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Monthly Economic News and Views
Lagos Business School
Executive Breakfast Meeting
Presented by B.J. Rewane Financial Derivatives Company Limited
May 4, 2016
Sell in May and Go Away
2
Outline
April in Review- States Go Belly Up
Global & Regional Context- Growth Still Shaky
Outlook for May- Sell in May and Go Away
Policy Direction or Contradictions-You Can Run but You Can’t Hide
Business Proxies & Stock Market- Markets Stay Flat
Political Risk Analysis- Buhari to Reach Out
April in Review - States Go Belly Up
4
Nigerians are Hurting - GDP Dips
GDP for Q1’16 declines to 1.9%
Estimates for Q2 also flat below 2%
The major drag on output is poor power supply from the grid
Oil production also at a low of 1.72mbpd
Fuel scarcity in April was debilitating to economic activity
5
Nigerians are Hurting- Fuel Scarcity Bites
The average price of PMS across the nation was N137 in
March
The highest selling price in Nigeria was N167 in Nasarawa
And the lowest at N87 in Borno
Source: NBS
6
Nigerians are Hurting- Power Supply Falls
Average power output from the grid increased to 3,144MW
from 2,030MW in March
The power downtime in the Lagos metropolis fell to 40%
Average temperatures in Lagos was 34.5ºC and 78% humidity
Compared to Hong Kong with temperature of 26.1ºC and
humidity of 87%
7
Nigerians are Hurting- PMI Crashes
FBN PMI declined sharply in April from 54.4 to
46.5
Three sub-indices were in negative territory
Output, employment, new orders
Inventory build up slowed and shortages pushed
prices higher
Layoffs, cost cutting and higher inventory prices
CBN data further corroborates the declining
PMI trend
Dropping to 43.7 from 45.9
Any further fall in PMI could be pointing towards
a recession
Source: FBN Quest, CBN, *: FDC
Forecast
44.6 50.6
54.4
46.5 45
0
10
20
30
40
50
60
Jan'16 Feb'16 Mar'16 April'16 May'16 *
8
Nigerians are Hurting- Inflation Spikes
April inflation estimated to increase to 13.2%
Higher food and fuel prices the main culprits
Consumer resistance to build up
CPI is then expected to decline to 12.5% in May
9
Nigerians are Hurting- Unemployment Surges
Unemployment and underemployment are expected to
increase again to 30%
Schlumberger shed about 20,000 jobs globally in 2015
FBN to shed1000 jobs in Nigeria as a result of major
restructuring and cost efficiencies
Other layoffs include FCMB, Guinness, Ecobank, NBC
10
Nigerians are Hurting- Naira Stable
The naira traded flat at N321/$ at the parallel market in April
The official/parallel corridor remained at 62%
Sharply lower than the February figure of 101%
Total forex sold by CBN in April was $699m
Major allocations to raw materials, invisible items and
machinery
11
Nigerians are Hurting- Airlines Restrict Naira Tickets
International airlines blocked funds now in excess of $700m
Airlines have restricted sales of cheap ticket classes in naira
Effectively forcing travel agents to buy dollars at the BDCs for
passengers
CBN’s increase in dollar sales in March and April is leading to
external reserves hemorrhaging
12
Nigerians are Hurting- External Reserves Flat
External reserves are now down to $27bn
Import and payment cover of 4.39 months compared to
Malaysia with $97bn (6.75 months) and Indonesia: $107bn
(9.37 months)
MSCI retains Nigeria on its benchmark frontier index
Portfolio holders would have taken a significant hit if Nigeria
was removed
13
Nigerians are Hurting- Credit Rating Downgraded
Moody’s has downgraded Nigeria and three other African oil
producers
Nigeria now rated B1 from Ba3
Reasons for the downgrade include:
Increased external vulnerability
An elevated interest burden over the next 2 years
Execution risk in transition to a less oil dependent budget
14
Nigerians are Hurting- Cake is Smaller
FAAC shared in April down to N299bn, lowest level in 6 years
Impact of lower oil prices and force majeure on production in February
Debt servicing states receive one month principal interest and
moratorium
27 out of 36 states are technically insolvent
Source: FMF
