhea virus in the United States appear to have been allayed as prices for this product registered only a slight increase. Ovine meat prices are moving seasonally higher, as the production year draws to a close in Oceania. The FAO Sugar Price Index averaged points in May, up 9.3 points (or 3.7 percent), from April. Prices rose amid early forecasts for the 2014/15 season pointing out to a possible production deficit, with El Nino weather likely to exacerbate the fall in output. Overall, the price increase was more pronounced during the first half of the month, while in the second half, the price rally was somewhat subdued by indications of large sugar inventories in India and Thailand. 21 Global Commodity Prices Commodity Benchmark Measure Mar Price Apr Price May 2014 Price Wheat*WB US No 2 Hard Red Winter fob Gulf b/$/mt Wheat*WB CBOT (Chicago Board of Trade) Soft Red Winter Sep Futures $/mt Maize US Yellow No 2 fob US$/Ton June Maize CBOT Dec Futures US$/Ton June Maize *WB b/$/mt

12 Global Commodity Prices (contd.) Commodity Benchmark Measure Mar Price Apr Price May 2014 Price Oil Seeds & Oils Soybeans b/$/mt Soybean Oil b/$/mt 1, Palm Oil b/$/mt Soybean Meal b/$/mt Groundnut Oil b/$/mt 1,221 1,174 1,200 Sugar Sugar EU b/$/kg Sugar US b/$/kg Sugar World b/$/kg Global Commodity Prices (contd.) Commodity Benchmark Measure Mar Price Apr Price May 2014 Price Milk & Dairy Butter US$/Ton 4, , , Skim Milk Powder US$/Ton 4, , , Whole Milk Powder US$/Ton 4, , , Cheddar Cheese US$/Ton 5, , , Meat *WB Beef b/$/kg Chicken b/$/kg Sheep $/kg Steel*WB Aluminum b/$/mt 1,705 1,811 1,

13 $/Tonne 6/9/2014 Global Commodity Prices (contd.) Commodity Benchmark Measure Mar Price Apr Price May 2014 Price Milk & Dairy Butter US$/Ton 4, , , Skim Milk Powder US$/Ton 4, , , Whole Milk Powder US$/Ton 4, , , Cheddar Cheese US$/Ton 5, , , Meat *WB Beef b/$/kg Chicken b/$/kg Sheep $/kg Steel*WB Aluminum b/$/mt 1,705 1,811 1, January-May 2014 Food Price Trend 340 Grains: Jan - May Wheat - US No 1 Hard Red Winter fob Gulf Wheat - US No2 Soft Red Winter Sep Maize - US Yellow No 2 fob Maize - CBOT Dec Futures Jan Feb Mar Apr May 26 13

14 $/Tonne $/Tonne 6/9/2014 January-May 2014 Food Price Trend (contd.) 1100 Oils: Jan - May Soybeans Soybean Oil Palm Oil Soybean Meal Jan Feb Mar Apr May 27 January-May 2014 Food Price Trend (contd.) 5, Milk & Dairy: Jan - May , , , , Butter Skim Milk Powder Whole Milk Powder Cheddar Cheese 4, , Jan Feb Mar Apr 28 14

15 $/KG 6/9/2014 January-May 2014 Food Price Trend (contd.) 0.55 Sugar: Jan - May EU Domestic US Domestic World Jan Feb Mar Apr May

16

17 33 Nigeria Review RTC Advisory Services Ltd 34 17

18 Macroeconomic Indicators RTC Advisory Services Ltd 35 CBN: Money Market Indicators (%) Inter-Bank Call Rate Monetary Policy Rate Treasury Bill Rate Savings Deposit Rate Prime Lending Rate Maximum Lending Rate Jan'14 Feb'14 Mar'14 Apr'14 Source: CBN & RTC Advisory Services Ltd 36 18

19 Money and Credit Statistics (N m) Money and Credit Statistics (N'Million) 18,000, ,000, ,000, ,000, ,000, ,000, ,000, Broad Money (M2) Currency Outside Banks (COB) Private Sector Credit Currency in Circulation (CIC) 4,000, ,000, Jan'14 Feb'14 Mar'14 Apr'14 Source: CBN & RTC Advisory Services Ltd 37 Real Sector RTC Advisory Services Ltd 38 19

