United Capital Researc I Nigeria I Markets Equities give up gains as tigt system liquidity pressure rates Tis past week saw te equities market pare te previous week s gain amid cautious trading as te FY-16 earnings season gradually came to a close. As suc, at 25,510.01 points, te ASI closed te week 0.9% lower, extending YTD losses to -5.1%. Te money market opened N122.6bn long in te past week, but debit of te previous week s T-bills auction as well as funds provisioning for bond auction in te course of te week furter tigtened liquidity despite an inflow of N80.0bn maturing bills. AT te end of te week, te Open Buy Back (OBB) and Overnigt (O/N) rates closed iger w/w, at 60.8% and 66.0% respectively vs.14.7% and 15.3% in te previous week. Tis week, we expect speculative trading around Q1-2017 earnings numbers to sway market momentum sideways. Wile money market rates will likely ease marginally tis week, we expect tem to remain elevated as investors sift gaze and make provision for te T-bills re-issuance tat will take place in te course of te week. We see a mixed-to-bearis week for te FI market, wit yield trend likely to be tied to te actions of te Apex bank wit regards to te pace of OMO announcements as well as te FX market, in addition to te PMA mid-week. Nigeria Asset Class Returns (YTD, W-o-W) Equities: NSE Market Cap. (N bn): 8,826.8 NSE Market Cap. ($ mn): 28,836.2 YTD Return (%): -5.1% W-o-W Return (%): -0.9% P/E (x): 12.2x Fixed Income: Overnigt: 66.0% Open Buy-Back: 60.8% Treasury Bills 90 days: 19.9% 180 days: 20.4% 360 days: 22.5% Bonds 3-Year: 16.1% 10-Year: 15.9% 20.0% 15.0% 10.0% Equities Bonds FX Oil Price 16.3% Excange Rate (NGN/USD): N407.0 W-o-W Return: -1.8% 5.0% 1.3% 0.0% -5.0% -5.1% -0.9% -0.4% -3% -1.8% -2% -10.0% YtD Return w/w Return 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: Access Bond Index Bond 1
United Capital Researc I Nigeria I Markets Macro-economic market update Global market closes lower on political stress Te U.S equity market posted its second straigt weekly decline to close te olidaysortened week, as investors priced in weak earnings. Additionally, tensions wit Syria, Nort Korea, and Russia, along wit a bombing tat targeted ISIS on Friday, prompted some unease in te markets. Overall, Te Dow Jones Industrial Average DJIA, fell by 0.7%, to close at 20,453.25. Similarly, te S&P 500 index SPX, dropped 0.7%, to 2,328.95, as all 11 of te index s sectors finised lower, wit energy and financial stocks among te largest decliners, down 1.8% and 1.3%, respectively. On te domestic scene, te National Bureau of Statistics (NBS) released te inflation rate for te mont of Marc 2017. Te Headline CPI rose by 17.3% year-on-year (y/y), from 17.8% in February (Bloomberg Consensus: 16.6% and United Capital: 16.7%). On a monton-mont (m/m) basis, te eadline CPI rose by 1.7%, faster tan 1.5% in February. For te key sub-components, Food inflation declined to 18.4%, from 18.5% in February 2017, toug rising faster m/m by 2.2% versus 2.0% in February. In a similar vein, core inflation fell to 15.4% y/y from 16.0% y/y in February, albeit wit anoter faster movement m/m (1.3% in Marc vs. 1.1% in February). According to te NBS, increases were recorded in all te divisions wic contribute to te Headline index. Te major divisions responsible for accelerating te pace of te increase in te eadline index were Housing, Water, Electricity, Gas and Oter Fuel, Education, Food and Alcoolic Beverages, Cloting and Footwear and Transportation Services. For Food