BusinessDay 22 Mar 2018

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Thursday 22 March 2018 18 BUSINESS DAY C002D5556 Investor Helping you to build wealth & make wise decisions United Capital investment views Local bourse suffers weekly slide …NSEASI declines 2.9percent week-on-week (w/w) amid sector-wide sell-offs Local bourse closed the prior week on a bearish note as the Nigerian Stock Exchange (NSE) All Share Index (ASI) tumbled 2.9percent w/w, sliding below the 43,000points region to close at 41, 935.9 points. The markets closed lower on 4 of 5 trading days. Accordingly, year-to-date (YtD) return dived to 9.7percent while market capitalisation contracted N506.0billion to settle at N15trillion. A sector-wide bearish trend was witnessed as all 5 sector indices under coverage declined w/w, led by the Financial Services (-6.1%) index which was dragged by GUARANTY (-5.9%), ZENITHBANK (10.7%), ACCESS (-10.4%) and UBA (-13.6%). The Oil & Gas (-2.0%) followed amid declines in CONOIL (-5.1%), SEPLAT (-3.2%), and ETERNA (-6.1%). Notably, JAPAULOIL tumbled -30.9% w/w as the Milost bubble came to a sad end. The Agriculture (-1.3%) and Consumer Goods (-1.0%) trended southwards amid declines in PRESCO (-2.5%), LIVESTOCK (-2.9%), UNILEVER (-14.6%) DANGSUGAR (-7.1%) and CADBURY (-7.1%) dragged the indices. The Industrial Goods (-0.4%) also trailed along due to sell-offs in CCNN (-4.9%) and DANGCEM (-0.4%). Investor sentiment measured by market breadth came under pressure, settling at 0.4x (formerly 1.1x), 23 stocks advanced w/w while 52 declined w/w. Activity levels took a dive as average value traded declined 8.3%w/w to N7.3bn while average volume traded plunged 20.6%w/w to 488.9mn units. We expect further corporate earnings declaration to dictate the mood of the market. Money Market Rates: MM Rates higher as CBN clears N446.5bn in OMO At the beginning of the week, the opening balances of Banks/Discount Houses stood at N121.0bn, even as OBB and O/N rates inched higher by 5.2% and 5.5% to start the week at 13.7% and 14.7% respectively, on the backdrop of OMO mop-ups and FX sales by the CBN. By mid-week OBB and O/N rates moderated to 5.8% and 6.3% respectively, owing to reduced pressure on system liquidity as funds from T-bills maturity and SMIS sales refund hit the system. However, system liquidity tightened subsequently, due to settlement of T-bills PMA held on Wednesday, where the 91-day (Offered: N9.6bn, subscription: N6.2bn, allotment: N6.2bn), 182-day (offered: N47.9bn, Subscription: N12.5bn, allotment: N4.0bn) and 364-day (offered: N38.3bn, subscription: N154.6bn, allotment: N85.5bn) treasury instruments were offered at stop rates of 11.8%, 13.0% and 13.2% respectively and as expected, CBN maintained its liquidity tightening stance, mopping up a total of N446.5bn in the form of OMO auction on Thursday. Overall, OBB and O/N rates rose 3.3% and 3.8% to close at 11.8% and 13% respectively. Going into the week, we expect money market rates to continue to track system liquidity amid the CBN’s aggressive stance. As such, we expect more routine OMO auctions and FX intervention funding this week. A total of N259.1bn is expected to hit the system during the week. Yields: Bullish sentiment dictates proceedings T-bills witnessed a bullish sentiment last week following a 50% cut in the FGN’s planned short-term borrowings for Q2-18 according to the PMA Calendar released by the CBN. market, the naira depreciated by 15bps w/w to close at N360.6/$ at the I&E FX window. Similarly, the local unit depreciated 14bps w/w at the Parallel market settling at N361.5/$. Official market rate appreciated marginally, up 2bps w/w to settle at N305.75/$. In a related development, benchmark oil price, Brent prices, trended upward by 1.1% to end the week at $66/b, despite the continued increase in U.S Shale production. Accordingly, CBN reported Gross External Reserves at $44.5bn as at 15th Mar-18. Thus, outlook on the local unit remains stable in the short to medium term. Global stocks bearish amid fears of a trade war Performance across global equity indices was broadly bearish in the week to end 18th, March 2018. In the U.S markets, worries about an escalating trade war RSA fund price of PFAs as at March 16, 2018 S/N PFAs CURRENT PRICE 1 CrusaderSterling Pensions 3.8897 2 ARM Pension Mgrs. 3.8266 3 Premium Pensions 3.8145 4 Stanbic-IBTC Pensions 3.6350 5 Legacy PFA 3.5262 6 PAL Pensions 3.3509 7 NLPC PFA 3.3413 8 First Guarantee Pension 3.2125 9 Trustfund Pensions 3.1894 10 SigmaVaughn Pensions 3.0632 11 Leadway Pensure PFA 3.0578 12 AIICO Pension Managers 2.9608 13 APT Pensions 2.7840 14 Fidelity Pensions 2.6642 15 AXA Mansard 2.6289 16 FUG Pensions 2.5809 17 OAK Pensions 2.4816 18 Investment One Pension Mgrs. 2.4140 19 IEI Anchor Pension Managers 2.2742 20 Radix Pension 1.9856 21 NPF Pensions 1.4442 Overall, average T-bill yield declined by 52bps w/w to close at 14.7%. (91-day (down 47bps to 14.2%), 182-day (down 57bps to 14.8%) and the 364- day (down 51bps to 15.1%). Similarly, the bond market ended the week bullish across all end of the curve. Thus, average bond yields eased 21bps w/w to end the week at 13.5% amid bargain hunting, further deceleration in Feb- 18 headline inflation and reduction in PMA issuances as noted above. Accordingly, yields for the 3-year, 5-year 7-year, and 10-year Bonds all closed the week lower (44bps, 15bps, 26bps and 18bps respectively). In the new week ahead, the DMO plans to reopen 14.5% JULY 2021 and FEB 2028 instruments and offer a new 10-year bond - FGN FEB 2028. We expect proceedings in the fixed income space to be guided by investor demand and to some extent, system liquidity levels. Currency Market: External Reserves climb to $44.5bn In the Foreign exchange overshadowed robust economic data released during the week. Also, a stronger-than-expected inflation number was feared as a potential catalyst to nudge The Fed closer to 4 rate hikes instead of the anticipated 3. Consequently, the DJIA (-1.5%), S&P 500 (-1.2%) and NASDAQ Composite Index (-1.0%) trended southwards w/w. Across Europe, equities ended the week mixed amid disappointing Eurozone inflation numbers, which fell from 1.6% to 1.3% in February and ongoing diplomatic exchange between the UK and Russia. Accordingly, Germany’s DAX (+0.3%) and France’s CAC (+0.2%) advanced w/w while UK’s FTSE (-0.8%) and Pan- European Stoxx (-0.1%) trended downwards w/w. Emerging market indices trended lower w/w, led by Russia’s RTSI (-3.0%), South Africa’s JALSH (-1.8%) and Brazil’s IBOV (-1.7%). China’s SCHOMP (-1.1%) and India’s NIFTY (-0.3%) also followed in unison. Investor’s Square •Have you been shabbily treated by your registrar, stockbroke r or other capital market operators? Let us know and investor will help you investigate and report back. E-mail: iheanyi.nwachukwu@businessdayonline.com OTC Market Summary T-Bills account for 44.4% of N12.56trn fixed income, currencies markets turnover IHEANYI NWACHUKWU In the month of February 2018, the turnover in the Fixed Income and Currencies (FIC) markets amounted to N12.56trillion which represents 7.34percent or N860billion increase from the value recorded in January (N11.71trillion). Year-onyear (yoy), the FIC markets turnover increased by 3.46percent or N420billion according to FMDQ OTC in its monthly report produced the market development group. Activities in the Treasury Bills (T.bills) market accounted for 44.44percent of market turnover (39.24percent in January), while the Foreign Exchange (FX) market accounted for 33.13percent of the total turnover (37.50percent in January). The Money Market (Repurchase Agreements (Repos)/Buy-Backs & Unsecured Placements/ Takings) accounted for 16.90% of market turnover, maintaining the same market share from the previous month. Transactions in the