387 370 345 299.75
0 100 200 300 400 500
Dec
'15
Jan
'16
Feb
'16
Mar
'16
FAAC (N' bn)
15
Nigerians are Hurting- Unions Want More
Unions are demanding 211% increase in minimum
wage to N56,000
Edo state increased minimum wage by 38.89% to
N25,000 from N18,000
The state had the 5th largest internally generated
revenue in 2015
Labour productivity growth is down at (-0.4%)
268
82
40.81 34.6 19.11
0
50
100
150
200
250
300
Lagos Rivers Delta Ogun Edo
IGR in 2015 (N'bn)
Source: NBS
16
Liquidity Saturation Continues
Average opening position in banks was 38.21% higher at
N423.58bn in April
Interest rates increased across board
91-day T/bills up at 7.88% from 5.99%
5-year FGN bonds up at 12% from 11.33%
Average NIBOR (OBB,O/N) down at 4.47% from 6.29%
Credit to private sector grew by 1.45% in February
17
Nigerians are Hurting- Stock Market Flat
Nigerian stock index closed with a modest loss of 0.96%
P/E ratio: 8.1x
Dollar return: -35.61%
SFNG Broad Share Index edged higher for the month, up 2.87%
Scot – Free market volatility for the month 14.81%
Sharpe ratio 0.76
18
Nigerians are Hurting- Earnings are Down
Q1’16 Pre-Tax Profit down by 12.99% to N265.87bn,
earnings declined by 2.3% to N1.44trn
Negative market sentiment and valuations are at a cyclical
low
Beer Market
20
Beer Market
The beer market growth slowed down to slightly above 1%
The lower price and value segment is now growing faster than the
mainstream market
Nigerian consumers, as a result of declining disposable income,
are buying more of the cheaper beer brands
The malt market has declined even faster than the beer market
10.5% in volume
Both at the supermarkets and bars
Global & Regional Context
23
IMF Economic Outlook – Advanced economies
IMF revised downwards its 2016 global growth forecast to 3.2%
from 3.4% estimated in January
Headline Inflation:
In the euro area, headline inflation is projected to reach 0.4% in 2016
following monetary policy easing by ECB
Japan to be in a state of deflation of -0.2%
In the US, inflation is projected at 0.8% for 2016 from 0.1% in 2015
24
US Anaemic Growth
Q1 ‘16 growth rate was 0.5%, slowest pace in 2 years
Q4’15 growth: 1.4%
Consumers reined in spending while companies adopted belt
tightening measures
In response to weak global financial conditions and lower oil
prices
25
US Anaemic Growth
Investment is slowing as corporations struggle to boost
profits
Against a backdrop of weak overseas demand and restrained
domestic purchases
26
US Fed Maintains Dovish Stance
U.S. Fed maintained its dovish stance for a third straight meeting
Will continue to “closely monitor” inflation
Disposable income adjusted for inflation up at 2.9% in Q1’16
An improvement from the 2.3% gain in Q4’15
The saving rate was up at 5.2% from 5%
27
Euro Zone GDP Returns to Pre- Crisis Levels
Q1 GDP growth of 0.6%, boosted by robust
performance by France
Fastest rate since the beginning of 2015
The British government is facing an In/Out
referendum on EU membership on June 23
Consumer prices at -0.2% from 0% in March
28
China: An Economy on Steroids
China’s Q1’GDP growth rate slowed to 6.7% from 6.8% in
Q4’15
Still within the government's target range of 6.5 to 7% for 2016
China's aggressive monetary stimulus may finally be bearing
fruit
The People's Bank of China (PBOC) has lowered interest rates
six times since November 2014
Reduced its reserve requirement ratio (RRR) for banks by
50bps in February
29
China: Risk of Stimulus Driven Growth
Analysts at Morgan Stanley warn improvement in growth could
wear off
The government-led investment growth does not solve structural
problems of
High debt
Excess capacity
Persistent disinflationary pressure
30
SSA Overview
World Bank lowered its 2016 SSA growth forecast to 3.3%
from 4.4%, citing plunging global commodity prices
Two bank failures, one in Kenya (Chase Bank Ltd.) and the
other in DRC (Banque International Pour L’Afrique au
Congo)
Making financial stability and systemic risk a burning issue
31
East Africa
Chase bank Ltd. becomes third bank in 15 months to be put
