Monthly Economic News and Views

Squandering a Golden Economic Opportunity

Presented by B.J. Rewane
Financial Derivatives Company Limited

Lagos Business School

Executive Breakfast Meeting

April 6, 2016

Outline
2

March in Review
Global & Regional Context
Policy Direction & the IMF Article IV Review
Business Proxies & Stock Market
Political Risk Analysis
Outlook for April/May

The Squandering of a Golden Economic Opportunity

3

There is a tide in the affairs of men.

Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures
-Brutus, Julius Caesar, Act 4

If an opportunity is omitted, you will find yourself

stranded in miserable shallows

March Highlights

Macro-Economic Scorecard
5
S/N

Indicator

March 2015

March 2016

Percentage Change

Spot price (avg $pb)

57.09

39.75

(-30.37)

Oil production (mbpd)

1.82

1.75

(-6.42 )

Treasury Bill Rates (%)

15.15

5.99

(-916bps)

MPR (%)

13

12

(-100bps)

Inflation (%)

8.5

11.4

2.90

External Reserves (US$Bn)

29.79

27.87

(-6.45)

Interbank

199.16

198.55

(0.31)

Parallel

220

322

(-31.68)

Exchange Rate (N/$)

Source: NBS, OPEC, CBN, NSE, FDC Research

Macro-Economic Scorecard
6

S/N

Indicator

Position as at March 29, 2015

Position as at March, 2016

Percentage Change

Market Capitalization (N Bn)

10,720

8, 690

(-18.94)

FAAC (Nbn)

435

345

(-6.76)

M2 (Ntrn)

19.14

20.49 (Feb)

7.05

CBN PMI

48.9

45.5

(-6.95)

Vacancy Factor - Residential (%)

25

11.4

(-13.60)

Vacancy Factor - Commercial (%)

20.33

33.33

(-13.00)

Power grid (MW)

4,044.6

2,030

(-49.8)

Misery Index (%)

16

21.8

5.8

Cheques

548

501.17

(-8.55)

PoS

30

46.14

53.8

NIBSS Transaction(Nbn)

Source: NBS, OPEC, CBN, NSE, FDC Research

In 12 months there have been a general deterioration in macroeconomic conditions

Scarcity Bites and the Budget Languishes

7

Nigerian economy slides into a double dip slowdown

Economy expected to contract for the second consecutive

quarter to 2% in Q116

2015 growth now estimated at 2.79%

First time in decades when Nigeria has underperformed SSA

average

Scarcity Bites and the Budget Languishes

8

Contraction of economic activity has its genesis in a misaligned

exchange rate

A consequence of sharply lower oil prices: 68.1% and

deteriorating terms of trade

Compounded by chronic shortages of inputs of power, fuel and

forex

Scarcity Bites and the Budget Languishes

9

Economic imbalances exacerbated by:

A dogmatic obsession with exchange rate rigidity

A convoluted rationing of forex being abused by operators and regulatory

arbitrage

Price control contradictions in the downstream petroleum sector

Chronic underinvestment in the power sector

Strategic acts of economic sabotage by vested interest groups

Aided by collusion with insiders and policy making collaborators

10

Q4 Data Output

Expanding Sectors

Contracting Sectors

Sector (Y-o-Y)

Q315

Q415

Sector (Y-o-Y)

Q315

Q415

Trade

4.4%

4.69%

Oil

1.18%

-8.28%

Agriculture

3.46%

3.48

Manufacturing

-1.75%

0.38%

Real Estate

2.06%

0.79%

Financial Services

6.56%

6.41%

Arts, Entertainment,
Recreation

6.39%

6.54%

Construction

-0.1%

-0.35%

Accommodation & Food

Services

-5.42%

-3.55%

Transport and Storage

4.86%

4.39%

Source: NBS

Source: NBS

Scarcity Bites and the Budget Languishes

11

Factors curtailing growth include:

Trade credit evaporation

Shrinking supplier credit and bills for collection

Cold feet by export credit agencies

Import restrictions

Astronomical cost of forex plus smuggling

Power failure from the grid

PMI Up in March
12

PMI data from both FBN and CBN increased

in March
FBN up from 50.6 to 54

56
54.4

54

CBN up from 45.5 to 45.9

Mainly due to inventory build up

Hiring headcount is down

Suggesting that inventory build up is defensive and

speculative as a hedge against possible currency
devaluation

54

52.6

52
50

54.2

51.2

51.2

50.6

49.2

48

47.2
45.5

46

45.9

44.6

44

42
40
Oct'15 Nov'15 Dec'15 Jan'16 Feb'16 Mar'16
FBN

CBN

Threshold

Source: CBN, FBN Quest

Power Down Sharply in March

13

Power output from grid down sharply to 2,030MW in March

from 2,695MW

System collapsed for a few hours to zero output

First time this century

High temperatures averaged 33C and humidity of 80%-85%

Sweltering heat and massive use of air conditioning are tasking

the grid

Headline Inflation Spikes and will rise again

14

Headline inflation reached a 34-month high of 11.4%

Spurred by forex and petrol shortage

Nigeria among the 12 most expensive countries in Africa

Monthly (YoY) Inflation Rate vs. MPR
13.00
11.00
9.00
7.00
5.00
Oct'15
Headline Inflation

Nov'15

Dec'15
All items less farm produce

Jan'16
Food Inflation

Feb'16
MPR

Source: NBS

Propelled by a Combination of Factors

15

Seasonality

Tomatoes

Price Elasticity
Low

N6,000 (1Basket)

Pepper

Low

N4,500 (1 Basket)

Yam
N500 (1 medium tuber)

Low

Propelled by a Combination of Factors

16

Cost Push/ Smuggling

Price Elasticity

Transport fares up
200%

Low

Manufactured finished
goods up 20%

Moderate

Palm Oil
N9,600 (30L)

Noodles
N1,800 (1 carton)

High
Low

Propelled by a Combination of Factors

17

M2 Propelled
Cement

Price Elasticity
Moderate

N1,700 (50kg)

Forex shortage
Diesel

Moderate

N130 (1liter)

Sugar
N9,000 (50kg)

High

Flour
N8,800 (50kg)

Moderate

Unemployment and Underemployment Up Sharply

18

A lagging indicator of falling corporate profitability, sales and margins

Nominal figures are more startling when analysed demographically

Unemployment is higher at the lower age bracket

Q315

Unemployment
Underemployment

15-24 years
17.8%
31.8%

Q415
25-34years
10.8%
18.5%

15-24 years
19%
34.5%

25-34years
11.4%
19.9%
Source: NBS

Misery Index Up
19

The Misery index analysis confirms a sense of national desperation and

anger

Unemployment + Inflation = Misery Index

10.4% + 11.4% = 21.8%

When it increases in 2 consecutive quarters it results in electoral

defeat or a sharp rise in disapproval ratings
Nigerias ranking among miserable states is 6th

Monetary Conditions
20

Money supply grew marginally in February

Shrank in March after the CRR and MPR increase

Average long opening position in march was N306bn

900,000.00

817,519.18

800,000.00
700,000.00

608,969.19

Average opening position (N'm)

566,659.97

600,000.00

542,564.00

500,000.00
400,000.00

306,481.65

300,000.00
200,000.00

100,000.00
Nov'15

Dec'15

Jan'16

Feb'16

Mar'16

FAAC Down
21

The FAAC allocation (revenue shared by the states) has been sliding
since 2015

In spite of improved revenue collection

FAAC (N/bn)
500
450
400
350
300
250
200
150
100
50
0
Sept'15

Oct' 15

Nov' 15

Dec'15

Jan'16

Feb'16

Mar'16*

Stock Market
22

FY15 corporate revenue up 3.18%, at par with GDP growth

FY15 PBT down by 3.83%

Stock market scott-free lost 17.17% in Q116

Volatility up 19.99%

One year dollar adjusted return (-32.94%)

Average P/E up to 8.26x

AVDT down by 17.86% to N2.29bn

External Reserves Accretion

23

External reserves accretion of $40m in March to $27.86bn

Imports and payment cover of 4.51 months

Total forex sold by CBN up to $921bn in March

Highest monthly volume in recent times

Backlog of payments reduced marginally

Airline unremitted funds now in excess of $600m

Parallel market stable at N320-N324/$

Global & Regional Economics

US Economy Resilient
26

The U.S economy showing strength in spite of election

distractions

Real GDP growth up to 1.4% in Q415

Initial estimates were for a growth of 1%

242,000 jobs were added in February

Unemployment ticked up by 0.1% to 5%

US Economy Resilient
27

Fed held interest rates steady at 0.25%-0.5% p.a.

