Equities year-end rally lose steam...as te ASI posts w/w losses Tis past week saw te equities market post losses on increased profit-booking in preparation for olidays. As suc, at 26,486.0 points, te ASI closed te week 0.8% lower w/w, driving YTD losses furter sout to -7.5%. 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 19.2% and 20.7% respectively vs. 3.9% and 4.4% in te previous week, on te back of OMO auction wic mopped up c.n305b from te system. Te recent rally seen in te equities market re-ecoed te direct positive correlation between te NGSEASI and te crude oil prices, as te market momentum tracked te brief rebound in Brent price. Last week s sell-offs were owever expected for a festive period. For tis sort week, we expect investors to continue profit-booking as tey close teir books for te year, wit a sprinkle of bargain positioning in expectation of te calendar-driven January rally early in te new year. Tis sould create a mixed sentiment wit a bearis bias. Activities in te FI market is expected to be quiet as investors wind down trades for te year. Nigeria Asset Class Returns (YTD, W-o-W) EQUITIES FX Oil Price 60.0% 48% Equities: NSE Market Cap. (N bn): 9,113.2 NSE Market Cap. ($ mn): 29,854.9 NSE All Sare Index (points): 26,486.0 YTD Return (%): -7.5% W-o-W Return (%): -0.8% P/E (x): 14.5x Fixed Income: Overnigt: 20.7% Open Buy-Back: 19.2% Treasury Bills 90 days: 13.1% 180 days: 19.2% 360 days: 20.6% Bonds 3-Year: 15.7% 10-Year: 16.3% 20-Year: 22.7% 40.0% 20.0% Excange Rate (NGN/USD): 0.0% -20.0% -7.5% -0.8% -0.1% -0.1% N305.3 W-o-W Return: -0.1% -40.0% -60.0% YtD Return -53.2% 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
Global and Macro-economic market update Santa stokes mixed sentiment across board U.S. stocks ended a tinly traded session last week wit sligt gains as te so-called Santa rally subsided in te final trading days before te olidays. However, major indexes posted gains for te week, and as te Dow once again stayed witin sigt of te resistance level of 20,000, te blue-cip bencmark recorded its sevent consecutive w/w gain rising to 19,933.81, a move of less tan 0.1%. Te S&P 500 on te oter and edged 2.8 points iger to 2,263.76, a move of 0.1%, wile te Nasdaq Composite Index inced up 0.3%, to 5,462.69. European stocks closed te week recording marginal gains, wit te banking sector again in focus after settlements wit U.S. regulators, as te Italian government prepared a bailout for troubled lender Monte dei Pasci di Siena SpA. Te Stoxx Europe 600 index closed up less tan 1 point at 359.97. In te same vein, Te pan-european index finised fractionally lower for te week, during wic te market saw lower trading volume as investors prepared for te olidays. Asian markets were broadly lower Friday, tracking overnigt declines on Wall Street as participants eased into te oliday season. Te Sangai Composite Index ended down 0.9%, Australia s S&P/ASX 200 closed 0.3% lower, and Hong Kong s Hang Seng Index was off 0.3%. On te domestic scene, ope of increased oil production returned as ExxonMobil-operated Qua Iboe Terminal (QIT) resumed, producing excess of 150,000bpd. In sort to medium term, we expect tis development to elp in te ramping up of daily oil production, but still sort of te ambitious daily production bencmark of 2.2mbpd in te 2017 budget, barring unanticipated attack on te infrastructures. 2
Value Traded N'bn Domestic Financial Markets Review and Outlook Equities: market bearis as te ASI posts w/w losses Tis past week saw te equities market post losses on increased profit-booking in preparation for olidays. As suc, at 26,486.0 points, te ASI closed te week 0.8% lower w/w, driving YTD losses furter sout to -7.5%. 40,000 35,000 30,000 Nigeria All Sare Index and Market Turnover 20 18 16 14 12 TOP GAINERS PRICE (N) % CHANGE AGLEVENT 0.8 18.3% NEIMETH 0.8 18.2% STERLNBANK 0.9 18.1% CCNN 4.9 14.6% 25,000 20,000 15,000 Turnover All Sare Index 30-Day Moving Avrg 10 8 6 4 2 - NAHCO 2.6 12.3% TOP LOSERS PRICE (N) % CHANGE UNILEVER 35.0-11.5% FO 103.9-10.6% ETI 10.9-9.6% SEPLAT 370.5-9.6% UPL 3.7-9.6% Source: NSE, United Capital Source: NSE, United Capital A closer look at te sectoral performance revealed largely mixed patterns, albeit wit a bearis tilt. Te Industrial Goods sector closed te week iger to top te gainers cart wit a positive weekly return of +3.2%. Te sector was buoyed by price appreciation in CCNN (+14.6%). However, te Oil and Gas and te Banking indices posted losses of 4.7% and 3.8% respectively. Te Consumer Goods and te Insurance indices also closed te week lower wit return of 1.9% w/w and 0.4% in tat