FX market settled at $12.92billion (N4.16trillion) in February, a decrease of 7.78percent ($1.09billion) when compared with the value recorded in January ($14.01billion). In the month under review, the Naira depreciated at the Investors’ & Exporters’ (I&E) FX Window closing the month at $/N360.41 (from $/N360 as at January 31, 2018) whilst also trading at a discount to the parallel market which closed at $/N363 (from $/ N364 as at January 31, 2018). The CBN Official Spot rate depreciated slightly, losing N0.20 to close at $/ N305.90 (from $/N305.70 as at January 31, 2018). Total value traded at the I&E FX Window in February settled at $3.90billion, a decrease of 25.71% ($1.35billion) relative to the value recorded in January ($5.25billion). This brings the total value traded at the Window Year to Date (Ytd) to $9.15billion. Inter- Member trades recorded $1.36billion in February, an increase of 23.64percent ($0.26billion) relative to the trades recorded in January ($1.10billion), and a 63.86percent ($0.53billion) increase YoY. Member-Client trades stood at $7.45billion, a decrease of 14.65percent ($1.27billion) from the previous month and a 30.02% ($1.72bn) increase YoY. Member-CBN trades recorded $4.11billion in February ($4.18bn in January), representing a decrease of 1.67percent ($0.07bn) MoM and a 204.44% ($2.76bn) increase YoY ($1.35bn), as the effect of the Secondary Market Intervention Sales (SMIS) continued to boost activity in the FX Markets The 19th Naira-settled OTC FX Futures contract, NGUS FEB 28, 2018, worth $353.26million, matured and settled in February, whilst a new 12-month contract – NGUS FEB 27, 2019 – for $1billion, was introduced by the CBN at $/N362.09. Turnover in the Fixed Income market for the month under review settled at N6.27trillion, a 17.63percent increase month-on-month MoM (N930billion). Transactions in the T.bills market accounted for 89.06percent of the overall Fixed Income market, an increase from the 86.11percent recorded in January. Outstanding T.bills at the end of the month stood at N12.56trillion (N11.47trillion in January), an increase of 9.56percent MoM (N1.91trillion). FGN bonds outstanding value also increased marginally close at N7.73trillion, from N7.64trillion in January. Trading intensity in the Fixed Income market for the month under review settled at 0.44 and 0.09 for T.bills and FGN bonds, respectively, from 0.40 and 0.10 recorded the previous month respectively. T.bills between the six (6) and twelve (12) months maturity buckets became the most actively traded, accounting for a turnover of N2.23trillion in February. Short-term yields on the sovereign yield curve increased by an average of 29 basis points (bps) and yields in the medium- and long-term spectrum gained an average of 0.34bps and 0.21bps respectively. The spread between 10-year and 3-month benchmark yields closed negative at 1.17bps for February 2018 (0.49bps in January). Activities in the secured Money Market (that is Repos/Buy-Backs) settled at N2.03trillion in February, 9.14% (N170billion) higher than the value recorded in January (N1.86trillion). YoY, turnover on Repos/ Buy-Backs recorded a 21.02percent increase (N350billion) from the value recorded in February 2017 (N1.68trillion). Unsecured Placements/Takings closed the month at a turnover of N93.75billion, a 22.27percent decrease (N26.85billion) from the figure recorded in January (N120.61billion) and a 33.63percent decrease (N47.51billion) on YoY basis (N141.27billion as at February 2017). Average O/N8 NIBOR for the period under review stood at 19.91percent (11.24percent in January), indicating a decrease in interbank liquidity. The number of executed trades captured on the E-Bond Trading System in February amounted to 16,325 as against 17,041 recorded in January. Executed T.bills trades decreased by 3.69percent (539), similarly FGN bonds also decreased by 7.22percent (177).