20 FGN Agricultural Transformation Agenda (ATA) Report Card Objective: Unlocking agricultural potential; transforming value chains; enabling small, medium and large businesses flourish in agriculture; creating value-added products Rice: Subsidies on new rice varieties resulted in increase in average yields from 1.5tonnes/hectare to 4-5tons and increased production of paddy rice. Wet season rice production increased from 339,078MT to 1,739,322 MT in newly introduced dry season farming yielded 1,070,364 MT of paddy in 2012 and 1,220,634 MT in Number and milling capacity of rice has increased exponentially. Fertiliser: Mobile phone e-wallet system has reached 8million farmers within two years and saved Nbillions 39 FGN ATA Report Card (contd.) Other Crops: Similar transformation in output, value chain, investment and capacity is being recorded with horticulture-teragro established $6m plant to process oranges into concentrates; Dansa Foods is spending $35m to process tomato; Oil Palm-provision of 9million improved seedlings; Cassava-Ongoing efforts to establish large scale cassava processing plants; 5,000 hectares cleared by Ministry for high-yielding varieties; N8bn being disbursed through BOI and BOA to 30,000 farmers etc.; 30 bakeries and 2 international supermarket chains, Shoprite & Park n Shop now sell cassava-wheat flour bread. Food Reserves: Completed 10 new silos for strategic food reserve and increased silo capacity by 400% to 1.3million MT. Concessioning silos to private sector for commodity exchanges. MDG on Hunger: The country met MDG #1 slashing people in hunger by half 3 years before schedule

21 FGN ATA Report Card (contd.) Other Initiatives: Other achievements outlined regarding exports, Staple Crops Processing Zones (SCPZ), financing (NIRSAL), livestock, extension services, Wheat, Groundnuts, mechanisation etc. Agricultural lending as a share of total bank lending rose from 0.7% to 5% within 2 years of launching NIRSAL while bank lending to seed companies and small agricultural input retailers rose from zero in 2011 to $10m in 2012 and $53m in 2013 and lending to fertiliser companies rose from $100 million in 2012 to $500million in Private investment in agriculture also increased with over $4bn in commitments in the last 2 years. Within 2 years, food production increased by 15m MT well ahead of 4 year target of 20m MT by NBS data suggests food import declined from N2.9Trillion ($19.02bn) in 2011 to N684bn ($4.35bn by 2013 while exports increased by N720bn between 2011 and Services Sector RTC Advisory Services Ltd 42 21

22 Telecommunications Sector January 2014 At 247million +, total telecommunications capacity surpasses the nation s population. Teledensity is now 91.4%. Active mobile phones (GSM is over 125million! 43 Telecommunications Sector Developments The industry continues its efforts to reduce operating expenses with sale and/or outsourcing of the management of their telecommunications towers as a major strategy for cost optimisation. Bharti Airtel is expected to conclude its African towers sales soon in a deal reportedly valued at $3billion with prospective buyers including Helios, ATC, Eaton and HIS. Airtel s rivals are believed to be pursuing similar strategies

23 Financial Sector RTC Advisory Services Ltd 45 Total Revenue N m NO BANK GROWTH RATE (%) 1 ZENITH BANK 311, , FIRST BANK OF NIGERIA 284, , UNITED BANK FOR AFRICA 214, , GUARANTY TRUST BANK 172, , DIAMOND BANK 168, , ACCESS BANK 127, , FIDELITY BANK 126, , FCMB 122, , UNION BANK OF NIGERIA PLC 103, , STERLING BANK 91, , STANDARD CHARTERED BANK 62, , SKYE BANK 61, , UNITY BANK 52, , CITI BANK 28, , FSDH MERCHANT BANK 9, , An industry Big 4 -FBN, Zenith, GTBank & UBA has clearly emerged! Source: RTC Advisory Services Ltd 46 23

24 Total Assets N m 47 NO GROWTH RATE BANK (%) 1 FIRST BANK OF NIGERIA 3,246, ,770, ZENITH BANK PLC 2,878, ,436, UNITED BANK FOR AFRICA PLC 2,217, ,933, GUARANTY TRUST BANK PLC 1,904, ,620, ACCESS BANK PLC 1,704, ,515, DIAMOND BANK PLC 1,354, ,059, SKYE BANK PLC 1,114, ,071, FIDELITY BANK PLC 1,081, , FCMB 985, , UNION BANK OF NIGERIA PLC 882, , STERLING BANK 707, , STANDARD CHARTERED BANK 551, , UNITY BANK 403, , CITIBANK NIGERIA LTD 340, , FSDH MERCHANT BANK 78, , A consistent 2 nd tier of Access, Diamond, Skye, Fidelity and FCMB is also discernible! Source: RTC Advisory Services Ltd Profit Before Tax N m 48 NO PROFIT BEFORE TAX BANK GROWTH RATE (%) 1 GUARANTY TRUST BANK PLC 100, , ZENITH BANK PLC 94, , FIRST BANK OF NIGERIA PLC 76, , UNITED BANK FOR AFRICA PLC 51, , DIAMOND BANK PLC 33, , ACCESS BANK PLC 31, , STANDARD CHARTERED BANK 20, , CITIBANK NIGERIA LTD 17, , SKYE BANK PLC 17, , FCMB 15, , STERLING BANK 9, , FIDELITY BANK PLC 9, , UNION BANK OF NIGERIA PLC 4, , FSDH MERCHANT BANK , UNITY BANK (33,639.37) 6, GTBank is most profitable & efficient of the top 4! Source: RTC Advisory Services Ltd 24

