United Capital Researc I Nigeria I Markets ASI extends w/w bearis trend down 1.3%w/w Te domestic equity bencmark index depreciated furter in te week to 25t May 2018, falling sarply to a 4-mont low after sedding 2.8%w/w to close at 39,323.6points. Tis appened despite te Monetary Policy Committee s (MPC) vote to keep all policy rates constant and te publication of Q1-18 GDP report released during te week. Te market was broadly bearis trougout te week wit bearis sentiments dominating on all five trading days of te week. Market capitalization diminised 548.5bn to N14.1tn wile YTD return sank to 2.8%. Compared to te preceding week, last week s liquidity profile was more robust as money market rates averaged 15.7% (Previous week: 43.8%). Te weeks liquidity profile was kept afloat by OMO maturities to te tune of 267.0bn, despite provisioning s made by banks to cover teir wolesale FX bids and two OMO auctions carried out to te tune of N150.5bn at an average stop rate of 11.8%. Average T-bill yield increased by 99bps w/w to close te week at 13.3% wile average bond yield inced lower by 5bps to end te week at 13.4%. Also, te Nigerian naira depreciated against te dollar across all foreign excange windows we track. Tis week, we anticipate bargain unting activities even as tecnical indicator (RSI) over around te oversold region. In terms of liquidity profile, N305.6bn maturing bills are expected to it te system tis week (N99.2bn from primary issuance maturities and N206.4n from OMO issuance maturities). Te CBN is also sceduled to old its bi-montly NTB auction wit a total offer amount of N49.6bn. Nigeria Asset Class Returns (YTD, W-o-W) Equities Bonds FX Oil Price 20.0% 15% 15.0% Equities: NSE Market Cap. (N bn): 14,111.9 NSE Market Cap. ($ mn): 46,132.2 YTD Return (%): +2.8% W-o-W Return (%): -2.8% P/E (x): 11.1x Fixed Income: Overnigt: 19.7% Open Buy-Back: 17.2% Treasury Bills 90 days: 12.9% 180 days: 13.1% 360 days: 13.9% Bonds 3-Year: 13.3% 10-Year: 13.6% Excange Rate (NGN/USD): N 365.0 W-o-W Cange: -2.8% 10.0% 5.0% 2.8% 5% 0.0% -5.0% -2.8% -0.2% -1.0% -0.6% YtD Return w/w Return -2.6% 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 Market Review and Outlook Mixed sentiments as political tensions weig Te week ended 25t May 2018 was laden wit geopolitical developments as equities performance remained mixed across te globe. Wile jitters surrounding trade talks between US and Cina appeared to ave simmered, te US/Nort Korea relations went sout as te istoric meeting initially sceduled for 12t June got canceled. Also, new sanctions were laid on Iran. On te oter and, te minutes of te US Fed meeting eld earlier in te mont of May, indicated te possibility of a rate ike in June and less focus on rising inflation. Amidst all of tese, US equity bencmarks recorded modest gains as te NASDAQ, S&P 500 and DJIA appreciated 1.1%, 0.3% and 0.2% respectively. In Europe, investors weiged political uncertainty in Spain and Italy, as well as fears surrounding decline in economic expansion as Eurozone composite PMI fell to its 18-mont low. Consequently, Spanis s IBEX (-2.2%), France s CAC (-1.3%), Pan-European STOXX (-0.9%) and UK s FTSE (-0.6%) declined w/w. All emerging markets indices across BRICS classification trended soutwards except India s SENSEX (+0.2%). Brazil s IBOV (-5.0%), Cina s SCHOMP (-1.6%), Sout Africa s JALSH (-1.5%) and Russia s RTSI (-0.3%) all trailed along. Additionally, global crude prices took a downturn as reports tat OPEC and Russia are preparing to ease output cuts dampened prices. Accordingly, crude prices tumbled 2.6% w/w to $76/barrel. 2