Janet Yellen says US interest rate increases will be slower

Alluding to the fact that global economic growth will be weaker in

2016

Inflation eased to 1% in February from 1.4% in January

Next Fed open markets committee meeting is on April 26/27

Interest rates are likely to be unchanged and dovish stance maintained

Euro Zone
28

Caught between the Brussels bomb blasts and immigration

problems

The EU is trying hard to avoid a deflationary spiral

The ECB reduced its benchmark interest rate to 0%

Deposit facility rate was cut by 10bps to (-0.4%)

Lending facility was lowered by 5bps to 0.25%

29

China: Slowing Growth, Rising Debt

Chinese GDP growth rate of 6.9% in 2015 is the slowest pace in

25 years

2nd largest economy in the world and SSAs largest investor

Growth target of 6.5% - 7% in 2016

China increased its debt to GDP rate projection to 3% in 2016

from 2.3% in 2015

30

China: Slowing Growth, Rising Debt

Devalued its currency over 4 times between 2015 and 2016

Has external reserves of $3.2trn

The Chinese currency will now join the four other Reserve

currencies in the Special Drawing Right (SDR)

US dollar, British pound, Euro and Japanese yen

Currency Markets
31

Dollar depreciated 1.33% against the basket of currencies since the

March FOMC meeting

The Euro gained 4.24% against the dollar to $1.1218

Canadian dollar appreciated by 5.26% to $0.76/CAD

Highest level since March 23

Implications
32

The US remains a major trading partner of Nigeria

China is the leading supplier of finished goods

Nigerian terms of trade improved marginally in Q1from 29.1

Price of exports increased relative to imports

Buhari and economic team are visiting China next week

To raise additional funding to finance capital projects

Top Trading Partners

33

Three factors affecting trade:

Forex restrictions, currency weakness, declining disposable income

EXPORTS

IMPORTS

INDIA:17.3%

CHINA: 25.6%

NETHERLANDS: 9.5%

USA: 9.9%

SPAIN: 9.5

BRAZIL: 11.5%

INDIA:4.8%

SSA- Nigeria Comparison

34

2016

SSA

Nigeria

% of SSA

Population (m)

978

187

19.1

GDP ($bn)

1,395.2

458

32.8

GDP per head ($)

1,427

2,448

71.5% above SSA

Real GDP growth (%)

2.9

2.7

-0.2% below SSA

Inflation (%)

8.2

11.4

3.2% above SSA

SSA- Q116 Review

35

3 countries (Ghana, Uganda and Kenya) have reported lower

inflation in March

In Q1, four SSA countries increased interest rates to defend their

currencies

While Nigeria & South Africa are reporting a spike in inflation

In Angola and Ghana, Central Bank Chiefs shown the door

Most emerging market currencies gained from higher commodity

prices

Ghana
36

Abdul-Nashiru Issahku is the new governor of the Bank of Ghana

After former Governor Kofi Wampah retired early

Issahku has been deputy governor since July 2013

Worked previously at the World Bank, African Development bank

and Export Development and Agricultural Investment Fund

SSA: Economic Outlook

37

Growth in the East African Community will be boosted by

regional integration

Economic growth in Central and West Africa is forecast to slow

from 3% in 2015 to 2.9% in 2016

Ghanas economy to soften to 3.7% in 2016, due to election

related tensions and high inflation

Growth in Cameroon will moderate slightly to 4.7% in 2016

from 5.2% in 2015

SSA 2016 Outlook

38

Real GDP growth in SSA will slow to 2.9% in 2016 from 3.2%

African Oil producing countries are bracing themselves up for

weaker fiscal revenues and increased pressure to cut spending in

2016

Major challenge: maintaining a policy stance that supports economic

growth while combating weaker commodity prices and global

uncertainty

Commodities

Commodity Prices in March

41

Average oil prices may increase to as high as $42pb in April

April 17 oil producers meeting unlikely to achieve any

meaningful agreement

Iran and Saudi Arabia already bickering

Commodity Prices in March Grain Prices Bearish

42

Weak outlook for grain prices in April

Large stockpiles and prospects of a bumper harvest

Increased production driven by lower costs and weaker currencies

Cocoa prices to moderate as weather conditions improve in top

growing region in West Africa Ivory Coast

Expectation of a shortfall in production will support sugar prices

Policy Changes

IMF
Article
IV
Consultation

Nigeria to Work Harder

44

Growth in 2016 is expected to decline further to 2.3%

Non-oil growth projected to slow to 3.1% in 2016

Oil growth to remain negative at (-4.8%)