25 Total Equity N m NO BANK GROWTH RATE (%) 1 ZENITH BANK PLC 472, , FIRST BANK OF NIGERIA PLC 350, , GUARANTY TRUST BANK PLC 329, , UNITED BANK FOR AFRICA PLC 259, , ACCESS BANK PLC 245, , UNION BANK OF NIGERIA PLC 187, , FIDELITY BANK PLC 163, , DIAMOND BANK PLC 138, , FCMB 125, , SKYE BANK PLC 121, , STANDARD CHARTERED BANK 75, , STERLING BANK 63, , CITIBANK NIGERIA LTD 50, , UNITY BANK 28, , FSDH MERCHANT BANK 19, , The Big 4 are the same across all size indicators! Source: RTC Advisory Services Ltd 49 Return on Sales (%) 50 NO BANK CITIBANK NIGERIA LTD GUARANTY TRUST BANK PLC STANDARD CHARTERED BANK ZENITH BANK PLC SKYE BANK PLC FIRST BANK OF NIGERIA ACCESS BANK PLC UNITED BANK FOR AFRICA PLC DIAMOND BANK PLC FCMB FSDH MERCHANT BANK STERLING BANK FIDELITY BANK PLC UNION BANK OF NIGERIA PLC UNITY BANK The picture is different once efficiency kicks in-citibank & SCB show up, but GTBank remains a top 3 player Source: RTC Advisory Services Ltd 25

26 Return on Assets (%) 51 NO BANK GUARANTY TRUST BANK PLC CITIBANK NIGERIA LTD STANDARD CHARTERED BANK ZENITH BANK PLC DIAMOND BANK PLC FIRST BANK OF NIGERIA UNITED BANK FOR AFRICA PLC ACCESS BANK PLC FCMB Skye Bank Plc STERLING BANK FSDH MERCHANT BANK FIDELITY BANK PLC UNION BANK OF NIGERIA PLC UNITY BANK GTBank remains strong across both size and efficiency indicators! Source: RTC Advisory Services Ltd Return on Equity (%) 52 NO BANK CITIBANK NIGERIA LTD GUARANTY TRUST BANK PLC STANDARD CHARTERED BANK DIAMOND BANK PLC FIRST BANK OF NIGERIA UNITED BANK FOR AFRICA PLC ZENITH BANK PLC STERLING BANK SKYE BANK PLC ACCESS BANK PLC FCMB FIDELITY BANK PLC FSDH MERCHANT BANK UNION BANK OF NIGERIA PLC UNITY BANK Foreign banks are not playing for size, but efficiency and profitability. GTBank is good on all criteria! Source: RTC Advisory Services Ltd 26

27 Non-Performing Loans (% Total Loans) NO BANK STERLING BANK ACCESS BANK PLC DIAMOND BANK PLC GUARANTY TRUST BANK PLC ZENITH BANK PLC SKYE BANK PLC FIDELITY BANK PLC FCMB STANDARD CHARTERED BANK UNION BANK OF NIGERIA PLC Source: RTC Advisory Services Ltd 53 Financial and Capital Markets RTC Advisory Services Ltd 54 27

28 NSE Market Capitalisation Source: Nigeria Stock Exchange 55 NSE All Share Index Source: Nigeria Stock Exchange 56 28

29 Capital Market Developments Nigeria s capital market appears to have benefitted from the recent increase in the weighting of Nigerian stocks in the MSCI Frontier Market Index from 12% to 19% releasing an additional $200million in fresh foreign flows into the Nigerian bourse, and reviving market growth and erasing some of previous YTD losses. Major stock beneficiaries are reported to be Forte Oil, ETI, GTBank, NB Plc and Zenith Bank. Nigeria is now the second largest weight in the MSCI Frontier Index after Kuwait. Market enthusiasm is also benefiting from new listings-seplat, CWG and Caverton Offshore. 57 PE Ratios as at May 30, 2014 AGRICULTURE PE Ratio Okomu Oil Presco Plc CONGLOMERATES UACN Plc Transcorp Plc CONSTRUCTION/REAL ESTATE Julius Berger 11.2 UPDC Plc 8.15 UPDC REIT

