Investment Guide for the Week

October 16, 2015 Investment Guide for the Week Negative sentiments dominate trading activities as Market Index sheds 1.10% WoW 1

Negative sentiments dominate trading activities as Market Index sheds 1.10% WoW The Nigerian equities bourse sustained the somber mood from the previous week, as the All Share Index (NSEASI) dipped further by 1.10% to 29,834.21pts even as market return for the year dropped to -13.92%. In line with general market sentiments, volume and value of transactions diminished by 31.69% and 15.53% accordingly, with 30 stocks recording price gains relative to 39 decliners. OKOMUOIL recorded the highest price appreciation this week, advancing by 24.32% to NGN35.63. NASCON, MANSARD, FO and ZENITHBANK, also featured on the gainers list, after recording price gains of 10.90%, 10.74%, 9.81% and 7.42% respectively. Conversely, ACCESS (-9.23%), LEARNAFRICA (-8.70%), UNITYBNK (-7.41%), HONYFLOUR (-7.27%), and OANDO (-7.00%) populated the decliners chart. The Equities market also witnessed the inflow of Q3:2015 results from FO, TRANSEXPR, UBA, TRANSCORP and CADBURY among others, while MRS and SEPLAT announced scheduled board meetings that will herald the release of their scorecards in the coming weeks. AIRSERVICE, on the other hand, notified the investing public of the appointment of Mr Laurent Moussard as the new Chief Executive Officer (CEO) of Airline Services & Logistics PLC, effective from November 2 nd 2015. Chart 1: Movement in FX reserves, NGN/USD pairing & Brent crude oil price Foreign Reserves NGN/USD BRENT NSEASI USD'bn 1.4 50 1.3 45 1.2 1.1 40 1.0 35 0.9 0.8 30 0.7 25 0.6 0.5 20 0.4 15 Dec-14 Jan-15 Jan-15 Mar-15 Apr-15 May-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Source: CBN, Bloomberg, Meristem research 2

Although Q3:2015 performances so far were mixed, the stock market appeared to have responded more to the impressive results releases, as the bourse closed positive on the last two trading days of the week. We anticipate more earnings scorecards and envisage that these news inflow will determine the direction of trading in the coming week. In this report, we review events in the economy, laying emphasis on the performance of different segments of the financial market, while presenting our expectations for the coming week. Fixed Income instruments sustain rally Rates in the interbank market consolidated on prior week s declines during the earlier trading days of the week. This run was however short lived, as rates advanced midweek despite the OMO repayment of NGN283.66bn that hit the financial system. The average rates for NIBOR and Money market instruments pegged at 11.74% and 1.00%, following week-to-date changes of -0.29% and -0.80% accordingly. The Treasury bill Instruments enjoyed a predominately bullish run during the week, as average yield across T-bills declined by 1.44% WoW to close at 8.06%, down from 9.50% in the prior week. Demand for the FGN Bond instruments was concentrated at the shorter end of the yield curve, as the MAY-2029, NOV-2029 and JUL-2030 instruments endured sell pressure in most trading days of the week. Average offer yield within the bond space, measured at 13.90% at the end of the week. The Central Bank of Nigeria (CBN), at the beginning of the week intervened in the market at a clearing rate of NGN196.98/USD, and at NGN197/USD by the end week. Despite this push, the domestic currency advanced in value by 0.43% WoW. The current year-to-date return pegs at -6.53%. Agric Sector: OKOMUOIL leaps by 24.32% The agric sector witnessed quite an exciting performance this week. The sector advanced by 10.34% WoW to drive the Year-to-Date return to 32.05% as measured by our MERI-AGRI index. Sector breadth (0.50x) tilted in favour of decliners as only one stock appreciated in value as against two (2) stocks that declined in their share prices during the week. OKOMUOIL, the only sector advancer, was actively traded on in the week as it appreciated by 24.32% to close at NGN35.63 on Friday. Conversely, LIVESTOCK led the 3