IMF expects Nigerian Bonny Light to average $36.1pb in 2016

Inflation expected to remain in the double digit region at 12%

IMF Article IV Consultation

45

Directors encouraged implementation of an independent pricesetting mechanism to address petroleum subsidy

Welcomed tightening of monetary policies and recommended

targeting price stability

Urged gradual increase in VAT and expanding tax base

Stressed the need for structural reforms to enhance

competitiveness and support investment

IMF Article IV Consultation

46

Key risks to the Outlook

Lower oil prices,

Shortfalls in non-oil revenues,

Further deterioration in finances of state and local Governments,

Deepening disruptions in private sector activity due to constraints

on access to foreign exchange

Resurgence in security concerns

Budget 2016 Passed at Last Buhari Set to Sign

47

Senate has passed the 2016 budget of N6.06trn

0.33% below proposed budget of N6.08trn

Left the key assumptions unchanged

Benchmark price of $38pb

Exchange rate: N197/$.

Production of 2.2mbpd

Fiscal deficit: N2.2trn

Challenges
48

Government is faced with three major challenges

FOREX SHORTAGE

POWER SHORTAGE
FUEL SHORTAGE

Funding the Fiscal Gap

49

Is N6.06trn reflationary or balanced against

2015?
Depends on the exchange rate used
Parallel Market

2016: N6.06trnN300= $20.2bn

2015: N4.49trnN220= $20.41bn

Interbank Market
2016: N6.06trnN197= $30.76bn
2015: N4.49trnN190= $23.63bn

President and Finance Minister to

source for international loans

% Change

Chinese EX-IM $3bn

-1.04%

World Bank$2bn
30.17%

AfDB$1bn

50

S&P Cuts Outlook to Negative

S&P cuts Nigerias outlook to negative, rating remains at B+

Due to exchange rate pressures

Factors that could lead to a downgrade

Deterioration of Nigerias fiscal or external accounts

Increased stress in the financial sector than currently expected

Possibility of a credit downgrade would make it more difficult to

access international funds

51

MPC Tightens Policy Stance

MPC resumes tightening after three months of accommodative

monetary stance

MPR up 100bps to 12% p.a.

CRR up 250bps to 22.5%

Asymmetric corridor narrowed to +2/-5%

MPC Tightens Policy Stance

52

MPC empowered to formulate forex policy

Meaning that exchange rate changes can be made in between

meetings

After the

World Bank spring meeting

Meeting with potential lenders

Exchange rate policy review may take place in May

Policy
53

Government is targeting aggregate revenues of $12.5bn in 2016

The new N50 per transaction stamp duty is a major earner

A new communications tax on voice, data and Pay TV will fetch

$100m per month

New vehicle registration tax based on the value (price of car) to

be introduced

Business Proxies

FAAC Allocation to Remain Low

55

FAAC allocation likely to increase in March to N360bn

Average oil prices in March were 15% higher compared to February

Oil production down due to outages in the Forcados pipeline

500

442.6

400

473.83
389.9

FAAC (N'bn)
369.88

387.77

370.4

345

360

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

300
200
100
0
Aug-15

Sep-15

Oct-15

Source: FMF, FDC Research

55

Volume & Value of Transactions to increase in April/May

56

Transactions volume and value to increase after budget approval by

President
Volume (000)

4500

Value(Nbn)

1200

4000
1000

3500
3000

Dec-15

800

2500
2000

Jan-16

600

1500

Feb-16

400

Dec-15
Jan-16
Feb-16

1000
200

500
0
PoS

Source: NIBSS

Cheque

Neft

0
PoS

Cheque

Neft

57

Ships Awaiting Berth Down Sharply

Ships awaiting berth will hover around 25

Below 2014s average of 70 and 2013s average of 94

Lower profit margins and shift in consumption patterns will continue to hurt
imports
May increase in April due to an increase in orders for goods such as petrol
80

400

60

300

40

28

20
0

200

Ships Awaiting Berth

100

Parallel Rate (N/$)