index, rate of price increases in all major food group contributed to te increase. However, te Soft Drinks, Fruits, Coffee, Tea and Cocoa items recorded te slowest pace of increase. Dwelling, Cloting materials, Stationaries and Energy related prices, saw te largest increases reflecting in te Core sub-index. Tis is te second consecutive mont of a decline in te eadline CPI on a y/y basis, indicative of te impact of relatively ig base prices over Q1-16. However, te increased pace of m/m rise in te CPI suggests tat te appreciation in te parallel FX rate in te mont of Marc is yet to ave a pass-troug on prices (imported Food CPI was up 1.5% m/m in Marc vs 1.4% in February). Wile we still expect a ig base effect from te elevated prices in 2016 to temper te pace of y/y increases in te CPI going forward, te market is likely to interpret tis recent decline in eadline inflation as a statistically induced improvement rater tan a fundamental decline in inflationary pressure, especially given te strong m/m movements. Tat said, we ave penciled in anoter decline in te eadline CPI to 17.1% in April. 2
Value Traded N'bn United Capital Researc I Nigeria I Markets Domestic Financial Markets Review and Outlook Equities: ASI pares gains, posting -0.9% w/w Tis past week saw te equities market pare te previous week s gain amid cautious trading as te FY-16 earnings season gradually came to a close. As suc, at 25,510.01 points, te ASI closed te week 0.9% lower, extending YTD losses to -5.1%. Nigeria All Sare Index and Market Turnover 40,000 35,000 30,000 25,000 20,000 15,000 Turnover All Sare Index 30-Day Moving Avrg Source: NSE, United Capital 18 16 14 12 10 8 6 4 2 - TOP GAINERS PRICE (N) % CHANGE FIDELITYBK 1.0 21.4% CILEASING 0.6 14.3% TRANSCORP 0.8 5.3% FIDSON 1.0 5.3% INTBREW 17.5 4.9% TOP LOSERS PRICE (N) % CHANGE DANGSUGAR 6.0-14.3% FCMB 1.0-12.2% MOBIL 324.0-10.0% JAIZBANK 1.1-8.7% DANGFLOUR 4.2-7.5% Source: NSE, United Capital Sectorial performance was broadly bearis as all sector indices closed in te red zone. Te Oil and Gas sector bore te brunt of te sell-offs wit sares of MOBIL (-10.0%) and OANDO (-5.3%) leading declines. Similarly, te Consumer Goods (-1.6%), Industrial Goods (-1.6%), Insurance (-0.9%) and Banking (-0.4%) sectors were depressed by price depreciation in DANGSUGAR (-14.3%), DANGFLOUR (-7.5%), UNILEVER (-5.0%), ASHAKACEM (-5.0%), WAPCO (-3.2%), AFRIPRUD (-1.3%), FCMB (-12.17%) and GUARAN- TY (-1.2%). Wen compared to previous week, market sentiment was downbeat as market breadt came in at 0.4x (relative to 1.6x in te previous week) as 13 stocks appreciated against 37 decliners. However, activity level surged as te average value traded saw a spike of 151.2% w/w to N1.6b, just as te average volume traded surged by 223.6% w/w to 228.6m units. Tis week, we expect speculative trading around Q1-2017 earnings numbers to sway market momentum sideways. 3
United Capital Researc I Nigeria I Markets Money Market: Lower liquidity drives money market rates iger w/w Te money market opened N122.6bn long in te past week. However, debit of te previous week s T-bills auction as well as funds provisioning for bond auction in te course of te week furter tigtened liquidity tereby pusing iger key money market rates despite an inflow of N80.0bn maturing bills. AT te end of te week, te Open Buy Back (OBB) and Overnigt (O/N) rates closed iger w/w, at 60.8% and 66.0% respectively vs. 14.7% and 15.3% in te previous week. Wile money market rates will likely ease marginally tis week, we