Investment Guide for the Week

October 2, 2015 Investment Guide for the Week Market records 5th consecutive week of gains as NSEASI advances by 0.15% 1

USD'bn Nigeria I Investment Guide I October 2, 2015 Market records 5 th consecutive week of gains as NSEASI advances by 0.15% After recording gains on the first three trading days of the week, the NSEASI shed 2.02% on the last trading day, following a 4.99% drop in DANGCEM s share price to NGN171/share. Subsequently, the NSEASI advanced by 0.15% week on week (WoW) to peg the year to date (YtD) return at -11.74%. Market breadth (0.82x) skewed in favour of decliners, as 31 stocks advanced against 39 decliners. Also, volume and value of transactions advanced by 96.04% and 55.16% respectively. HONYFLOUR with a price gain of 26.09%, emerged the top gainer during the week to close at NGN2.90. VONO, UPL, ETRANZACT and FO also featured on the gainers path, after recording respective gains of 16.47%, 10.19%, 9.09% and 8.25% accordingly. On the flip side, EVANSMED (-15.19%), PORTPAINT (-9.51%), JBERGER (-9.26%), ZENITHBANK (-9.11%) and COSTAIN (-6.67%) emerged the top underperformers. PZ CUSSONS released its Q1:2016 financial results during the week, which showed YoY Revenue and Profit after Taxes (PAT) declines of 0.44% and 33.33% accordingly to NGN14.95bn and NGN427mn correspondingly. Conoil Plc also released its H1:2015 performance scorecard, indicating YoY declines in both its top-line and bottom-line of 45.19% and 64.48%. As the market anticipates another earning season, we envisage active investor participation going forward. In addition, we believe the earnings performances of respective companies will dictate the direction of activities in the coming weeks. Chart 1: Movement in FX reserves, NGN/USD pairing & Brent crude oil price Foreign Reserves NGN/USD BRENT NSEASI 1.4 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 Dec-13 Mar-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 50 45 40 35 30 25 20 15 Source: CBN, Bloomberg, Meristem research 2

In this report, we review events in the economy, laying emphasis on the performance of different segments of the financial market, while presenting our expectation for the coming week. Fixed Income Market Update: Naira s mid-price pegs at NGN198.72/dollar The Naira closed the week at a mid-price of NGN198.72/dollar, after holding steady at a mid-price of NGN199 against the dollar over ten (10) consecutive trading days prior. This pegs the year-to-date performance of the naira against the greenback at - 7.13%. The average decline across NIBOR tenors was recorded at 3.25% during the week, with the CALL, 1M, 3M, and 6M tenor rates closing at 4.54% (-9.46%), 14.57% (- 1.19%), 15.73% (-1.17%), and 16.88% (-1.18%) accordingly. Similarly, the OBB and OVN rates declined by 7.33% and 7.00%, to close at 4.17% and 4.92% respectively. Activities in the Treasury Bills market remained bullish for most of the week, as the average yield across T-Bills instruments settled at 11.14% (-2.50% WtD). Similar sentiments played out at the FGN Bond market, as the average offer yield for the Benchmark and Off-the-run bonds settled at 14.73% and 15.21% accordingly. We do not anticipate a change from the recent trend within the fixed income space, as local investors continue to sustain market activities, even as JP Morgan recently carried out its first phase out of Nigerian government bonds from its Government Bond Index-Emerging Markets (GBI-EM). Agric sector: YtD settles at 17.49% Notwithstanding the positive momentum in the market, the MERI- AGRI index declined by -0.16% WtD, to settle the YtD return of the sector at +17.49%, just as the sector witnessed inertia with four counters trading flat, while a sole stock declined. OKOMUOIL declined by 0.36% WtD to close at NGN28.00, while LIVESTOCK, OKOMUOIL, ELLAHLAKES, and FTNCOCOA all traded flat. We expect discerning investors to take position in some of the counters given their attractive levels, ahead of a probable resurgence next week which may partner news flows from the political space. However, we advise investors to balance their optimism with caution. 3