under administration
Series of bank failures likely to trigger a wave of M&A’s
among Kenyan lenders
Kenya’s parliament considering proposal to raise bank
deposits guaranteed by 20 times to 2 million shillings
($19,800)
32
East Africa
Major East and South African economies posted a moderation
in inflation rates in April
Tanzania, Kenya, Uganda, South Africa
Mozambique was the outlier, spike in inflation driven by
drought-induced rise in food prices
Uganda to route oil pipeline via Tanzania instead of Kenya
Kenya to tender own oil pipeline costing $2.1bn
33
West Africa
Liberia joins the growing rank of African countries dumping
their Central Bank Governors
Kenya, Angola and Ghana replaced their Central Bank Governors in the
last 12 months
Ghana 2015 GDP growth rate declines to 3.9% from 4% in
2014
Elections ahead in November
Projected to reach 4.5% in 2016
As power shortages and fiscal obstructions are eased
34
Southern Africa
Mozambique in a debacle with the IMF and donors after
hidden debt of $1.35bn was revealed
Angola beefs up currency controls to cope with FX shortage
Cut the volume of FX travellers can take abroad from $15,000 to
$10,000
State-owned oil company (Sonangol) also announces new hydrocarbon
discoveries
35
Central Africa
Gabon seeks to re-join OPEC
Third largest bank in the DRC (Banque International Pour
L’Afrique au Congo) put under receivership
Domestic Economy
Commodities Market
39
May 1: Celebration vs Frustration
Prices of domestic commodities are sticky downwards
Fuel scarcity coupled with foreign exchange restrictions are
the major drivers of price increase
Nigeria, the second largest importer of rice, to reduce rice
imports due to higher costs
Traders have attributed the hike in the price of rice to a
shortfall in supply
A 50kg bag of rice is now within the range of N13,000-
N15,000 from N8,000 - N10,500 depending on the brand
40
May 1: Celebration vs Frustration
Prices of tomatoes have increased due to seasonality
Tomatoes are usually costly during the rainy season because
the wind interferes with the yields
Price of tomatoes increased by 133% to N14, 000 for a
basket of tomatoes
Tatashe and chilli pepper now costs N7,000 and N5,000
respectively
As against N4,500 and N5,000 in March
41
May 1: Celebration vs Frustration
Commodity Apr’15(N) Apr’16(N) (%)change
Garri (Yellow) 11,000 15,000 36
Rice (50kg) 9,000 13,500 50
Yam (3 tubers) 1,800 2,000 11
Onion bulb (Basket) 3,000 6,000 100
Semovita (10kg) 1,500 2,500 67
Guinea Corn (bag) 8,000 12,000 50
Sugar (St. Louis) 200 300 50
Source: FDC Think Tank
42
May 29, 2015 Promises
Increased infrastructure
Low unemployment
Naira stability
Greater security
Improved governance and transparency
Economic diversification
Social safety net
N5,000 to the poor and unemployed
Lunch for school children
Investment in human capital development
43
Not So Good News
Exchange Rate
• IFEM:
•Parallel:
Oil Price (Brent)
FAAC
Unemployment/Under-employment
Misery Index
Inflation
01 May 2015
N197.93/$
N219/$
$65.56pb
N409bn
24.1%
32.8%
8.7%
01 May 2016
N199/$
N321/$
$47pb
N299bn
29.2%
42%
12.8%
28.31% reduction
26.89% reduction
9.2% increase
4.1% increase
5.1% increase
44
Minimum Wage
Unemployment
Power output
Price of Diesel
01 May 2015
$82.2
7.5%
3,205MW
N160
01 May 2016
$56.1
10.4%
3,144MW
N129
Change and Direction
31.8% Negative
2.9% Negative
1.90%
Negative
19.4% Positive
Fact Check
45
Peer group comparison Nigeria Angola Kenya Brazil
Unemployment (%) 10.4 26 9.2 10.9
Minimum wage ($) 120 91 100 218
Inflation (%) 12.8 23.6 5.27 9.39
Human Development Index (HDI) 0.514 0.532 0.548 0.755
Life expectancy at birth (years) 52.8 52.3 61.6 74.5
Work week (Hours) 40 40 52 44
* HDI is a composite index measuring average achievement in three basic dimensions of human development – a long and healthy life, knowledge and a decent standard of living, where 1
is the highest and 0 is the lowest
46
Commodity Prices in April
2.35
2.49
2.53
7.86
11.31
13.62
13.78
20.06
21.57
0 5 10 15 20 25
Sugar
Gold
Wheat
Cocoa
Corn
Rough Rice
Silver
WTI
