United Capital Researc I Nigeria I Markets Te bulls take a breater...as oil prices tumble to $45.5/b Renewed pressure on oil price (down 3.9% w/w) triggered a bearis sentiment in te local equities market in te week to 23 rd of June 2017. Despite a modest start to te week, te domestic bourse retreated for te first time in four weeks as te All Sare Index (ASI) tumbled -5.0% w/w to settle at 32,122.1 points, trimming YTD return to +19.5% as market capitalization pared N583.9 to settle at N11.1bn. In tis past week, system liquidity opened N158.9bn sort. Te first trading session was welcomed by an OMO issuances wic moderated system liquidity by N21.5bn, exacerbating te stringency of te system liquidity. Consequently, Money Market (MM) rates were pressured as te OBB and ON rose by 34.8% and 37.7%, to settle at 37.7% and 53.3% in tat order. Despite te provision of funding for June 2017 bond auction wic eld mid-week, MM rates declined furter to close te session at 18.0% (OBB) and 19.0% (ON). Towards te end of te week, MM rates trended in line wit liquidity dynamics as te OBB (8.5%) and ON (9.1%) srunk amid N202.6bn maturity wic it te system. Closing te week, MM rates inced iger to 8.7% and 9.5% (OBB and ON) respectively, albeit decline of 42.8% and 39.5% w/w. Going into te new oliday-sortened week, we see mixed sentiments dictating proceedings. Overall, we expect players to begin to take position aead of te upcoming H2-2017 earnings session. We see a mixed close for te FI markets tis week, wit yields most likely reflecting system liquidity dynamics amid te CBN s intervention at bot forward and spot FX market. Nigeria Asset Class Returns (YTD, W-o-W) Equities Bonds FX Oil Price 30.0% 24.6% 25.0% 19.5% 20.0% Equities: NSE Market Cap. (N bn): 11,107.9 NSE Market Cap. ($ mn): 32,122.1 YTD Return (%): 19.5% W-o-W Return (%): -5.0% P/E (x): 14.9x Fixed Income: Overnigt: 8.5% Open Buy-Back: 9.1% Treasury Bills 90 days: 18.8% 180 days: 19.4% 360 days: 22.6% Bonds 3-Year: 16.4% 10-Year: 15.9% Excange Rate (NGN/USD): N 366.5 W-o-W Return: 0.1% 15.0% 10.0% 5.0% 0.0% 0.0% 0.1% -5.0% -10.0% -5.0% -2% -3.8% -15.0% -20.0% -25.0% -20% 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; Bond Access Bond Index 1
United Capital Researc I Nigeria I Markets Global and Macro-economic Market update Mix sentiment drives global stocks Equity bencmarks indices in te US markets rallied in te prior week as biggest banks in te US passed te Fed stress test. Te tec-laden NASDAQ advanced +1.9%, S&P 500 traded +0.3% iger and te Dow Jones Industrial Average inced iger by +0.1%. A rebound in Tec and Energy stocks in te cause of te week also contributed to te rally. However, European markets closed lower as lower amid socio-political anxieties, ongoing Brexit negotiation and continued incidence of terrorism in te UK. Te UK FTSE declined -0.5%, German DAX dropped -0.2% and pan-european STOXX 600 slipped -0.3%. Te France CAC was te only outlier, up +0.1% as President Macron's party won a clear parliamentary majority at te polls. Amid sustained downward pressure on oil prices, performance across te BRICS classification closed mixed. Te Russian RTS (-0.6%) and Brazilian IBOV (-0.7%) ended te week lower. On te oter and, India s BSE Sensex (+0.3%), Sout Africa s JSE (+1.3%) and Cina s SCHOMP (+1.1%) saw a bullis week. 2
Value Traded N'bn United Capital Researc I Nigeria I Markets Domestic Financial Markets Review and Outlook Equities: Jitters as oil prices tumble to $45.5/b Renewed pressure on oil price (down 3.9% w/w) triggered a bearis sentiment in te local equities market in te week to 23 rd of June 2017. Despite a modest start to te week, te domestic bourse retreated for te first time in four weeks as te All Sare Index (ASI) tumbled -5.0% w/w to settle at 32,122.1 points, trimming YTD return to +19.5% as market capitalization pared N583.9 to settle at N11.1bn. 40,000 35,000 30,000 25,000 20,000 15,000 Nigeria All Sare Index and Market Turnover Turnover All Sare Index 30-Day Moving Avrg 18 16 14 12 10 8 6 4 2 - TOP GAINERS PRICE (N) % CHANGE NEIMETH 1.0 44.1% ASHAKACEM 17.1 21.4% LIVESTOCK 1.1 20.9% CONOIL 44.6 17.3% BERGER 7.1 15.4% TOP LOSERS PRICE (N) % CHANGE TRANSCORP 1.4-23.1% JAIZBANK 0.7-18.0% FIDSON 2.8-16.7% MANSARD 2.2-15.8% DIAMONDBNK 1.1-15.0% Source: NSE, United Capital Source: NSE, United Capital Financials [Banking (-6.6%) & Insurance (-6.0%)], Industrial Goods (-4.7%), Consumer Goods (-3.8%) and te Oil and Gas (-2.9%) indices all trended downbeat as players took profit in ZENITH (-11.2%), UBA (-4.2%), GUARANTY (-3.4%), FBNH (-14.5), ACCESS (- 11.0%), MANSARD (-15.8%), DANGCEM (-4.6%), WAPCO (-9.2%), PZ (-5.0%), NESTLE (- 0.8%), NB (-7.4%), OANDO (-13.4), MOBIL (-6.1%), FO (-10.0%), TOTAL (-3.9%) and MOBIL (- 6.1%). Weaker Investor sentiment was furter reflected in market breadt wic came in at 0.5x (relative to 0.9x in te previous week). 