Thursday 22 March 2018 Investor Helping you to build wealth & make wise decisions C002D5556 BUSINESS DAY 19 PZ Nigeria: Stock outlook hazy after parent company’s earnings warning …Cordros Capital favours ‘sell’ rating; FBNQuests retains ‘underperform’ rating IHEANYI NWACHUKWU PZ Cussons Plc, the parent company of PZ Nigeria Plc said in a trading update released March 15 that it now expects its profit for the year ending May 2018 will fall short of expectations. In 2017, the shares of PZ Nigeria appreciated by 42percent in line with the broad market. In the earnings warning, the parent company mentioned that intense competition is resulting in lower prices and margins, but “noticeably in the milk category”. The Group said it has initiated some remedial actions in Nigeria, including a (1) reassessment of the structure of its operating model to further reduce the overhead base, (2) review of product costs with a focus on areas such as packaging reduction, and (3) re-prioritisation of the new product pipeline to focus on fewer, bigger projects requiring lower levels of complexity. When clearly executed, analysts believe these efficiency measures will be potentially positive for margins. No doubt, the parent company’s earnings warning made good some analysts earlier depressing outlook for the stock which was priced at N23.55 kobo last Monday. In their January 22 note to investors, Uwadiae Osadiaye-led team of analysts at Lagos-based FBNQuest said, “Looking ahead, we note that the business environment is becoming more competitive and consumer demand remains soft following significant cost inflation in recent quarters.” Following FBN Quest research analyst’s discussions with PZ Nigeria Plc management, the analysts believe that PZ’s White Goods segment and sales of bulk milk due to pricing pressures are likely to continue to struggle in the near-term. “We also understand that naira credit availability which was tight in first-half (H1) 2018 (end Nov) may persist through the year. However, we expect already rolled-out initiatives at the start of H2 2018 (end- May), which is PZ’s peak season, such as distribution expansion and new product launches will help to improve performance during the period. “We forecast sales growth of 21percent y/y to N96.1billion. However, we forecast earnings per share (EPS) decline of circa 53percent y/y to N1.69 in 2018E due to the adverse impact coming through from FX-related losses this year”, said FBNQuest analysts. “PZ posted FX-related losses of N2.6billion in H1 2018 alone. Excluding FXrelated losses, EPS growth was 36percent y/y. Our new price target of N20.5 is up 24percent and implies a downside potential. Our new PT is driven by marketreflective adjustments to our risk-free rate and equity risk premium assumptions. “While we lowered the former by 150basis bps to 14percent we cut the latter by 50bps to 6percent. We have also rolled forward our valuation to 2019. We retain our Underperform rating on the stock. PZ shares are trading on a 2018E P/E multiple of 13.0x for average EPS growth of 5epercent y/y over the 2019-2021E period”, FBNQuest analysts further stated. Meanwhile in their March 16 note on valuation following PZ Cussons earnings warning, Cordros Capital said, “We have a ‘Sell’ recommendation for PZ Nigeria.” The analysts target price for the share is N15.19, with YtD return of 12percent. PZ Nigeria Plc is valued at N93.504billion with shares outstanding of 3.970billion units. The stock price has gained 14.3percent this year, surpassing the NSE All Share Index (ASI) which stood at circa 10percent in same period, according to Nigerian Stock Exchange (NSE) trading data. PZ Nigeria Plc stock price had reached a 52-week low of N13.30 and a 52-week high of N27.30. Trading conditions in Nigeria and UK were unfavourable in first-half (H1), and apparently, the usual peak season uplift has not occurred to the expected level thus far in second-half (H2), according to Cordros Capital in their recent note to investors. “In our note published on 20 February, we estimated that PZ Nigeria 2018E net profit will be lower by 7percent versus 2017FY. But the tone of the parent company’s communication of this earnings warning has raised concern for us that the decline might be bigger. The guidance provided by PZ Cussons is for 18-23percent decline in Group 2018E Profit Before Tax (PBT) versus 2017FY”, the analysts said. “We update on PZ following recent