Source: NPA, FDC Research

57

Rig Count will Remain Flat in Q2

58

Nigerias rig count in March is 3, down from 6

Sharply lower levels than the U.S and other producers

PIB and new fiscal incentives must change before new investments and rigs

1800
1600
1400
1200
1000
800
600
400
200
0

1543
394

450
400
350
300
250
200
150
100
50
0

US
Canada
Nigeria

Source: Baker Hughes, FDC Research

Power Generation to Improve Slightly

59

Power output from the national grid

at 2500MW

Approximately 50% lower than the 12month high

Power Generation (Average) MW

5000

4500
4000
3500
3000
2500

Bombing of the Forcados pipeline

disrupting gas supplies

Hydro power is improving because

2000
1500
1000
500
0

of the rainy season

Source: Nigeria Power Reform

Retail Industry

Retail Industry
62

Customer traffic to the shopping malls lower due to fuel shortage

Retail prices for groceries, weekly and monthly needs are up

approximately 15%

Consumers continue to down trade by patronising value brands

buying cheaper goods

Prices are reflecting the parallel market exchange rate and shortages

Replacement cost pricing is being used for inventory valuation

Retail Industry
63

Wholesalers hoarding in anticipation of price increases has

reduced

Inventory levels of cheaper goods growing

Price volatility will increase as interest rates spike making carrying

costs high and prohibitive

Importers of products now sourcing goods from countries with

weak currencies and quality products

South Africa, Brazil, Argentina, Turkey etc

64

Domestic Retail Industry

Stability in the forex market will reflect in retail price level in April

Cost pressures will persist with fuel scarcity, forex scarcity and naira
weakness

Shift in consumer demand towards necessities and price inelastic

goods

Brand variety of goods offered will shrink

Inventory levels of cheaper goods will increase

Retail Industry

65

Prices of some goods increased slightly while others declined or remained flat
constant

Item

January16

February16

March16

Feb-Mar % Change

Rice (50kg)

N9,000

N13,500

N13,500

Milo Sardine (125g)

N150

N140

N175

25%

Heinz Baked Beans

(200g)

N199

N210

N180

-18%

Samsung Galaxy A5
(A500)

N61,000

N86,000

N80,000

-7%

Samsung Galaxy A8
(A800)

N90,000

N127,000

N142,000

12%

Peak Milk (900g)

N2,000

N2,140

N2,140

Carton of Indomie
(Small)

N1,300

N1,800

N1,800

Source: FDC Research

Real Estate Industry

Vacancy factor in Lagos Flat in March,
to be higher in April

Lagos Vacancy Factor Index

67

We are introducing the FDC/Lagos Vacancy Factor Index

It measures the vacancy levels in (Residential, Commercial & Office
accommodation) in the Ikoyi,VI & Lekki axis
High brow neighbourhood vacancy factor is a lagging economic
indicator

An increase happens after a change in the level of economic activity

For example, following an expansion, vacancy factor will decline

More tenants than properties available

Lagos Vacancy Factor Index (LVFI) Flat in March

68

Month/year

Residential Index

Commercial Index

January 2015

100

100

February 2015

92.3

96

March 2015

96.2

91

January 2016

169.2

148

February 2016

176.9

148

March 2016

176.9

148

Index flat in March16 relative to February16

Compared to base year of January 2015, it increased by 76.9%
Commercial VFI lower due to the small pool of alternatives available
in the short run

Lagos Vacancy Factor Index (LVFI) to increase in April

69

Factors influencing LVFI

Banning dollarization of rents

Reduction in the number of visiting expatriates & oil industry workers

Investor confidence sharply lower

Inflationary pressures & disposable income erosion

Higher interest rates making mortgages less attractive

To Let/For Sale ratio

70

To let/for sale ratio in March was 2.3:1

Economic downturn not as severe as depicted

Properties up for lease were 2.3 times more than properties that were
put for sale
If so, more properties would be on sale