Brent
m-o-m change (%)
47
Outlook for May- Oil Prices
Oil prices may hit $50pb in May driven by:
Slowing production from major Non – OPEC producers
Debt levels of oil producing firms sending positive signals to the
market
World Bank revised its forecast upwards from $37pb to $41pb
48
Outlook for May- Grains & Softs
Bearish outlook for grain prices due to:
Ample global supplies and favourable weather outlook
Cocoa prices to increase as lower rainfall increases global cocoa
shortage
Expectation of dry weather conditions in top producing regions
(Brazil & India) will support sugar prices
Demand for soft commodities to increase as summer
approaches
49
Implications for Nigeria
Oil prices are trading above budget benchmark of $38pb
Nigeria’s production according to OPEC was 1.68mbpd (March)
23.6% below budget benchmark of 2.2mbpd
Wood Mackenzie expects production to slow further to 1.5mbpd
Shortfall in production eroding benefits of higher oil prices
Government revenue expected to remain low pending a recovery
in production levels
50
Leading Economic Indicators INDICATORS
Mar’16 Apr’16 (Apr/Mar)% change May* Oil Markets
Spot price (avg $’pb) 39.79 43.34 8.92 45-50
Production (m’bpd) 1.75(Feb) 1.68(Mar) (-4.00) 1.5-17
Money Markets (End Period)
OBB (%)p.a 5.58 3.08 (-250bps) 5.00 – 8.00
Overnight (%)p.a 6.42 3.67 (-275bps) 6.00 – 9.00
MPR (%)p.a 12.00 12.00 - 12.00-13.00
CPI ( %) 11.40 (Feb) 12.80 (March) 1.4 13.2 (April)
External Reserves ($’bn) 27.86 27.13 (-2.62) 27..00-27.30
Exchange rate (End Period)
Inter-bank (N/$) 198.11 197.43 0.34 196-199
Parallel (N/$) 322 321 0.31 320-325
Other
Market cap (N’trn) 8.70 8.62 (-0.92) 8.3-8.5
FAAC N’bn) 345(Feb) 299.7(Mar) (-13.13) 350-375
FBN PMI 54.4 46.5 14.52 -
Vacancy Factor Index (Residential %) 46 47 1.00 45-50
Vacancy Factor Index (Commercial %) 34 33 (-1.00)
33-37
Source: FMDQ, CBN, * FDC Forecasts
51
Slowing Growth to Continue in Q2’16
Despite the recovery in oil prices, non oil sector to remain key
driver of growth
IMF World Bank revises downwards Nigeria’s 2016 GDP growth
forecast to 2.3%
Slowest GDP growth since the return of Democracy in 1999
52
Prices Higher, Production lower
OPEC meeting in June expected to agree on production freeze
Nigerian production expected to increase in Q3
Wood Mackenzie expects output to average 1.5mbpd over the
next decade
53
Double Digit Inflation in April
April inflation to remain in double digits as scarcity
lingers
Expected to climb above 13%
Fuel scarcity and seasonality to support the increase
Scarcity to end in May while the wet season picks up
Budget approval to stoke inflation further in Q2’16
through demand pull inflation
9.40 9.60 9.60
11.40
12.80 13.20
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00 Inflation Rate(%)
Source: NBS, *: FDC Think Tank
Policy Direction or Contradictions- You can Run but You can’t Hide
56
Key Events to Watch
Signing of budget
April inflation data: May 18
MPC meeting: May 23 &24
57
Key Events to Watch
Ist anniversary speech and minor reorganization of govt
agencies
Good opportunity to retrace steps on
Refineries
Subsidies
Exchange rate
58
Two Options
If inflation comes up at 13.2%, options open to the MPC
Option A
Dig in with continued adamant position
Budget deficit and borrowing options will be limited to bond market
and local markets
More restrictions
Increased rationing
59
Adamant Position: Impact on LEIs
Forex shortages, rationing and abuse will continue
Fuel scarcity intensifies
Inflation spikes to 14%
Economic growth contracts further below 2%
Higher loan defaults, companies will go into receivership
Mass retrenchments
60
Option B: Mixed Bag, Most Likely Option
Oil price average of $42pb
Dual pricing of PMS for govt. owned gas stations
Price fixed, access to CBN funds, etc
Private outlets, access to second window of forex, price
deregulated
61
Mixed Bag Policy
Dual exchange rate of (a) N200 (b) N220
Non-essentials to market (b)
Very essential products and raw materials to market (a)
All others to market (c): N320
62