Banking Sector: ZENITHBANK pares by 9.11% WtD This was a generally positive week for the banking sector s stocks, with 6 stocks recording price appreciations as against 5 decliners, while all other tickers traded flat. The sector s return, as measured by our MERI-BNK index, measured at -2.36% WtD to bring the YtD return to -9.42%. ETI led the gainers, appreciating by 2.96% to bring its YtD return to 2.80%. The ticker was followed by STANBIC (2.85%), UBN (2.16%), FCMB (1.73%), ACCESS (1.36%), and DIAMONDBNK (0.92%). Conversely, ZENITHBANK led the underperformers, after paring by 9.11%, followed by UNITYBNK (2.99%), FBNH (1.43%), FIDELITYBK (0.65%), and GUARANTY (0.37%). The performance of the sector has remained tempered despite a generally positive outcome from the MPC s deliberations, when the Cash Reserve Ratio (CRR) was revised downwards to 25%, thereby easing liquidity conditions in the sector. A point further denoted by the apex authority during the week. We remain of the opinion that the sector will not be significantly hampered by recent happenings, and so we advise investors take advantage as market pressure prices downwards. Consumer Goods: HONYFLOUR gains 26.09% WoW In line with the overall equities market mood, the Consumer goods and Conglomerates sectors witnessed a bullish run during the week, as WtD performances, as measured by our Meri-Consumer Goods and Meri-Conglomerates sector indices, pegged at 0.18% and 1.26% for the respective sectors. The gainers chart was led by HONYFLOUR and VONO which recorded gains of 26.09% and 16.74% accordingly. VITAFOAM (+6.31%), UACN (+5.67%), FLOURMILL (+3.64%), 7UP (+2.78%), NESTLE (+1.22%), NASCON (+0.75%) and INTBREW (+0.73%) also featured on the chart. Contrarily, DANGFLOUR, DANGSUGAR, PZ, UNILEVER, GUINNESS, CHAMPION and NB recorded WtD declines of 4.93%, 3.77%, 3.09%, 1.89%, 1.30%, 0.91% and 0.05% in that order. PZ released their Q1:2016 result during the week, which showed Year-on-Year declines in Revenue and Earnings-After-Taxes of 0.44% and 33.33% respectively. The result also reflected increases in cost of sales and other income 1.37% and 118.61%, just as financial charges declined by 503.74% YoY. 4

Given that the sector has witnessed successive WtD gains, we expect some investors to take profit on stocks that have recorded substantial price appreciations. Therefore we advise value seeking investors to trade with caution. Healthcare Sector: Bullish run halts Despite the optimism witnessed in the general market in the week, Healthcare sector stocks closed weak, as WtD return pegged at -0.01% to peg Year-to-Date return at -12.00%, as measured by our MERI-HLTH Index. Sector breadth (0.33x) skewed in favour of decliners, as only one stock appreciated in value, while three (3) stocks pared in value during the week. FIDSON appreciated marginally by 1.88% to peg the market price at NGN3.26, while EVANSMED topped the laggards with a 15.19% price decline. NEIMETH and MAYBAKER also declined by 4.90% and 4.55% to settle prices at NGN0.97 and NGN1.26 respectively. All other counters traded flat in the week. The sector took a breather this week, after recording 4 consecutive weeks of WtD growths. We attribute the sector mood to profit taking on stocks that recorded significant gains recently, although we expect this trend to retract in the coming week. Industrial Goods: Sector gains marginally The industrial goods sector, based on our Meri-Industrial sector index, closed 0.82% up at the end of the week. This was largely due to DANGCEM s positive return during the trading week. BERGER emerged as the top gainer for the week having appreciated by 4.93% WtD to close at NGN 10.42. DANGCEM was the only other gainer for the week, gaining 0.29% WtD to close at NGN 170.00. PORTPAINT, the worst laggard for the week, after the ticker depreciated by 9.51% WtD to close at NGN 3.90, while PAINTCOM and CUTIX depreciated by 4.62% and 0.60% respectively to make up the losers chart. Despite most stocks trading relatively flat this week, we believe the sector remains viable with investment opportunities, as most stocks continue to trade at discounts to their intrinsic values. We expect the inflow of Q3:2015 results to trigger positive sentiments in the coming weeks. 5