order. Example of stocks tat drove negative momentum in tese sectors include UNI- LEVER (-11.6%), FO (-10.6%), ETI (-9.6%), SEPLAT (-9.6%), GUARANTY (-8.1%), HONEYWELL (-6.8%), CADBURY (-6.3%) and PZ (-6.3%). Wen compared to te previous week, overall market sentiment edged lower wit market breadt settling at 0.7x (relative to 2.1x in te previous week) as 26 stocks appreciated against 36 decliners. Activity level during te week also declined as te average value traded was off by 67.3% w/w to N2.9bn, just as average volume traded edged lower by 84.1% w/w to 506.7m units. Te recent rally seen in te equities market re-ecoed te direct positive correlation between te NGSEASI and te crude oil prices, as te market momentum tracked te brief rebound in Brent price. Last week s sell-offs were owever expected for a festive period. For tis sort week, we expect investors to continue profit-booking as tey close teir books for te year, wit a sprinkle of bargain positioning in expectation of te calendar-driven January rally early in te new year. 3
Money Market rates rise w/w on aggressive mopping 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 19.2% and 20.7% respectively vs. 3.9% and 4.4% in te previous week, on te back of OMO auction wic mopped up c.n305b from te system. We expect te apex bank to old fire on its aggressive OMO auctions tis week. Tis sould see money market rates ease from teir current lofty eigts, barring any major system funding. FI Market: Yields diverge in T-bills and bond markets In te past week, yields trended in a mixed direction, especially at te fixed income market, as OMO calls drove a more divergent close to FI asset prices w/w. Specifically, OMO call by te apex bank, wic mopped up c.n305b from te system, ensured te T-bills market close te week largely bearis wit average yield incing iger by 31bps, to stand at 18.1%. Conversely, te bonds market was bullis, on bargain unting in te long dated instruments. At te end of te week, average yield moved 88bps sout, to end te week at 17.1%. Tis week, we expect te FI market to be quiet as investors wind down activities for te year. Naira depreciates at bot te parallel market and official window At te spot market, te USD/NGN closed at 305.3 in te past week, weakening by 190bps on previous close. In te same vein, te parallel market saw te domestic currency depreciate furter by 8bps w/w, to close at 491.5. At te international market, oil traded flat at US$55.2pb, as te commencement of production cut draws near. In te week aead, we expect pressure on te naira to linger especially at te parallel market as unmet demand from te official market continues to stoke imbalances. As te rally in oil prices slows, te recent accretion in FX reserves sould lose steam, wit attendant pressure on te domestic currency. 4
Stock Recommendations for te Week Ticker SHO (bn Units) MCap (N' bn) Source: Company filings, NSE, United Capital UR= Under Review Prices as at Friday 23 December 2016 Mcap ($'mn) Financials 197.94 Current Price(N) Target Price(N) Upside/(Dow nside) Rating* P/E(x) Div Yield(%) ACCESS 22.9 130.3 39774.4 5.7 6.0 5% HOLD 3.4 13.9% DIAMONDBNK 23.2 20.9 6373.6 0.9 1.6 81% BUY 0.5 3.5% FBNH 35.9 122.1 37258.8 3.4 5.0 47% BUY 1.8 1.9% FCMB 19.8 21.4 6527.5 1.1 1.9 76% BUY 1.2 11.2% GUARANTY 29.4 688.8 210269.0 23.4 30.4 30% BUY 7.0 9.0% ZENITHBANK 31.4 453.7 138501.1 14.5 17.3 20% BUY 4.6 11.7% CUSTODYINS 5.9 23.2 7077.8 3.9 5.2 32% BUY 5.0 2.9% Non-Financials 7UP 0.6 77.4 23626.4 129.0 209.5 62% BUY 18.2 1.4% CADBURY 1.9 19.1 5817.1 10.0 25.7 156% BUY 5.0 3.2% DANGCEM 17.0 2958.0 902929.5 174.0 192.8 11% HOLD 10.3 5.0% DANGSUGAR 12.0 73.0 22271.0 6.1 7.9 30% BUY 7.0 6.2% FLOURMILL 2.6 48.1 14674.6 18.5 23.7 28% BUY 17.8 9.6% GUINNESS 1.5 126.5 38598.9 84.3 71.0-16% SELL 15.8 2.5% MOBIL 0.4 112.0 34188.0 280.0 165.3-41% SELL 14.6 4.7% NASCON 2.6 19.6 5992.1 7.6 8.0 6% HOLD 6.0 8.2% NESTLE 0.8 648.0 197802.0 810.0 714.3-12% SELL 24.0 2.1% PZ 4.0 57.0 17399.3 14.3 16.2 14% BUY 6.7 0.8% SEPLAT 0.5 185.3 56547.6 370.5 277.3-25% SELL 3.8 7.8% UNILEVER 3.8 133.0 40598.3 35.0 27.8-21% SELL 22.6 3.9% WAPCO 3.0 123.0 37545.8 41.0 61.4 50% BUY 4.6 3.5% UACN 1.9 31.2 9517.4 16.4 22.9 40% BUY 3.0 6.3% TOTAL 0.3 85.2 26007.3 284.0 302.1 6% HOLD 20.4 6.3% 5
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
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
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: +234-1-280-8919 Securities@unitedcapitalplcgroup.com Asset Management: +234-1-2807822 assetmanagement@unitedcapitalplcgroup.com Trusteesip: +234-1-27157491 trustees@unitedcapitalplcgroup.com 8