Impact on LEIs & Macro-economic Stability
Inflation in April/May to increase above 13% before slowing
in Q3
Currency weakness before convergence at N340
Slow recovery in economic activity
PMI to increase towards 60 at the end of Q3
State revenues will increase with currency adjustment
63
Moody Downgrades Nigeria’s Credit Rating
Moody’s downgraded Nigeria’s credit rating to B1 from Ba3
One month after placing Nigeria on watch list
Reasons for the downgrade include:
Increased external vulnerability
An elevated interest burden over the next 2 years
Execution risk in transition to a less oil dependent budget
64
Implications for Nigeria
Nigeria’s stable outlook was maintained
The downgrade would make it more difficult for Nigeria to
access international funds
Other African oil producers downgraded by Moody’s include:
Angola, Gabon, Republic of Congo
Business Proxies
FAAC Allocation to Increase
FAAC allocation to be shared in May likely to increase
Average oil prices in April were 9% higher compared to March
Prices expected to recover to $50pb in May
Lower oil production to limit impact of price rally on government revenue
Source: FMF, FDC Think Tank 66
370 345
299.75 300
350
0
50
100
150
200
250
300
350
400
Jan'16 Feb'16 Mar'16 Apr'16* May'16*
Monthly FAAC Allocation (N/bn)
Monthly FAAC Allocation (N/bn)
66
67
Volume and Value of Transactions to Increase
Transactions volume and value expected to increase once economic activity is
stimulated by budget approval
Source: NIBSS
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
PoS Cheque Neft
Jan'16
Feb'16
Mar'16
Volume (‘000)
0
200
400
600
800
1000
1200
PoS Cheque Neft
Jan'16
Feb'16
Mar'16
Value (N’bn)
Ships Awaiting Berth Up
Ships awaiting berth expected to reach 60
Increased imports of PMS will help ease scarcity
Budget approval will increase spending and international trade activity
Source: NPA, FDC Think Tank 68
0 50 100 150 200 250 300 350
0
20
40
60
80
Mar-
15
Apr-
15
May-1
5
Jun-
15
Jul-15
Aug
-15
Sep-1
5
Oct
-15
Nov-
15
Dec-
15
Jan-
16
Feb-1
6
Mar-
16
Ships Awaiting Berth
Parallel Rate (N/$)
68
Rig Count Set to Decrease
Nigeria rig count set to decline further due to low price and no due incentives
Source: Baker Hughes, FDC Think Tank
0
100
200
300
400
500
600
700
800
900
1000
US
Canada
Nigeria
69
Power Generation to Improve Slightly
Power output from the national grid increased to
3,144MW
From 2,030.5MW in March
Forcados pipeline to remain idle until June
Financing to remain a constraint as power bond of
N309bn was disapproved
Budget approval will stimulate performance in this
sector
Source: Nigeria Power Reform
1000
1500
2000
2500
3000
3500
4000
4500
5000
Power Generation (Average) MW
70
Retail Industry
72
Domestic Retail Industry
Fuel crisis has reduced the traffic to retail stores
Household demand down as budget constraint shifts inwards
A few items are no longer displayed on the shelves due to the
increased lead time from point of order to delivery time
Promos are scarce and likely to remain unchanged until profit
margins increase
73
Informal Retail Trumps Formal Retail
Formal retail far from out shadowing the informal sector
Though the pace of opening new outlets is on the increase
SPAR opened 2 outlets in Abuja and Lagos in the space of 2 weeks
CityDia plans to open two stores every month
Formal retail outlets yet to capture a majority – the informal
market
Informal market accounts for 90% of the entire retail market
Dominance of the informal market arises from income inequality
74
Domestic Retail Industry
Pick n Pay to enter the Nigerian market space through a joint
venture with AG Leventis
Pick n Pay will hold 51% of the Joint Venture
Pick n Pay currently operates in
Botswana, Lesotho, Mauritius, Mozambique, South Africa, Swaziland and
Zambia
Some South African companies that have exited the Nigerian
market include:
Telkom, Tiger Brands and Woolworths
75
Global Retail Industry
Canali designer Andrea Pompilio is to leave the fashion house
by mutual agreement
The designer joined the upscale menswear brand as a creative