decliners shedding 4.07% to close at NGN1.65. PRESCO followed closely with a price decline of 1.61% to NGN30.50. ELLAHLAKES and FTNCOCOA both traded flat. We opine that the sector might witness some profit taking especially on the sole gainer, given its impressive run during the week. We therefore advise discerning investors to trade with caution. Banking sector: Sector gains as first set of Q3 results filter in The pressure on banking sector stocks eased during the week, an assertion denoted by the index advancing by 1.51% to bring the YtD return of our MERI-BNK index to -9.51%. The advancers were led by ZENITHBANK, FCMB, SKYEBANK and GUARANTY, which each recorded respective gains of 7.42%, 4.78%, 2.73% and 0.77%. On the flip side, the decliners were led by ACCESS, UNITYBNK, UBN and FBNH, after the tickers recorded declines of 9.23%, 7.41%, 4.84% and 4.76% correspondingly. UBA released its Q3:2015 numbers during the week, which showed that the Group remains on course to record a good FY2015 financial performance. UBA recorded yearon-year growths of 65.46%, 34.84%, and 44.39% in Gross Earnings, Profit-Before-Taxes, and Profit-After-Taxes accordingly. While our expectations regarding general performance for Q3:2015 remain tempered, we anticipate that some of the sector s companies may outperform (i.e. ACCESS and ZENITHBANK), and thus enjoy some rally in prices despite the depressed state of the market currently. Consumer Goods: CADBURY records earnings decline of 98.27% The sector, as measured by the NSEFBT10 index, recorded a week-to-date return of - 1.73%, as year-to-date return pegged at -15.12%. NASCON, UNILEVER, 7UP, DANGFLOUR and DANGSUGAR were the sector s gainers, recording 10.90%, 1.08%, 0.51%, 0.39% and 0.31% WoW gains accordingly. The decliners chart featured HONYFLOUR (-7.27%), FLOURMILL (-5.91%), VONO (- 4.95%), PZ (-4.00%) and VITAFOAM (-3.60%). CADBURY released its Q3:2015 scorecard which showed 9.61% and 26.47% YoY declines in revenue and gross profit. Similarly, earnings for the period declined by 98.27% YoY. Subsequetly, the counter declined by 0.77% to NGN22.00 The results released during the week were in line with our expectations, given the pressure on disposable income and the high cost of production challenges which have 4

plagued the sector. We expect investors to react accordingly as more earnings are released into the market. We therefore advise cautious position taking given our outlook on pending scorecards. Healthcare Sector: We anticipate mixed scorecards The sector reversed the previous week s performance, declining by 0.05% to drag YtD return to -7.78% as measured by our MERI-HLTH Index. Sector breadth (0.67x) skewed in favour of decliners as two (2) stocks appreciated in share price, while three (3) stocks pared in value during the week. NEIMETH consolidated on previous week s performance to emerge the top gainer for the week, as it advanced by 1.98% to close at NGN1.03. EVANSMED also appreciated by 1.67%, reversing the previous week s trend to peg its price at NGN0.61. On the flip side, NIG-GERMAN topped the laggards after several weeks of trading flat, declining by 4.84% in the week. In the same vein, FIDSON and MAYBAKER consolidated on the prior week s bearish run paring by 4.62%% and 3.31% respectively to settle share prices at NGN3.10 and NGN1.75 respectively. All other counters traded flat in the week. The mood in the sector has remained negative. However, as more quarterly results filter in, we expect stock performances to be largely driven by their scorecards, which we anticipate would be mixed. Therefore, we imagine some position taking on some sector stocks ahead of the earnings releases. Industrial Goods: Sector maintains bearish mood Based on our Meri-Industrial sector index, the industrial goods sector closed 1.45% down at the end of the week, as just two stocks recorded improvements in their trading prices. ASHAKACEM was the top gainer for the week, having appreciated by 2.63% WoW to close at NGN 23.00. The other advancer was WAPCO, which appreciated in price by 0.85%. CUTIX was the week s worst decliner, shedding 5.00% of its value to close at NGN1.71, while PORTPAINT, DANGCEM, CCNN, and BERGER depreciated by 4.85%, 3.59%, 2.91%, and 0.29% respectively to make up the losers chart. The industrial goods sector remained pressured during the week, owing generally to negative market sentiments and unavailability of news to spur trading activities. We still await Q3:2015 earnings releases from the sector companies, which we believe 5

