United Capital Researc I Nigeria I Markets 4t December 2017 Equity market extends bullis momentum as GSPEC adds N40bn to market cap Global equity performance was mixed in te week to December 1st wile te domestic equities market extended te previous week's bullis trend in te oliday-sortened week amid sector-wide rally and listing of GSPEC wic added N40bn to market capitalization. Accordingly, te All Sare Index (ASI) expanded 1.5% w/w and 3.4% m/m to settle at 37,944.6 points. Also, market capitalization added N205.6bn w/w and N519.6bn m/m to close at N13.2tn stimulating YTD return furter to 41.2%. In te money market, CBN maintained its liquidity tigtening stance, mopping up a total of N72.3bn in te form of OMO auctions tat were carried out on all trading days of te week except on Wednesday, were te Apex Bank conducted its bi-weekly Nigerian Treasury Bill (NTB) auction, successfully rolling over N117.2bn. Te T-bills market was broadly bullis for te week largely due to demand in te mid-to-long end of te curve, wit some profit taking in te sort end of te curve wile te bond market ended te week bearis across all end of te curve. In te Foreign excange market, te naira depreciated by 5bps w/w to close te week at N306.0/$ at te official market. Also, te local unit depreciated 11bps w/ w at te Investors and Exporters FX window to end te week at N360.7/$ wile Parallel market rate traded sideways w/w, to settle at N362.5/$. In te week aead, We expect some profit taking to play-out early in te week but expect investors to start looking at a likely Santa-clause rally to close-out te year. Te fixed income market sould continue to be guided by investor demands and to some extent, system liquidity levels. Nigeria Asset Class Returns (YTD, W-o-W) 40.0% 35.0% Equities Bonds FX Oil Price Equities: NSE Market Cap. (N bn): 13,214.6 NSE Market Cap. ($ mn): 43,184.9 YTD Return (%): 41.2% W-o-W Return (%): +1.5% P/E (x): 12.7x Fixed Income: Overnigt: 29.1% Open Buy-Back: 25.8% Treasury Bills 90 days: 15.9% 180 days: 19.1% 360 days: 18.1% Bonds 3-Year: 14.9% 10-Year: 14.9% Excange Rate (NGN/USD): NAFEX: N 360.7 W-o-W Return: -0.1% PARALLEL: N 362.5 W-o-W Return: 0.0% 30.0% 25.0% 25.4% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% 1.5% 6% YtD Return 0.2% 0.0% w/w Return 12% -0.2% 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
Global and Macroeconomic Market update US Stocks iger amid tax reform euporia United Capital Researc I Nigeria I Markets U.S. equity bencmarks continued to edge iger in te prior week as te US Senate passed te long-awaited tax cut bill at te tail end of te week. Also, Q3-17 GDP growt number for te US economy was reviewed from 3.0% to 3.3% y/y in Q3-17. Wile te tec-laden Nasdaq Composite Index fell 0.6% w/w bot te Dow Jones Industrial Average and S&P 500 Indices surged 2.9% and 1.5% respectively, w/w. 4t December 2017 European stocks pared previous week s gains as rising political concerns in Germany and U.K. dampens sentiments despite positive economic data releases. Consequently, UK's FTSE (-1.5%), Germany's DAX (-1.5%), France CAC (-1.4%), and Pan-European STOXX 600 (-0.7%), all trended lower w/w. Emerging markets equities performance was also largely bearis as most indices witin te BRICS classification trended soutward save Sout Africa's JSE/FTSE wic advanced 3.6% w/w. Russia's RTSI (-2.8%), Brazil's IBOV (-2.6%), India's BSE (- 1.4%) and Cina's SCHOMP (-1.1%) all closed te week in te red. In te African market region, all equity indices under our coverage ended te week bullis save for Gana's GSSECI (-1.4%) wic decline w/w. Te Kenya's NSE (+5.0%) led te week s gainer, followed by Egypt's EGX100 (+3.7%) and Sout Africa's JSE (+3.6%). 2