meeting with management. Feedback is that the operating environment has been more challenging than expected since December, and could impact the group’s performance in the traditionally strong second half, and indeed, 2018F”, Cordros analysts said in their February 20 note to investors. “There is actually sales pressure in “Naija”. The management of the Nigerian subsidiary actually confirmed to us in February that the operating environment has been more challenging than expected since December 2017, and could impact the group’s performance in the traditionally strong second half, and indeed, 2018F. The Personal Care {-5percent year-on-year (y/y) volume in H1} and Electrical (-20percent y/y volume in H1) divisions remain under pressure, while Home Care (+7percent y/y volume in H1) has been resilient. “In essence, the 23percent y/y revenue growth in H1-18 was entirely price-driven. Revenue growth should moderate to 8percent in H2, by our estimate”, Cordros stated. Morison raises N502.2m new equity funds Mo r i s o n Industries P l c h a s successfully raised N502.2million in new equity funds, providing the healthcare company with the much-needed boost to reposition its operations. The company had late last year launched a new capital raising for about N502.2 million in new equity funds through new share sale to existing shareholders. Morison Industries offered a rights issue of 836.98 million ordinary shares of 50 Kobo each at 60 Kobo per share on the basis of 11 new ordinary shares for every two ordinary shares of 50 Kobo held as at August 25, 2017. GTI Securities Limited acted as the stockbroker to the supplementary share issuance while GTI Capital Limited was the issuing house. Both GTI Securities and GTI Capital are members of the GTI Group-a leading financial services group that owns the largest private trading floor in Sub Saharan Africa (SSA). The allotment results for the rights issue approved by the Securities and Exchange Commission (SEC) showed that the rights issue was oversubscribed by 1.12 million ordinary shares as shareholders took up their rights and demanded for additional shares. As against 836.98 million shares placed on offer, shareholders placed orders for 838.11 million ordinary shares. “The success of the rights issue has further confirmed GTI Capital’s pedigree of packaging companies to raise capital, irrespective of the macroeconomic and market conditions. GTI Capital worked with the directors and management of Morison Industries to convince shareholders on the prospects of the 63 year old healthcare company”, said Kehinde Hassan, Chief Operating Officer, GTI Capital. “We were able to get many shareholders to subscribe to the shares due to our extensive research on the prospects of the company. Many subscribers were also impressed by the fact that all offers that we had handled in the past usually turned into goldmines, and the facts are out there. So the trust in GTI Capital positively rubs off on the exciting prospects of a recapitalised Morison Industries,” Hassan said. He reiterated the commitment of GTI Capital Group to supporting the growth of indigenous economy by providing amenable debt and equity capital and other advisory services to Nigerian companies, adding that with its international presence, GTI Capital Group is wellpositioned to handle private and public fund raisings for companies in Nigeria and beyond. “The new equity funds would be deployed to improve working capital and finance the restructuring of the company. With the new equity funds, shareholders can be well assured of a new era of growth for Morison Industries adding that the directors of the company will work with all stakeholders to achieve its growth targets”, said Nwabueze Oputa, Managing Director, Morison Industries Plc. Oputa commended the professionalism of GTI Capital in concluding the rights issue successfully and as scheduled, pointing out that GTI Capital has reinforced his confidence in the capabilites of Nigerian capital market operators. Morison Industries was incorporated in Nigeria in June 1955. Morison Industries is engaged in the production and marketing of pharmaceuticals, hygiene products and the importation and distribution of medical, surgical and hospital equipment, instruments and consumables. The company also provides its production facilities to third party for contract manufacturing arrangements.
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