consultant just over two year ago, developing four collections
An in-house design team is working on the spring 2017
collection
To be unveiled with a runway show in Milan in June
Real Estate Industry
78
Lagos VFIX- Marginal Increase
79
VFIX up to 166 in April 2016
The LVFIX inched up to 166 in April 2016
Being a sluggish deterioration of the Lekki, V.I & Ikoyi housing
indicator
This is the second monthly urban VFIX
Base month is January 2015
The number of vacant properties increased by 66% in 16 months
Supply remains high despite increasing costs of building materials
80
Building Material Prices Sky Rocket
Building Material Prices (Lagos)
Cement (50kg) N1,700
Iron rod (25mm steel rod) N7,600
Sand (Sharp Sand per 20tons) N50,000
Roofing Sheets per meter (Grade (0.75) N1,850
Vibrated 9-inch block (1 unit) N120
81
Major Vacant Areas
V.I Ikoyi Lekki
Bishop Aboyade
Cole
Glover road Oniru
Sanusi Fafunwa Banana Island Chevy view
estate
Ligali Ayorinde Park view estate Admiralty way
82
VFIX Up to 166 in April 2016 - (A Slight Deterioration)
0
20
40
60
80
100
120
140
160
180
Vacancy factor index (VFIX)
Source: FDC Think Tank
83
VFIX Up to 166 in April 2016
Month/Year VFIX Residential
Index
Commercial
Index
January 2015 100 100 100
January 2016 160.2 169.2 148
February 2016 165.3 176.9 148
March 2016 165.3 176.9 148
April 2016 165.9 180.8 143
Source: FDC Think Tank
84
Office Spaces
Commercial VFIX decreased by 3.5% from 148 to 143
Shows indication of strong expectations of a booming economy
Commercial vacant properties fall reflecting firms’ adaptation
technique
Cut down variable costs to cover fixed cost
85
Outlook – Future Looks Bright
Post budget activity will lead to a firmer market
Rents will stabilize
Vacancy factor will decline marginally to 165
We expect a trickle down effect as soon as the 2016
budget has been passed
Aviation Update
87
Aviation
Global passenger traffic continues to grow
Up to 8.6% in February
Air freight volumes fell by 5.6% on a wobbly economy
Airlines have reacted to robust travel demand by increasing
capacity cautiously
Available seats globally increased by 0.6% in February
88
Aviation
Industry load factor globally is now 77%
In SSA, load factor is 65.7%
IATA officials visited the Nigerian leadership over the blocked
funds
Now summing above $700mn in April
Airlines are navigating their way around the Naira ticket
debacle
Some have suspended naira ticket sales
89
Aviation
Forcing travel agents to purchase dollar tickets after sourcing
forex at the parallel market
Agents are buying the low fare tickets and others using
dollars
Online naira payments have been jammed
Making the parallel market official and effectively accepting a
devaluation
90
Aviation
Meanwhile Iberia with 3 flights a week from Lagos-Madrid has
pulled out of Nigeria
Etihad has cut capacity by 15% using smaller aircraft types-
767
Airline passenger demand is declining
Disposable income down, naira weakness means leaner
wallets
91
Aviation
Nigerians are either accepting the new normal or
Are patronising Medview & Arik for international travel
Trader traffic to Asia is sharply lower
Import restrictions, aggressive customs, anti money
laundering are eating into demand
92
NBS- Q3/Q4 2015 Report
Total passenger traffic declined quarterly by 0.4% in Q4’15
Year on year traffic declined by 8.5% from 4.2m in Q4’14 to 3.8m in
Q4’15
Source: NBS
93
NBS- Q3/Q4 2015 Report
Domestic passenger traffic rose to 2.7m in Q4’15
4.7% higher than Q3’15
International passenger traffic fell by 11% in Q4’15 from 1.2m
in Q3
MMA remained the busiest airport in the second half of 2015
Cargo movement accounted for 60% of the total movements in all
airports
Stock Market
96
Asset Mix – Investors’ Preference Shifts
Government backed securities continues to attract portfolio investment as yield rise
FGN Bonds and Treasury Bills constitute 71.2% of the total portfolio investment
Allocation to equities declined by 10.97%
Due to the general decline in equities prices for the period
Asset Classes Dec'15 Apr'16
% N'bn N'bn