Value Traded N'bn United Capital Researc I Nigeria I Markets Domestic Financial Markets Review and Outlook Equities Market NSEASI at a 4-mont low Domestic equities depreciated furter in te week to end 25t May 2018, falling sarply to a 4-mont low after sedding 2.8%w/w to 39,323.6points. Tis appened despite te Monetary Policy Committee s (MPC) vote to keep all policy rates constant and te publication of Q1-18 GDP report released during te week. Te market was broadly bearis trougout te week wit bearis sentiments dominating on all five trading days of te week. Market capitalization diminised 548.5bn to N14.1tn wile YTD return sank to 2.8%. 50,000 Nigeria All Sare Index and Market Turnover 140 TOP GAINERS PRICE (N) % CHANGE MRS 36.1 21.2% 45,000 40,000 35,000 120 100 80 LAWUNION 1.0 21.0% NIGERINS 0.3 19.0% HMARKINS 0.3 11.1% OKOMUOIL 85.0 8.4% 30,000 60 TOP LOSERS PRICE (N) % CHANGE 25,000 40 ETERNA 5.3-22.3% 20,000 15,000 Turnover All Sare Index 20 - JAPAULOIL 0.2-20.0% DANGFLOUR 8.9-16.8% TRANSCORP 1.3-16.4% AIICO 0.6-16.2% Source: NSE, United Capital Source: NSE, United Capital Performance across sector indices tracked te dull teme in te market as all indices declined except te Agriculture (+3.9%) index due to appreciation in OKOMUOIL (+8.4%). Te Financial Services (-4.9%) index bore te brunt of te declines as declines in FBNH (-12.2%), FCMB (-15.4%) and WEMA (-10.9%) dragged te index. Te Consumer Goods (-3.3%), Oil & Gas (-3.5%) and Industrial Goods (-0.4%) indices trailed along consequent on sell-offs in NB (-6.3%), UACN (-2.9%), ETERNA (-22.2%), OANDO (-12.1%) and DANGCEM (-0.4%). Investor sentiment remained underwelming as market breadt closed at 0.3x (formerly 0.4x); 14 stocks advanced wile 56 declined. Activity levels weakened furter as average volume traded declined 5.8% w/w to 274.3mn units wile average value traded diminised 32.2% w/w to N3.2bn. Tis week, we anticipate bargain unting activities even as tecnical indicator (RSI) over around te oversold region. 3
United Capital Researc I Nigeria I Markets Money Market: Money Market rates ease on OMO inflows Compared to te preceding week, last week s liquidity profile was more robust as money market rates averaged 15.7% (Previous week: 43.8%). Te weeks liquidity profile was kept afloat by OMO maturities to te tune of 267.0bn, despite provisioning s made by banks to cover teir wolesale FX bids and two OMO auctions carried out to te tune of N150.5bn at an average stop rate of 11.8%. On Wednesday, te Debt Management Office (DMO) conducted its montly auction of FGN bonds, werein it raised a total of N50.5bn compared to te 70.0bn it was seeking to raise. Te 2023 and 2025 tenors were grossly undersubscribed at 0.4x and 0.7x respectively, wile te 2028 tenor saw a bid-to-cover ratio of 2.2x. Te auction was carried out at an average marginal rate of 13.5% vs. 12.8% in te last auction. In terms of liquidity profile, N305.6bn maturing bills are expected to it te system tis week (N99.2bn