Value Traded N'bn United Capital Researc I Nigeria I Markets Domestic Financial Markets Review and Outlook NSEASI iger as GSPEC adds N40bn to market cap Te domestic equities market extended te previous week's bullis trend in te oliday-sortened week to 1 st December amid sector-wide rally and listing of GSPEC wic added N40bn to market capitalization. Accordingly, te market ended 3 of te week's 4 trading days in te green as te All Sare Index (ASI) expanded 1.5% w/w and 3.4% m/m to settle at 37,944.6 points. Also, market capitalization added N205.6bn w/w and N519.6bn m/m to close at N13.2tn stimulating YTD return furter to 41.2%. 40,000 35,000 30,000 25,000 20,000 15,000 Source: NSE, United Capital 60 50 40 30 20 10 - Source: NSE, United Capital 4t December 2017 Nigeria All Sare Index and Market Turnover TOP GAINERS PRICE (N) % CHANGE 100 FIDELITYBK 2.1 21.2% 90 80 FO 46.0 15.0% 70 CAVERTON 1.4 14.4% Turnover All Sare Index 30-Day Moving Avrg DANGFLOUR 10.3 11.6% NAHCO 4.3 10.3% TOP LOSERS PRICE (N) % CHANGE MOBIL 159.7-6.1% UPL 2.4-5.5% NEIMETH 0.6-4.9% LIVESTOCK 0.8-4.5% GUINNESS 97.5-4.4% Performance across te sectors we track was bullis as all indices closed te week in te green. Te Financial services [Banking (+1.4%); Insurance (+1.5%)] sector led te week s gainers, accruing a total of 2.9% gain w/w consequent on bargain unting in ACCESS (+2.4%), GUARANTY (+2.4%), UBA (+1.0%) and MANSARD (+4.9%). Similarly, Oil & Gas index recorded 1.4% w/w gain owing to strong interest in FO (+15.0%) and TOTAL (+4.8%), followed closely by Consumer Goods (+1.3%) and Industrial Goods (+1.1%) indices as NB (+1.7%), NESTLE (+0.8%) and DANGCEM (+2.1%) all trended iger w/w. Investor sentiment improved as market breadt settled at 2.0x (relative to 1.3x in te previous week), 39 stocks appreciated against 20 decliners. Also, activity level improved for te week, average volume and value traded advanced 716.6% and 92.2% w/w to close at 3,564.1m units and N8.8bn respectively. We expect some profit taking to play-out early in te week but expect investors to start looking at a likely Santa-clause rally to close-out te year. 3
Money Market: Rates price in liquidity dynamics 4 United Capital Researc I Nigeria I Markets At te beginning of te oliday-sortened week, te opening balances of Banks/ Discount Houses stood at N121.0bn, even as OBB and O/N rates settled at 32.5% and 35.3% respectively. As expected, te CBN maintained its liquidity tigtening stance, mopping up a total of N72.3bn in te form of OMO auctions tat were carried out on all trading days of te week except on Wednesday, were te Apex Bank conducted its bi-weekly Nigerian Treasury Bill (NTB) auction, successfully rolling over N117.2bn at te following stop rates: 91-day (12.95% vs. 13.00% at te last auction), 182-day (15.00% vs. 15.25% at te last auction), 364-day (15.57% vs. 15.60% at te last auction). Bid cover at te auction stood at 1.1x (last auction: 2.3x). By mid-week, money market rates owever moderated as Paris Club refunds were posted into te system and expectation of N131.9bn maturing OMO bills elped drag te OBB and O/N borrowing rates to 11.2% and 11.9% levels respectively. Rates, owever, inced iger on Tursday due to CBN s FX intervention. Overall, rates closed te week lower; OBB (down 5.0% to 25.8%) and O/N (down 3.5% to 29.1%) w/w. In te week aead, we expect money market rates to continue to price in system liquidity dynamics and given te CBN's aggressive stance on liquidity, we expect more OMO auctions and FX intervention funding tis week. Fixed Income Market: Bullis sentiment dominates