Equity 500.34 445.47 -10.97%
Money Market 586.75 755.26 28.72%
FGN Bonds 3,009.19 3,377.27 12.23%
Treasury Bills 822.28 519.17 -36.86%
Mutual Funds 28.69 31.25 8.94%
State Bonds 172.01 166.24 -3.36%
Supra-National Bonds 1.30 1.30 -0.03%
Corporate Bonds 125.40 137.72 9.82%
Real Estate 23.81 23.83 0.10%
Cash & Others 20.61 13.33 -35.33%
TOTAL 5,290.38 5,470.85
97
NSEASI May 2016 – Index Drifts Lower
Equity market ease after nine weeks rally
NSEASI index retreats March’s gains of 2.99% by 0.96%
Bringing YTD return of the index to (12.5%)
Market capitalization decreased by 0.96% to
N8.62trn
The average daily volume of trade decreased by
30.01% to N546.26mn
Average market PE ratio decreased to 8.1x from
8.26x
60,000,000
1,110,000,000
2,160,000,000
3,210,000,000
4,260,000,000
5,310,000,000
6,360,000,000
24,000.00
24,500.00
25,000.00
25,500.00
26,000.00
31
-Mar
-16
04
-Ap
r-1
6
08
-Ap
r-1
6
12
-Ap
r-1
6
16
-Ap
r-1
6
20
-Ap
r-1
6
24
-Ap
r-1
6
28
-Ap
r-1
6
NSE ASI May 2016
Daily Volume Traded
98
Scott-Free Index
SFNG Total Share Index up 2.8%
Monthly volatility 13.24%
BC30 index gained 3.19% in April
30 day volatility of 14.81%
Sharpe ratio of 0.76xx
1 year return of -35.74%
Trailing P/E 5.44
Scott-Free BC 30
99
Sectoral Performance
The NSE Oil and Gas index was the worst
performer
The index fell sharply by 10.04% in the period
Despite oil price rally and positive Q1’16 results (Seplat
exception)
Forte Oil (-26.9%), Conoil (-18.2%), Mobil (-8.8%), and
MRS Oil (-5%) swung the sector to negative
Banking sector reversed the negative run in
previous month by 9.2%
YTD performance still in the negative territory (-%)
Correction in pricing-in extreme scenario sees
Diamond Bank, Zenith Bank, GTBank, FBNH and
FCMB gain 20.9%, 18.1%, 17.3%, 14.3% and 13.6%
respectively
-0.96%
-0.94%
4.47%
9.20%
-10.04%
-0.72%
-5.97%
-12% -8% -4% 0% 4% 8% 12%
NSEASI
NSE 30
Insurance
Banking
Oil & Gas
Consumer Goods
Industrial Goods
Sectoral Performance
Q1’16 earnings season commenced
Earnings continues to disappoint with few outliers – Access Bank, UBA
Capital and Nestle
Q1’16 Pre-Tax Profit down by 12.99% to N265.87bn, Earnings
declined by 2.3% to N1.44trn
Adds to the cloud of uncertainty facing the equity market thus pricing-in
extreme scenarios
Q1’16 Earnings 100
Soften macroeconomic condition and higher provisioning sees
banks face a tough year ahead
Average gross earning down by 6.21% to N695.7bn
Average Profit Before Tax declined by 8.7% to N160.5bn
Impairments are also up by 38.15% to N41.47bn
Q1’16 Earnings 101
Banks: Deteriorating Balance Sheet - the New Normal
Reported 7.23% increase in Net Interest Income to N63.87bn
Impairment charge of N12.7bn
2nd highest in industry in absolute term after ETI with N13.2bn
Oil and Gas sector accounts for 49% of the bank’s loan book
Notwithstanding gains from operating expense by 19.6%
Profit before tax decline by 18.16%
Remains leading bank by total assets; N4.14trn
NPL ratio of 22.1% and CAR of 17%
Share Price; N3.6
Year – to – Date (YtD) return; -29.8%
P.E Ratio 1.51x
Net Interest Income grew by 4.16% to N40.79bn
Impairment charge amounted to N3.38bn representing a (Q-o-Q) decrease by 3.99% 33% accounts the bank’s loan book is
attributable to the Oil and Gas sector
Non – Interest Income and operating expense declined by 19% and 2% to N19.6bn and N25.7bn respectively
NPL ratio of 3.51% and CAR of 20.25%
Cost-Income-Ratio; 45.6%
PBT declined by 6.05% to N30.6bn
Share price; N16.77 Year – to – Date (YtD) return; -7.75%
P.E Ratio 3.22x
FBNH GTB
102
103
Weak Corporate Q1 – 2016 Earnings
Company Revenue (N’bn) % Change PAT (N’bn) % Change
MRS Oil N25.07 17.5% N0.626 185.3%
Seplat N16.58 (35.12%) (N2.97) (161.7%)
CCNN N3.57 (19.5%) N0.243 (61.6%)
CAP Plc N1.84 2.2% N0.422 (13.21%)
Julius Berger N28.7 (34%) N0.251 (75.6%)
Transcorp Plc N13.19 32.03% N1.206 (45.03%)
eTRANZACT N2.26bn 9.06% N0.153 (4.99%)
Total Nigeria Plc N59.7 (0.56%) N2.82 529.8%
Livestock Plc N2.09 11.75% N0.002 (83.17%)
UACN Plc N17.5bn (1.19%) N1.31 (23.06%)
Fidson Plc N1.21 (0.94%) N0.028 (31.63%)