from primary issuance maturities and N206.4n from OMO issuance maturities). Te CBN is also sceduled to old its bi-montly NTB auction wit a total offer amount of N49.6bn. Yields: Bears rule te roast in te T-bills market Average T-bill yield increased by 99bps w/w to close te week at 13.3% (91-day (up 51bps to 12.9%), 182-day (up 113bps to 13.1%) and te 364-day (up134bps to 13.9%). On te flip side, average bond yield inced lower by 5bps to end te week at 13.4%. Generally, we believe sentiment in te FI space is tied to te stance te CBN takes regarding fiscal paper supply. Currency Market: Naira depreciates across all FX windows Te Nigerian naira depreciated against te dollar across all foreign excange windows we track. Particularly, te naira sed 55bps, 2bps, and 20bps to close at N365.0/$1, N305.9/$1 and N361.6/$1 in te parallel market, official and I & E FX windows respectively. Looking aead, te outlook of te naira is expected to remain tied to te spate of CBN s intervention in te spot and forward market. 4
Stock Recommendations for te Week Banking Sectors TP (N) So (bn'n) Source: Company filings, NSE, United Capital Researc, UR= Under Review Prices as at Friday 25t May 2018 United Capital Researc I Nigeria I Markets Mkt Price (N) Mcap (bn'n) Up/Down- Side Rating EPS BVPS P/E P/B DPS ACCESS 10.6 28.9 10.7 309.5-0.9% SELL 2.0 15.8 5.3x 0.7x 0.7 6.1% FBNH 10.7 35.9 9.7 348.2 10.3% BUY 1.4 18.5 7.0x 0.5x 0.2 2.1% FCMB 3.7 19.8 2.2 43.6 68.2% BUY 0.5 9.5 4.2x 0.2x 0.1 4.5% FIDELITYBK 3.5 29.0 1.9 55.1 84.2% BUY 1.2 6.2 1.6x 0.3x 0.1 7.4% GUARANTY 45.4 29.4 42.0 1,234.6 8.2% HOLD 6.2 17.8 6.8x 2.4x 2.4 5.7% ZENITHBANK 31.9 31.4 26.7 836.7 19.7% BUY 6.0 23.4 4.5x 1.1x 2.7 10.1% DIAMONDBNK 3.2 23.2 1.4 31.7 133.6% BUY 0.2 10.2 5.5x 0.1x - - STANBIC 38.3 10.0 47.5 477.3-19.4% SELL 5.3 18.1 9.0x 2.6x - 0.0% Consumer Goods NESTLE 1,564.6 0.8 1,600.0 1,268.3-2.2% SELL 42.9 67.4 37.3x 23.7x 10.0 0.6% UNILEVER 36.7 5.7 49.0 281.5-25.2% SELL 1.9 13.7 26.2x 3.6x 0.5 1.0% FLOURMILL 35.0 4.1 29.5 121.0 18.5% BUY 4.8 41.1 6.2x 0.7x 0.9 3.1% NB 155.6 8.0 115.4 922.8 34.8% BUY 4.0 23.6 28.9x 4.9x 3.6 3.1% GUINNESS 106.1 2.2 100.0 219.0 6.1% HOLD 5.3 39.2 19.0x 2.6x 0.5 0.5% PZ 26.2 4.0 21.9 86.8 20.1% BUY 1.1 10.4 20.7x 2.1x 0.5 2.3% UACN UR 2.9 15.1 43.4 NA UR 0.6 23.3 24.5x 0.6x 1.0 6.6% Indutrial Goods DANGCEM 259.2 17.0 244.0 4,157.9 6.2% HOLD 11.6 49.8 21.1x 4.9x 8.5 3.5% WAPCO 49.5 8.7 40.5 351.3 22.2% HOLD (6.2) 18.0-6.6x 2.2x 1.5 3.7% Agric OKOMUOIL 74.8 1.0 85.0 81.1-12.0% SELL 10.0 29.3 8.5x 2.9x 3.0 3.5% PRESCO 77.1 1.0 75.0 75.0 2.8% HOLD 24.1 76.0 3.1x 1.0x 2.0 2.7% Oil & Gas TOTAL 243.0 0.3 212.0 72.0 14.6% BUY 20.7 88.0 10.3x 2.4x 17.0 8.0% SEPLAT 867.7 0.6 734.7 432.3 18.1% BUY 0.5 2.6 3.8x 0.8x - 0.0% MOBIL 161.0 0.4 172.5 62.2-6.6% SELL 27.9 75.9 6.2x 2.3x 8.0 4.6% OANDO UR 12.4 7.3 90.1 NA UR 0.8 14.3 9.0x 0.5x - - FO 67.7 1.3 40.7 53.0 66.2% UR 1.9 11.9 22.0x 3.4x 0.0x - Note: TP=Year end Target Price, So= Sare Outstanding, Mcap= Market Capitalization, EPS= Earnings Per Sare, BVPS= Book Value Per Sare, P/E =Price to Earnings Ratio, P/B= Price to Book Value Ratio, DPS=Div idend Per Sare, Div Yield= Div idend Yield, Up/Down-side= potential return, Mkt Price= Current Market Price Div. Yield 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