expect tem to remain elevated as investors sift gaze and make provision for te T-bills re-issuance tat will take place in te course of te week. FI market bearis wit focus on bond auction and inflation expectation In line wit recent trend, bearis run in te fixed income and Treasury bills market continued in te past week. For T-bills, average yield across maturities was up 0.8% to 21.0%, as a muc tigter system liquidity aided broad based sell offs across tenors. Average yields at te Bond market also increased by 30bps to 16.1%, as investors provided funds for te primary market auction wic eld mid-week. At te Bond auction, te Debt management office (DMO) issued N35.0bn, N50.0bn and N50.0bn of te JUL 2021, MAR 2027 and APR 2037 (New issue) bond instruments wit marginal rates coming in at 15.99%, 16.24% and 16.25% respectively. However, contrary to recent primary market auction patterns, te total amount offered was undersubscribed wit te exception of te APR 2037 bond, wic was oversubscribed by N21bn. Te DMO under allotted te JUL 2021 and MAR 2027 instruments by 5.9% and 3.5% respectively just as te APR 2037 bond was under allotted by 14.8%. We see a mixed-tobearis week for te FI markets tis week, wit yield trend likely to be tied to te actions of te Apex bank wit regards to te pace of OMO announcements as well as te FX market, coupled wit te PMA sceduled for midweek. Strong demand continues to pressure te naira At te spot market, te naira traded flat at N306.0/USD in te past week, owever, te parallel market saw te domestic currency depreciate furter by 1.8% to N407/USD. Oil prices rose to $55.9pb from US$55.2pb in te previous week, despite te rise in te U.S. oil rig count for te 13t straigt week to a total of 683, te igest in two years. In te week aead, we expect te naira to dance to te tune of CBN's intervention in te spot and forward markets. 4
Stock Recommendations for te Week Ticker SHO (bn Units) MCap (N' bn) Source: Company filings, NSE, United Capital UR= Under Review Prices as at Tursday 13 April 2017 United Capital Researc I Nigeria I Markets Mcap ($'mn) Financials 197.94 Current Price(N) Target Price(N) Upside/(Dow nside) Rating* P/E(x) Div Yield(%) ACCESS 22.9 141.3 43249.8 6.2 6.0-3% HOLD 3.7 13.9% DIAMONDBNK 23.2 19.5 5965.3 0.8 1.6 94% BUY 0.4 3.5% FBNH 35.9 114.9 35164.8 3.2 5.0 56% BUY 1.6 1.9% FCMB 19.8 20.0 6121.4 1.0 1.9 88% BUY 1.1 11.2% GUARANTY 29.4 726.2 222283.7 24.7 30.4 23% BUY 7.4 9.0% ZENITHBANK 31.4 452.8 138598.4 14.4 17.3 20% BUY 4.5 11.7% CUSTODYINS 5.9 18.9 5779.2 3.2 5.2 63% BUY 4.1 2.9% Non-Financials DANGCEM 17.0 2788.0 853406.8 164.0 192.8 18% BUY 9.7 5.0% DANGSUGAR 12.0 72.0 22039.2 6.0 7.9 32% BUY 7.0 6.2% FLOURMILL 2.6 46.8 14317.5 18.0 23.7 32% BUY 17.3 9.6% GUINNESS 1.5 90.0 27549.0 60.0 71.0 18% BUY 11.3 2.5% MOBIL 0.4 129.6 39671.8 324.0 165.3-49% SELL 16.9 4.7% NASCON 2.6 22.2 6804.6 8.6 8.0-6% HOLD 6.8 8.2% NESTLE 0.8 600.0 183660.0 750.0 714.3-5% HOLD 22.2 2.1% PZ 4.0 56.0 17141.6 14.0 16.2 16% BUY 6.6 0.8% SEPLAT 0.5 195.0 59689.5 390.0 277.3-29% SELL 4.0 7.8% UNILEVER 3.8 126.4 38675.7 33.3 27.8-16% SELL 21.5 3.9% WAPCO 3.0 138.0 42241.8 46.0 61.4 33% BUY 5.1 3.5% UACN 1.9 28.3 8665.7 14.9 22.9 54% BUY 2.7 6.3% TOTAL 0.3 81.0 24794.1 270.0 302.1 12% BUY 19.4 6.3% 5
United Capital Researc I Nigeria I Markets 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 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 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
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