Berger Paint Plc N0.76 7.67% N0.024 (66%)
FMCG
Stellar Q1’16 result
Revenue up 31.1% to N36.1bn
Gross margin expansion to 49.2% and finance
cost reduction by 66.59% sees PBT up
150.23% to N8.7bn
Market correction see stock trade at
N615.26
Remains NSE’s most expensive stock by per
unit price
Stock down 28.45% YTD
P.E. at 25.5x
Reported Q1’16 showed revenue grew by
12.6% to N16.78bn
Food products and Home care segment grew
by 23.1% and 16.7%
Export activity grew by 84%; in the quarter
contributing 4.1% to total revenue as against
2.5% in Q1’15
PBT up by 64.1% to N1.4bn
Share price; N30.71
Stock down 28.9% YTD
P.E Ratio 257.6x
NESTLE UNILEVER
104
105
Outlook
2016 budget assent and implementation should give rise to
positive macro environment
Inflationary impact remains a concern
Possible downward correction in NSEASI index
Driven by poor corporate earnings, profit taking and possible rate hike
As macroeconomic challenges prolongs, sentiments on banking
sector stock to remain low
Non – performing loans (NPLs) expected to rise and loan growth to slow
106
Outlook
Demand for fixed income instrument to rise, given rising yield
and higher return
CBN’s hawkish tone to see investors stay in the shorter end of the curve
(T/Bills – 91 days)
Most of the quoted companies are currently trading at massive
discounts to their intrinsic values while others are even trading
below book value
A forward market P.E to trade around 7.9x – 8x
Political Risk Analysis – Buhari to Reach Out
108
Political Risk Analysis
The ideological split between technocrats and hardliners may be
brewing
The hardliners are likely to concede some ground as markets
respond negatively
The bunker mentality of the 1980s will give way to a
compromise argument
With the budget wars over, the presidency will become more
practical
109
Political Risk Analysis
Because of a slowing economy, higher inflation and
unemployment
The opposition or whatever is left will take advantage of the
disgruntled electorate
The electoral map will change based on how fast the presidency
accepts policy changes
The party needs to share board appointments amongst loyalists
110
Political Risk Analysis
The APC needs to reorganise its political machine
The trial of the Senate President is something to watch
Will there be a PDP Senate President??
Bye-elections in Edo and Ondo state will be a political litmus
test for the APC
Outlook For May Sell in May and Go Away
112
Outlook in May
Budget will be signed next week
Marginal recovery in economic activities as soon as
disbursement starts
Brent oil price will average $42pb in May
Production will be flat and revenue higher than Q1
Fuel scarcity will persist through June in spite of NNPC’s
efforts
113
Outlook in May
Inflation in April will inch above 13%
MPC will attempt to increase interest rates
Will dig in on the fixed exchange policy
Stock markets will continue flat lining
Corporate earnings will begin a tepid recovery
Wage demands will increase and industrial relations environment
will deteriorate
114
Corporate Humour
A leader knows what best to do:
A manager knows merely how
best to do it – Ken Adelman
They say 50% of all marriages
end in divorce. That’s not bad
considering that the other 50%
end up in death
115
Corporate Humour
I love everybody; some I love to be
around, some I love to avoid and
others I love to punch in the face
The optimist proclaims that we
live in the best of all possible
worlds; and the pessimist fears
that this is true
116
Corporate Humour
It is amazing that the people who
tell you to calm down are the same
people who pissed you off in the
first place
Women call it stalking, it is just
selective walking – Otis Lee Crenshaw
117
Corporate Humour
Sarcasm is intellect on the
offensive
Going to a church doesn’t make
you a Christian, anymore than
standing in a garage makes you
a car
118
Corporate Humour
The quickest way to make a red
light turn green is to try and find
something in the glove
compartment – Bill Connolly
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.”