19 stocks appreciated against 39 decliners. Activity level closed te week weaker as average value traded inced lower by 23.3% w/w to N4.9b and average volume edged lower by 15.6% w/w to 462.2m units. Going into te new oliday-sortened week, we see mixed sentiments dictating proceedings. Overall, we expect players to begin to take position aead of te upcoming H2-2017 earnings session. 3
United Capital Researc I Nigeria I Markets Money Market: Rates to stay moderate amid FAAC allocation credit In tis past week, system liquidity opened N158.9bn sort. Te first trading session was welcomed by an OMO issuances wic moderated system liquidity by N21.5bn, exacerbating te stringency of te system liquidity. Consequently, Money Market (MM) rates were pressured as te OBB and ON rose by 34.8% and 37.7%, to settle at 37.7% and 53.3% in tat order. On Tuesday, an improvement in te liquidity level, despite outflow of N11.3bn from te system on te back of OMO auction, caused OBB and ON to decline marginally to 29.5% and 34.5% respectively. Despite te provision of funding for June 2017 bond auction wic eld mid-week, MM rates declined furter to close te session at 18.0% (OBB) and 19.0% (ON). Towards te end of te week, MM rates trended in line wit liquidity dynamics as te OBB (8.5%) and ON (9.1%) srunk amid N202.6bn maturity wic it te system. Closing te week, MM rates inced iger to 8.7% and 9.5% (OBB and ON) respectively, albeit decline of 42.8% and 39.5% w/w. MM rates are anticipated to open at current levels next week amid anticipated FAAC allocation credit. FI market: yields inced iger on profit-booking across board In te FI space, average yield across maturities inced iger w/w. Specifically, average discount rate on T-bills rose 1.3% w/w to close te week at 20.4%. In te same vein, average bonds yield increased by 0.1% w/w closing te week at 16.2% as investors provided funds for te primary market auction wic eld mid-week. Te CBN issued T-Bills wort N28.1bn, N55.1bn and N50.0bn for 91, 182 and 364days maturities at spot rates of 13.5%, 17.5% and 18.6% respectively. We see a mixed close for te FI markets tis week, wit yields most likely reflecting system liquidity dynamics amid te CBN s intervention at bot forward and spot FX market. Currency: Naira appreciates furter at te I&E window At te spot market, te naira traded flat at N305.0USD. Parallel market rate appreciated by 14bps to 366.5/USD. Similarly, te I&E rate defied pressure on oil prices in te global market, as te local unit furter appreciated to N362.2/USD (vs. N365.3/USD in te previous week). Oil prices touced $45.5/b from $47.3/b amid rising output level. We expect appreciation or oterwise of naira will remain tied to te spate of CBN's intervention in te spot and forward markets as well as te improvement in te I&E FX window. 4
Stock Recommendations for te Week Ticker SHO (bn Units) MCap (N' bn) Source: Company filings, NSE, United Capital UR= Under Review Prices as at Friday 23 June 2017 United Capital Researc I Nigeria I Markets Mcap ($'mn) Financials 197.94 Current Price(N) Target Price(N) Upside/(Dow nside) Rating* P/E(x) Div Yield(%) ACCESS 22.9 202.9 62055.1 8.9 6.0-32% SELL 5.3 13.9% DIAMONDBNK 23.2 26.2 8018.2 1.1 1.6 44% BUY 0.6 3.5% FBNH 35.9 211.5 64672.3 5.9 5.0-15% SELL 3.0 1.9% FCMB 19.8 23.6 7206.4 1.2 1.9 60% BUY 1.3 11.2% GUARANTY 29.4 1014.3 310223.7 34.5 30.4-12% SELL 10.3 9.0% ZENITHBANK 31.4 638.4 195243.0 20.3 17.3-15% SELL 6.4 11.7% CUSTODYINS 5.9 20.7 6315.8 3.5 5.2 49% BUY 4.5 2.9% Non-Financials DANGCEM 17.0 3325.2 1017012.4 195.6 192.8-1% HOLD 11.6 5.0% DANGSUGAR 12.0 108.4 33141.9 9.0 7.9-13% SELL 10.5 6.2% FLOURMILL 2.6 72.1 22059.1 27.7 23.7-15% SELL 26.7 9.6% GUINNESS 1.5 107.3 32802.4 71.5 71.0-1% HOLD 13.4 2.5% MOBIL 0.4 99.2 30340.3 248.0 165.3-33% SELL 12.9 4.7% NASCON 2.6 24.3 7419.3 9.3 8.0-14% SELL 7.4 8.2% NESTLE 0.8 720.0 220214.4 900.0 714.3-21% SELL 26.7 2.1% PZ 4.0 83.6 25569.1 20.9 16.2-22% SELL 9.9 0.8% SEPLAT 0.5 230.0 70345.5 460.0 277.3-40% SELL 4.7 7.8% WAPCO 3.0 145.8 44592.9 48.6 61.4 26% BUY 5.4 3.5% UACN 1.9 33.1 10123.0 17.4 22.9 31% BUY 3.2 6.3% TOTAL 0.3 81.6 24958.3 272.0 302.1 11% BUY 19.6 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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