Economic downturn reducing cash flow

Hence, landlords have decided to hedge this risk by letting properties

and spreading rents over a longer time span

71

Outlook

LVFI to increase pending a shift in Nigerias economic cycle

Pace of increase in residential index to remain above

commercial

To let/ for sale ratio expected to increase as macroeconomic

headwinds shrink cash flow

However, budget approval expected to have a positive impact on

LVFI in Q216

Aviation Update
Nigerian aviation suffering from airline
blocked funds

74

Global Aviation

Global industry passenger load factor increased to 80.8% in

January 2016

Industry loads are elevated while breakeven loads have declined

This combination has supported the strong financial results of

airlines in 2015

Average global fares in US$ terms fell 12% in 2015

Global Aviation

75

Strong appreciation of the US dollar

There has been downward trend in exchange rate adjusted fares

Recessions in Brazil & Russia caused declines in air travel demand

Naira weakness threatens aviation in Nigeria

Load factors in March through April were anaemic

Global Aviation

76

Easter spike but long term averages sharply lower

Airlines suffering from remittance backlog and possible devaluation

jitters

Average load factors by cabin

Class
First
Club
Premium Economy
Economy

Ave. Load Factors

30%
45%
60%
40%

77

Global Aviation

Most carriers have increased their published fares

Many have restrictions on non-gateway destinations

(Heathrow, JFK, Frankfurt, etc)

Some airlines are taking advantage of the situation

Keeping fares flat and offering promos

e.g. Emirates, Turkish, United & Kenya Airways

Passengers are spending an average of 23 hours from Lagos to the

US

78

Published fares are reflecting the forex backlog

LOS LON LOS
British Airways

Virgin Atlantic

First Class

N2,668,686.00

----

Business Class

N1,946,916.00

N1,718,436.00

Premium Class

N939,756.00

N903,006.00

Economy Class

N834,976.00

N801,796.00

LOS LON NYC LON - LOS

British Airways

Virgin Atlantic

First Class

N3,061,350.00

----

Business Class

N2,065,320.00

N2,091,990.00

Premium Class

N1,170,720.00

N1,194,240.00

Economy Class

N989,490.00

N949,590.00

79

Aviation

Emirates have increased the London-Dubai frequency to 10 daily

Putting B/A under pressure

The backlog of airline remittances are at staggering levels

CBN is claiming that airlines are receiving significant levels of

forex

Stock Market

Equity Markets Tepid investor sentiment

81

The equity market has been mostly negative in 2016

Scott-free index year to date return is now -17.17%

The Scott-free Blue chip 30 index returned -1.89%

Blue Chip Index in USD terms returned -1.87% and in euros 6.46%

Asset Mix Investors sentiment moves in this direction

82

Asset Classes
Equity
Money Market
FGN Bonds
Treasury bills
Mutual funds
State bonds
Supra-National Bonds
CORPORATE BONDS
Real estate
Cash & Others
TOTAL

15-Dec
N'bn
%
500.34
586.75
3,009.19
822.28
28.69
172.01
1.30
125.40
23.81
20.61
5,290.38

16-Mar
N'bn
%
9.46%
449.08
11.09%
607.08
56.88%
3,407.67
15.54%
611.05
0.54%
32.60
3.25%
169.85
0.02%
1.31
2.37%
139.08
0.45%
24.30
0.39%
66.65
5,508.67

Allocation to equities declined from 9.46% in December 2015 to

8.15% in March 2016

Due to the general decline in equities prices for the period

8.15%
11.02%
61.86%
11.09%
0.59%
3.08%
0.02%
2.52%
0.44%
0.00%

83

Analysis of Asset Mix

State bond allocation declined to 3.08% in March from 3.25% in

December 2015

Due to possible state governments default

Preference for FGN Bonds and Treasury Bills

A marked pickup in average yields in 91-day T-bill, NIBOR and 10-yr

FGN bond respectively

Q415: 5.3%, 1.7% and 12.2%

Q116: 5.9%, 7.27% and 12.35%

84

NSEASI March 2016 - Extends Gains

NSE ASI March 2016

26,500.00

7,440,000,000
6,390,000,000

Corporate earnings dictated equity market

returns during the month

26,000.00

5,340,000,000
25,500.00

4,290,000,000
3,240,000,000

25,000.00

2,190,000,000
24,500.00
1,140,000,000
24,000.00

90,000,000

Daily Volume Traded

NSEASI extends rally by 2.99% from Februarys

gain of 2.74%

Bringing YTD return of the index to (11.65%)

Market capitalization increased by 2.99% to

N8.7trn
The average daily volume of trade
increased by 31.57% to N791.89mn
Average market PE ratio increased to 8.26x
from 7.75x

85

ScottFree Index

Total market capitalization for the SFNG Total Share Index increased
by 3.04% to N8.66trn