Insurance sector: Saham acquires 53.6% stake in Continental Reinsurance Plc. The sector failed to consolidate on the prior week s gain, as four (4) stocks waned in value. Consequently, the NSEINS10 pared by -2.21% WtD, to fix the YtD return at - 7.78%. CUSTODYINS emerged the sector s top underperformer during the week, after paring by 4.71% to close at NGN4.05. The counter was trailed by AIICO, MANSARD and NEM, after the respective counters share prices waned by 2.22%, 1.47% and 1.43%. All other counters traded flat during the week. Morocco-based insurance company, Saham Finances has announced the acquisition of Emerging Capital Partners (ECP) entire stake in C-Re Holdings, which amounts to 53.6% majority shareholdings in Continental Reinsurance Plc. This is the second such acquisition by Saham in Nigeria, after the company attained 40% stake in Unitrust Insurance Company Limited in November 2014. We expect the performance on the insurance stocks to be dictated by general market performance and earnings releases from the companies over the coming weeks. Oil & Gas Sector: Sector advances by 3.40% WtD The sector, as measured by the NSEOILG5 index, appreciated by 3.40% WtD. The sector s breadth skewed in favour of the advancers, with four (4) stocks advancing against two (2) decliners. FO (+8.25%) advanced the most to close at NGN259.80, followed by ETERNA (+4.89%), TOTAL (+2.72%), and OANDO (+0.48%). On the flip side, CONOIL pared the most (-3.52%) to settle at NGN27.41, trailed by SEPLAT (-2.00%). Other stocks traded flat. Conoil Plc. recently released its Q2:2015 performance scorecard, which showed YoY declines in both revenue and Profit-After-Tax of 45.19% and 64.48% respectively to NGN43.03bn and NGN359.41mn accordingly. We advise cautious trading on sector stocks in the short term, while further stressing long term investment potential on fundamentally justified stocks. Services sector: UPL tops as it pays dividend MERISER INDEX advanced by 0.33% during the week, to leave the YtD market return in the positive region, at 0.35%. The sector breadth (0.6x) was skewed in favour of 6

the decliners, with 3 stocks gaining against 5 stocks that waned in value. Other counters traded flat. UPL was the week s strongest outperformer, returning 10.19% WtD to close the week at NGN 5.73. Also, the company made a 20Kobo dividend payment during the week. The counter was closely followed by LEARNAFRCA which rose by 4.40%, alongside RTBRISCOE which rose by 3.70%. TRANSEXPR was the week s most significant underperformer, paring by 6.67%. The other decliners this week were CAVERTON (-4.75%), IKEJAHOTEL (-4.44%), NAHCO (-1.33%), and REDSTAREX (- 0.48%) in that order. Given the anticipated boost expected in the market in the coming week from the polity, we expect the services sector to leverage on the news flow given its strong correlation with economy. 7

Top 10 Outperformers Ticker WTD Return YtD Return Price (NGN) Current valuation metrics and statistics MCap [NGN'bn] P/E -TTM P/BV RoE Dividend Yield HONYFLOUR 26.09% -16.18% 2.90 23.00 10.17 x 1.66 x 10.50% 1.72% VONO 16.47% 0.00% 0.99 0.56 1.04 x 0.65 x -0.68% 0.00% UPL 10.19% 0.00% 5.73 2.47 6.46 x 0.77 x 12.42% 3.49% ETRANZACT 9.09% -11.50% 3.00 12.60 59.08 x 3.47 x 1.20% 1.67% FO 8.25% 14.00% 259.80 338.38 48.57 x 5.74 x 11.82% 0.96% VITAFOAM 6.31% 0.00% 5.90 5.80 8.91 x 0.73 x 8.12% 5.08% UACN 5.67% -6.76% 31.70 60.89 47.00 x 6.72 x 4.95% 5.52% BERGER 4.93% 15.78% 10.42 3.02 7.25 x 0.73 x 4.21% 0.00% ETERNA 4.89% -35.23% 1.93 2.52 7.50 x 0.51 x 3.62% 0.00% UAC-PROP 4.88% -14.00% 8.17 14.04 6.38 x 0.65 x 5.91% 0.00% Top 10 Underperformers Ticker WTD Return YtD Return Price (NGN) Current valuation metrics and statistics MCap [NGN'bn] P/E -TTM P/BV RoE Dividend Yield EVANSMED -15.19% -70.61% 0.67 0.49 3.58 x 0.14 x 3.90% 0.00% PORTPAINT -9.51% 0.00% 3.90 1.56 23.45 x 1.87 x 11.50% 0.00% JBERGER -9.26% -34.06% 40.00 52.80 9.70 x 2.79 x 4.76% 6.75% ZENITHBANK -9.11% 0.00% 16.46 516.79 7.62 x 1.53 x 9.64% 10.63% COSTAIN -6.67% -24.32% 0.56 0.61-1.25 x 0.28 x -15.17% 0.00% COSTAIN -6.67% -24.32% 0.56 0.61-1.25 x 0.28 x -15.17% 0.00% DANGFLOUR -4.93% -40.66% 2.70 13.50-3.62 x 2.70 x -21.74% 0.00% NEIMETH -4.90% 24.36% 0.97 1.52-102.70 x 0.74 x -0.72% 0.00% SCOA -4.81% -10.92% 4.16 2.70 28.81 x 1.08 x 3.76% 18.03% CAVERTON -4.75% -8.02% 3.21 10.76 0.00% 8

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