30 PE Ratios as at May 30, 2014 (contd.) CONSUMER GOODS PE RATIO Guiness Nigeria Nigeria Breweries Seven Up Dangote Sugar Flour Mills Honeywell Flour Cadbury Nigeria NESTLE Foods PZ Industries Unilever Nigeria PE Ratios as at May 30, 2014 (contd.) BANKING PE RATIO Access Bank GTBank UBA Union Bank Zenith Bank FBN Holdings Stanbic IBTC Holdings INDUSTRIAL GOODS Ashaka Cement Berger Paints CAP Plc Dangote Cement PPPN Plc

31 PE Ratios as at May 30, 2014 (contd.) OIL AND GAS PE RATIO Oando Plc Seplat - Forte Oil Mobil Oil MRS Oil Totalfina Elf Foreign Exchange Market Date Currency Buying(NGN) Central(NGN) Selling(NGN) 6/5/2014 US DOLLAR /4/2014 US DOLLAR /3/2014 US DOLLAR /2/2014 US DOLLAR /30/2014 US DOLLAR /28/2014 US DOLLAR /27/2014 US DOLLAR /26/2014 US DOLLAR /23/2014 US DOLLAR /22/2014 US DOLLAR /21/2014 US DOLLAR /20/2014 US DOLLAR /19/2014 US DOLLAR /16/2014 US DOLLAR /15/2014 US DOLLAR /14/2014 US DOLLAR /13/2014 US DOLLAR /12/2014 US DOLLAR /9/2014 US DOLLAR /8/2014 US DOLLAR Source: Central Bank of Nigeria 5/7/2014 US DOLLAR

32 External Sector RTC Advisory Services Ltd 63 Foreign Trade Summary: Jan Nov Source: National Bureau of Statistics 64 32

33 65 Quarterly Foreign Trade Summary (N billions) 66 33

34 Policy and Politics RTC Advisory Services Ltd 67 New CBN Governor s Agenda The new CBN Governor, Mr Godwin Emefiele outlined his broad policy agenda in his first week in office after resumption on June 2, He seeks a gradual reduction in interest rates; would sharpen focus on unemployment (including it as one of MPC target indices); wants stable exchange rates while aggressively shoring up reserves; be tough on bad borrowers and strengthen supervision through specialisation; and strengthen the payments system. The Governor seeks to continue his predecessor s targeted sectoral and credit interventions and increase lending to MSMEs. The Governor will struggle to simultaneously reduce interest rates, maintain current rates and increase reserves

35 Implications for Business RTC Advisory Services Ltd 69 Implications The negative Q1 GDP results from both US and UK are a warning sign that 2014 global output projections may turnout weaker than expected. Analysts will await Q2 results to confirm the trend. The ADB s historical GDP growth data for African economies suggests that 5-6% GDP for Africa is a long term trend dating back at least 15 years, rather than a new phenomenon. Global markets may have noticed now only because western economies are struggling to see 2% growth

36 Implications (contd.) Inflation has reached 7.9% in April 2014 and may continue to face challenges with political transition, changes in the CBN and pressures for growth and unemployment. The new CBN Governor s objectives are laudable, but he will struggle to simultaneously reduce interest rates, grow reserves and GDP and sustain current exchange rates. We believe after the 2015 elections a willingness to trade-off some inflation and currency value may be more realistic. 71 Implications (contd.) The federal government s agricultural transformation agenda (ATA) claims significant positive outcomes, some of which are verifiable. It remains for industry stakeholders and analysts to interrogate the government report card and confirm the results. Nigeria s capital market has benefited from GDP rebasing and the consequent interest from global and international investors caused by the larger Nigeria weighting in the MSCI frontier market index. Valuations are rising again however, and some specific stocks may be verging on being over priced! 72 36

37 Conclusions The new CBN governor s agenda of growth and employment, rather than his predecessor s stability (at all cost) orientation is salutary. However he is yet to recognise and embrace the required trade-offs, which stimulating growth and massive employment may require. We believe that once political constrains and milestones are cleared, those trade-offs will become clearer! 73 Contact Us:- RTC Advisory Services Ltd MEDIFE House, 5th Floor 58/60 Broad Street, Lagos opeyemiagbaje@rtcadvisory.com , kehindeayanbadejo@rtcadvisory.com