SFNG Total Share Index (representing 99.5% of the Nigerian equity market)

Free-float market capitalization for the index decreased by 0.53%

from N2.98trn (Feb) to N2.96trn (Mar)

86

ScottFree Index

8 companies in the SFNG Total Share Index paid dividends in March

compared to the one paid in February

Dividend yield for the index increasing from 3.63% in February to 4.13% in March

Negative returns over the month of March

Exception to Mid Cap 40 Index returning 0.95%

87

ScottFree Index
ScottFree BC 30

BC30 index lost 1.68% in March

30 day volatility of 19.99%

Sharpe ratio of 0.91

1 year return of -32.94%

Trailing P/E 5.31

Market volatility, economic policy

direction and bank balance sheets
concerns have taken their toll on
businesses

88

Soft Patch Forcing a Policy Reversal

Data released from NBS during the month points to increased

investor uncertainty

Unemployment Q315: 9.9% vs Q415: 10.4%

Weak growth and high inflation

CBN resumes tightening cycle, citing inflationary pressure

Markets were shocked

There was a kneejerk reaction following the CBN's announcement
1.09% loss was recorded in the trading day

89

2015 Earnings

2015 full year earnings season commenced

Systematic Important Bank SIBs released encouraging results

Results were in-line with market expectation

Exception to FBNH and ETI who had earlier released profit warning

2015 Pre-Tax Profit down by 3.83% from N869.04bn, Earnings up

by 3.18% from N4.25trn

Global Market Review

90

Global Indices March 2016

month with exception to GGSECI

22.42% CASE 30
3.10%

Stock exchanges across the globe had a great

KNSMIDX

-3.05%

GGSECI

5.74%

highest return of 13.03% & 22.42% respectively

JALSH

6.60%
1.28%

S&P 500
FTSE 100

13.03%

5.92%
1.13%

MSCI Emerging Markets

11.75%
2.99%
-4% 0% 4% 8% 12%16%20%24%

S&P 500 & FTSE 100 are rebounding back to

Januarys index of 2058.9 & 6242.32 respectively

MSCI Europe
MSCI Frontiers

MSCI Emerging market index & CASE 30 with the

Backdrop of supportive liquidity environment of

Fed and oil price recovery

SHCOMP
NSE ASI

YTD return of (0.041%) and (1.09%) respectively

Sectoral Performance - March 2016

91

Sectoral Performance
-9%

-5%

-1%

3%

7%

The NSE Industrial Index up by 5.63%

2.99% NSEASI

0.97%

0.12%

Banking

-6.28%

Oil & Gas

-8.15%

1.90%

Positive earnings result of DANGCEM

Year-to-date returns is in the negative territory of 9.49%

NSE 30
Insurance

The NSE banking index declined by 6.28%

Consumer Goods

5.63% Industrial Goods

Led by gains of DANGCEM and CAP Plc 18.45 and 7.6%

respectively

In spite of positive gross earnings of 10.89% and PBT of

6.63% respectively

Earning results of Diamond Bank, ETI, FBNH, Unity Bank and

Stanbic IBTC are yet to be released
Concerns still boarder around banks asset quality and
macroeconomic conditions

92

Banking Sector Earnings - FY15

Tier 1 banks remain resilient in spite of macroeconomic headwinds

Extraordinary items pushed up earnings

Impairments are also up

Average gross earning up by 17.64% from N1.38trn

Average PBT growth was 29.59% from N332.29bn

UBA and Access Bank were outliers with PBT growth of 21.8% and
87.99% respectively

93

Banking Sector Earnings - FY15

Banks like UBA and GTBank benefitted from Pan-African strategy

Rising loan loss provision is worrisome

2015: N55.42bn vs 2014: N42.38bn

94

Banks
ZENITH

24.26% of total banking assets

GTBank

Risk weighted assets of N2.63trn

23.12% of total banking deposits

Sound risk management with NPL of
2.2%

15.29% of total banking assets

Risk assets of N1.83trn

14.79% of total banking deposits

Sound risk management with NPL of
3.21%

Efficiency ratio of 54.63%

Efficiency ratio of 42.01%

Well capitalized with CAR of 21%

Well capitalized with CAR of 17.96%

ROE of 18.42%

ROE of 25.76%

Dividend yield -14.12%

Dividend yield 10.64%

Strong and profitable retail banking

segment

Beyond the Banks - FY15 Corporate Earnings

95

Company

Revenue
(Nbn)