te T-Bills market Sentiment was divergent across tenor bills in te fixed income space. Te T-bills market was broadly bullis for te week largely due to demand in te mid-to-long end of te curve, wit some profit taking in te sort end of te curve. Overall, average T-bill yield declined by 14bps w/w to close at 17.7%. (91-day (up 19bps to 15.9%), 182-day (down 27bps to 19.1%) and te 364-day (down 35bps to 18.1%). On te flip side, te bond market ended te week bearis across all end of te curve. Average bond yields consequently inced iger by 12bps w/w to end te week at 14.8% driven by sell-offs across all maturities, 3-year, 5-year 7-year and 10- year maturity yields climbed 22bps, 1bp, 16bps and 8bps respectively. Going into te new week, we expect proceedings in te fixed income space to be guided by investor demand and to some extent, system liquidity levels. Currency Market: Naira depreciates at te I&E Window In te Foreign excange market, te naira depreciated by 5bps w/w to close te week at N306.0/$ at te official market. Also, te local unit depreciated 11bps w/w at te Investors and Exporters FX window to end te week at N360.7/$ wile Parallel market rate traded sideways w/w, to settle at N362.5/$. In te oil market, traders were cautious as tey anticipated te outcome of OPEC meeting on Nov 30t wit Brent price declining 1.2% between last week Friday and Wednesday but after te announcement of oil cut extension on Tursday prices picked up 1% as w/w declined slowed to 0.2% to close at $63.7/b. 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. 4t December 2017
United Capital Researc I Nigeria I Markets 4t December 2017 Stock Recommendations for te Week Mkt So Price Mcap Up/Down- Div. Sectors TP (N) (bn'n) (N) (bn'n) Side Rating EPS BVPS P/E P/B DPS Yield Banking ACCESS 9.4 28.9 10.0 289.3-5.9% SELL 2.8 16.2 3.6x 0.6x 0.7 6.5% FBNH 4.9 35.9 7.1 256.3-31.7% SELL 0.4 16.8 17.9x 0.4x 0.2 2.8% FCMB 1.3 19.8 1.2 22.8 16.8% BUY 0.7 9.1 1.6x 0.1x 0.1 8.7% FIDELITYBK 1.3 29.0 2.1 59.7-34.8% SELL 0.4 6.5 5.7x 0.3x 0.1 6.8% GUARANTY 38.1 29.4 43.0 1,265.5-11.4% HOLD 5.2 18.3 8.3x 2.4x 2.0 4.7% ZENITHBANK 27.9 31.4 24.9 782.7 11.9% BUY 4.5 21.9 5.6x 1.1x 2.0 8.1% DIAMONDBNK 2.2 23.2 1.3 29.2 75.4% BUY 0.1 10.0 11.5x 0.1x - - STANBIC UR 10.0 42.6 425.5 UR 3.3 15.3 12.7x 2.8x 0.1 0.1% Consumer Goods NESTLE 1,051.0 0.8 1,315.0 1,042.3-20.1% SELL 30.1 49.8 43.7x 26.4x 10.0 0.8% UNILEVER 27.7 3.8 41.8 158.0-33.7% SELL 1.5 4.0 28.4x 10.5x 0.1 0.2% FLOURMILL 24.5 2.6 33.5 87.9-27.0% SELL 3.0 37.5 11.1x 0.9x 1.0 3.0% NB 171.1 7.6 132.3 1,000.5 29.3% BUY 3.7 22.4 35.7x 5.9x 4.6 3.5% GUINNESS 101.7 1.5 96.3 145.0 5.6% HOLD 1.3 28.5 74.1x 3.4x 3.0 3.1% UACN 20.1 1.9 17.5 33.6 15.1% BUY 1.8 24.5 9.6x 0.7x 1.0 5.7% Indutrial Goods DANGCEM 234.5 17.0 245.0 4,174.9-4.3% HOLD 12.5 51.9 19.6x 4.7x 8.5 3.5% WAPCO 64.6 5.5 49.8 273.4 29.7% BUY 12.8 14.0 3.9x 3.5x 1.1 2.1% Agric OKOMUOIL 77.7 1.0 67.2 64.1 15.5% BUY 6.7 21.1 10.0x 3.2x 1.5 2.2% PRESCO 75.8 1.0 66.0 66.0 14.8% BUY 24.2 56.0 2.7x 1.2x 1.5 2.3% Oil & Gas TOTAL UR 0.3 241.0 81.8 UR 43.1 77.3 5.6x 3.1x 17.0 7.1% MOBIL UR 0.4 159.7 57.6 UR 17.6 63.1 9.1x 2.5x 8.0 5.0% OANDO UR 12.0 6.0 72.1 UR (1.1) 10.0-5.7x 0.6x - - FO UR 1.3 46.0 59.9 UR 2.8 9.2 16.5x 5.0x - - Source: Company filings, NSE, United Capital UR= Under Review 5
United Capital Researc I Nigeria I Markets 4t December 2017 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
United Capital Researc I Nigeria I Markets 4t December 2017 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
United Capital Researc I Nigeria I Markets 4t December 2017 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