will determine the direction of trades in the coming weeks. Our general outlook for the sector remains positive nonetheless. Insurance Sector: Sector heavyweights stage a comeback Insurance sector breadth (3.00x) skewed in favour of advancers as 3 stocks advanced against the lone decliner. Subsequently, the sector advanced by 2.81% week on week, as measured by the NSEINS10 index, thereby pegging the year to date return at -6.09%. The sector heavyweights, MANSARD and CUSTODYINS, upturned prior week s losses, after the respective counters appreciated by 10.74% and 4.48%. AIICO also featured on the gainers chart, having appreciated by 1.12% WoW. Conversely, following prior week s gains, a significant level of profit taking ensued on NEM, as the ticker pared by 2.86% WoW to close at NGN0.68. While the market awaits the Q3:2015 performance scorecards of insurance companies, we believe that the general market mood will dictate the sector s performance in the coming week, as we are of the opinion that the earnings releases of the companies might not be substantial enough to create ample rally on the sector counters. Oil & Gas Sector: FO grows Q3:2015 PAT by 6.69% YoY Positive investor bias on the sector stocks during the week resulted in a reversal of trend for the oil & gas sector. The sector as gauged by the NSEOILG5 index advanced by 3.75% WtD. The sector breadth settled at 1.5x, as there were three (3) advancers and two (2) decliners. Other stocks traded flat in the week. FO advanced the most (+9.81% WoW) to settle at NGN280.00. SEPLAT and MOBIL followed suit, gaining 2.62% and 2.02% accordingly. OANDO and TOTAL were the only decliners during the week, after the respective counters pared by 7.00% and 3.16% WoW. Forte Oil Plc. (FO) recently released its Q3:2015 earnings statement, where it recorded a Year-on-Year decline of 25.26% in revenue to NGN91.62bn. FO moderated its cost decently, as cost-to-sales waned by 3.32% YoY to 85.83%. The company also grew other incomes by 216.25% to NGN2.67bn. Consequently, profit after tax advanced by 6.69% YoY to peg at NGN4.29bn. We anticipate more earnings releases from companies in the sector in the coming weeks, and we believe company performances will shape investors sentiments going forward. 6

Services sector YtD settles positive at 0.79% The services sector rebounded during the week to close in the green zone. The sector advanced by 1.67% WoW to settle the Year-to-Date return at 0.79% as measured by the MERISER index. Sector breadth (3.50x) skewed strongly in favour of advancers as seven (7) stocks increased in value, against two (2) stocks that declined. RTBRISCOE led the outperformers appreciating by 7.14% to close at NGN 0.60. Other top performers were REDSTAREX (6.78%), ACADEMY (4.84%), TRANSEXPR (4.63%), NAHCO (4.41%), ABCTRANS (3.77%) and IKEJAHOTEL (0.58%). Conversely, LEARNAFRICA and CAVERTON emerged as the decliners for the week shedding (- 8.70%) and (-4.98%) respectively, while others traded flat. The resilience of the sector could be tested in the coming week, as profit taking may likely ensue. In addition, investors should be conscious of the Q3:2015 corporate releases, as we expect that these figures will likely dictate the mood in the sector. 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 OKOMUOIL 24.32% 40.55% 35.63 33.99 15.22 x 1.33 x 2.84% 0.70% NASCON 10.90% 24.28% 7.73 20.48-193.71 x 3.42 x 7.43% 6.47% MANSARD 10.74% -16.25% 2.68 28.14 12.49 x 1.62 x 3.15% 1.12% FO 9.81% 22.86% 280.00 364.69 48.57 x 5.74 x 11.82% 0.89% ZENITHBANK 7.42% -4.89% 17.51 549.75 7.62 x 1.53 x 9.64% 9.99% RTBRISCOE 7.14% -22.08% 0.60 0.71-11.66 x 0.50 x 0.40% 0.00% REDSTAREX 6.78% 7.87% 4.25 2.51 9.17 x 1.55 x 5.30% 8.24% ACADEMY 4.84% -44.92% 0.65 0.33 14.19 x 1.04 x 7.31% 0.00% FCMB 4.78% -12.05% 2.19 43.37 5.07 x 0.53 x 6.49% 11.42% TRANSEXPR 4.63% -8.13% 1.13 0.22 4.39 x 0.89 x 20.27% 8.85% 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 ACCESS -9.23% -28.48% 4.72 108.01 5.81 x 0.88 x 4.55% 7.42% LEARNAFRCA -8.70% -37.78% 0.84 0.65 12.33 x 0.35 x 2.84% 14.29% UNITYBNK -7.41% -70.00% 1.50 17.53-1.00 x 0.54 x 20.14% 0.00% HONYFLOUR -7.27% -26.30% 2.55 20.22 10.17 x 1.66 x 10.50% 1.96% OANDO -7.00% -42.27% 9.30 111.92 22.60 x 1.09 x 3.86% 0.00% FLOURMILL -5.91% -47.19% 20.70 54.32 27.53 x 1.78 x 6.97% 10.14% CUTIX -5.00% 31.54% 1.71 1.51 5.61 x 1.42 x 17.79% 7.02% ETRANZACT -5.00% -15.93% 2.85 11.97 59.08 x 3.47 x 1.20% 1.75% CAVERTON -4.98% -12.61% 3.05 10.22 0.00% VONO -4.95% -14.29% 0.96 0.54 1.04 x 0.65 x -0.68% 0.00% 8

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