PBT (Nbn)

Finance Cost (Nbn)

Forte Oil

124.62

(73.2%)

7.01

16.8%

5.15

22.29%

Ashaka Cement

17.41

(17.6%)

3.21

(38.88%)

Dangote Cement

491.73

10.3%

188.29

(11.3%)

54.35

43.7%

Lafarge Africa

267.23

2.46%

29.27

(27.46%)

11.21

(0.48%)

Nestle

151.27

5.45%

29.32

19.95%

4.86

(8.24%)

3.5

6.04%

0.21

119.6%

NB

293.91

10.3%

54.51

(11.3%)

7.71

43.7%

GSK

30.63

0.37%

1.15

(57.94%)

0.037

(27.61%)

Dangote Sugar

101.06

6.54%

16.54

8.35%

0.664

524.64%

Champion Brewery

Cement - Stark Contrasting Results

96

DANGCEM

Revenue growth due to Africa expansion

Pan-African expansion of 47.8MT pa still on
track

Lafarge Holicum Africa

Revenue up by 2.46% to N267.23

Group consolidation costs pare profits

PBT down 27.46% to N29.27bn

Revenue up 25.56% to N491.73bn

Gross Margins at 30.8%

Market share of 63%

Operating profit of N45.5bn

Gross Margins declined from 63.4% in 2014 to

58.96% in 2015
Pioneer tax ups PAT by 13.68% to N181bn
Operating profit of N207.82bn

17.06% of sales

Forward integration strategy and reduction

in expensive fuel dependency to translate
to improve margins

42.3% of sales

PE ratio of 7.64x

PE ratio of 15.77x

Dividend Yield 3.92%

Dividend Yield 4.68%

FY2015 Target Price of N92

FY2016 Target Price of N160

FMCG - Same Sector Different Outcome

97

Unilever

Nestle

Revenue up by 6.22% to N59.2bn

Cost of sale ratio marginally

N151.27bn

Revenue edged up by 6% to

increased to 64.45% in 2015 as against

63.8%

decreased to 55.48% from 57.3%

Finance cost rose by 65.99% to

N3.17bn

ROA declined from 5.27% to 2.37%

in 2015

Cost of sale ratio marginally

Finance cost down 8.24%to N4.86bn

ROA declined slightly from 20.96%

to 19.9%

Outlook - Stay diversified and focus on the long-term

98

Notwithstanding the 2016 budget passage, near-term headwinds to

persist as imbalances (unrealistic key assumptions) likely to intensify

Currency misalignment remains a tail risk

Valuations are relatively cheap but weak growth and challenged
banking system continues to affect investors sentiment
Market sell off to begin after earnings result announcement on lack
of other market catalyst

Tightening financial conditions and lower oil prices to weigh on the

markets

Political Risk Analysis

Outlook April/May
108

Buhari will go to China and get $3bn to $4bn of project-specific

funding commitments

Time between commitment and cash flow will be long

This will not alleviate the current forex shortages

Rationing of forex and abuse will become a source of political

backlash

The CBN will move from a rigid to a dual exchange rate policy

Outlook April/May
109

Intensify exchange controls and increase transparency of the rationing

process

Thus reducing the current abuse

This will provide mild forex relief but not enough

The post-budget expenditure pressure on the reserves will force a

major rethink

The pre-conditions for external borrowing will be the game changer

Outlook April/May
110

Headline inflation will breach 12% for the first time in 5 years

Fuel scarcity will continue into the 2nd half of April especially

outside Lagos and Abuja

Effective average price of petrol will be N120 per liter

Stock market to stay flat and dip approximately 2 3% in April

Foreign Portfolio investors will shun the Nigerian market

Outlook April/May
111

Until a clear path to an exchange rate policy emerges

Interest rates will edge up as the level of T/Bills on issue increases

The Buhari team will align itself with the transition Committee report

The transition committee report have more solutions to the current

problem

No need to reinvent the wheel

They say it is better late than never

Bismarck J. Rewane, MD/CEO

Financial Derivatives Company Ltd.
Lagos, Nigeria
01-7739889

2016. This publication is for private circulation only. Any other use or publication without the prior express consent of Financial Derivatives Company
Limited is prohibited.