LBS presentation by FDC - November 2015

MONTHLY ECONOMIC NEWS AND VIEWS
November 6, 2015
by
Bismarck J. Rewane
Fantasy Economics & Value of the Naira
Presented at Lagos Business School

Financial Derivatives Company Limited
2
Outline -Corporate Arrogance or Regulatory Tyranny
October Highlights
Global Economic Update
Domestic Economic Performance
Commodity Update
Capital Markets
Policy & Politics
Outlook for November

CORPORATE ARROGANCE OR
REGULATORYTYRANNY

4
October in Retrospect- GDP Contracts
 End of another slow GDP quarter
 Estimates of GDP growth is for 2%
 Meaning 3 consecutive quarters of declining growth
 Q1: 3.96%
 Q2: 2.35%
 Q3: 2%
 The good news is that slow growth has bottomed out

5
Agriculture – Fastest growing agric producers
 Favourable policies and competitive exchange rates is
driving changes
 Mainly for conflict economies;Angola, Liberia & Tajikistan
Highest growth in agriculture
% (2013)
% Increase in Output
1 Angola 11.1
2 Qatar 9.2
3 Liberia 9.1
4 Tajikistan 8.1
5 Puerto Rico 7.7
17 Nigeria 5.6
Source: Economist

6
Highlights
 Oil production marginally up to 1.9mbpd in September
 Power output from the grid dropped to 4,200MW from
4,500MW in September
 20% more power downtime in greater Lagos in October
 Inflation up at 9.4% and will inch up further to 9.5%
 Forex rationing increased as oil revenue decline begins
to pinch
 External reserves declined marginally to $30.19bn
 Enough to cover 4.89 months of imports and payments

7
Highlights
 New bank verification number (BVN) rule has roiled the
markets
 Sending the naira into a free fall from 226 to 233
 BDC operators and their clients afraid of money
laundering rules and indictments
 FBN purchasing managers index (PMI) expanded 2% to
52.6 in October
 Net operating income (NOI) consumer confidence index
up 4.7pts to 67

8
Highlights
 Brent crude traded at an average of $49.3pb
 6.9% below the budget benchmark price
 No accretion to Excess Crude Account as revenue plunges
 Revenue shared by the 3 tiers of government crashed to
N390bn
500.13
388
518.5
442.6
390
300
360
420
480
540
600
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15
FAAC (N'bn)

9
Highlights - Regulatory Tyranny & Corporate
Arrogance
 Oil has traded below $50pb for over 12 weeks
 The gap between gross and net external reserves has
widened
 Revenue pressure leads to a change of regulatory
attitude
 Zero tolerance for infractions
 Trophy penalties to deter governance breaches
 NCC, CBN, FRCN, Customs show their teeth

10
Highlights - Regulatory Tyranny & Corporate
Arrogance
 MTN fined $5.2bn equivalent of 11 years of average
revenue per Sim card
 Considered excessive by any yardstick
 Motivation was partly to raise revenues and also to curb
corporate abuse and arrogance
 Rash of new regulationsTSA, BVN, forex restrictions,
BDC rules

11
Highlights
 Refund of Cash Reserve Ratio and reduced OMO
activity increased system wide liquidity sharply
 Average opening long position of the banking system up
to N605.21bn
 Overnight and OBB rates fell to record lows of 0.5% p.a.
 Stock market prices continued to plunge,YTD loss up to
15.93%

12
Highlights
 Adjusting for exchange rate losses, annual return down
by 42%
 Dividend yield for the Scottfree 30 is 3.68%
 Trailing P/E increased to 6.68%
 Banking earnings mixed but generally lower than Q2
 Exceptional items responsible for the outperformers

13
Highlights
 Budget 2016 remains work in progress awaiting new
ministers
 NERC agree to an upward tariff adjustment for mid-
November
 NNPC announce major changes to oil lifting
arrangements

16
 U.S. economy slowed to 1.5% in Q3 from 3.9% in Q2
 Affected by lower govt spending & business inventory
and investments
 Manufacturing output, trade & exports weighed down by
the strong dollar
 U.S. dollar has appreciated by 20% in 15 months
0.0
20.0
40.0
60.0
80.0
100.0
120.0
U.S. Dollar Appreciation

17
 The Fed Reserve failed to increase interest rates at its
open market committee meeting
 Made explicit reference to the possibility of raising rates
in December
 Will be watching signs of strengthening of the global
economy and U.S. employment

18
Eurozone – Still in the Dump
 Pace of growth has been particularly slow
 Yet to recoup output lost in the aftermath of financial
crisis
 Grew by 0.4% in Q2’15, down from 0.5% in Q1’15
 Growth remains stagnant at a time the region is
benefitting from:
 A weaker euro that should boost exports
 Lower oil prices which raises disposable income
 QE program ($1.12trn) launched by the ECB

19
Eurozone - Towards an Extension of the ECB’s
Quantitative Easing
 ECB’s balance sheet has outstripped the size of the
Fed’s
 As a percentage of GDP
 ECB revised its inflation and growth forecasts
downwards in September
 Indicators reflect increasing need for further monetary
easing
 European growth driven by domestic demand

20
India – Quantitative Easing
 Hosted African Heads of State to an Economic Summit
 Central bank lowered interest rates by 50bp
 For fourth time in 2015
 Focused on bolstering economic growth
 Emphasized unfavorable international developments
 Government in favor of strengthening investment
 Indian – African trade is now $75bn
 India is now Nigeria’s largest trading partner

21
SSA - India Seeking to Strengthen Foothold
 Indian trade with SSA has surged by almost 66% to 2014
from 2010
 Forced to diversify its focus from developed economies after
2008 global financial crisis
 Raw materials still make up the lions share
 India now biggest buyer of Nigerian oil – overtook the
US in 2013

22
Brazil - Caught in a Negative Spiral!
 Domestic problems plunges Brazil into serious
economic crises
 Consumer and corporate confidence indicators
currently low
 Brazil is in recession
 GDP contracted -0.7% in Q1 and -1.9% in Q2
 Prices of petrol and electricity have been increased

23
China – Growth Figures Doubled
 Chinese growth is flat lining
 Analysts are questioning the data integrity
 Some say it could be as low as 3%
 Process of rebalancing economy towards more
domestic demand

24
China – Growth Figures Doubled
 Fiscal and monetary conditions eased to stimulate
growth
 Q3 GDP and industrial production growth likely to
remain weak
 PMI edged up to 48.3 from 47.2 in September
 An 8th straight month of being below 50

25
Trading Partners
 China – Economic slowdown
 India – Economic slowdown, rising inflation
 United States – Growing consumption, stronger dollar
 France – Economic slowdown, weak domestic demand
 Brazil – Recession
17.3%
11.5%
9.5% 9.5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
India Brazil Netherlands Spain
Export Partners
25.3%
9.7%
4.7%
3.2%
0%
5%
10%
15%
20%
25%
30%
China US India France
Import Partners

SSA - China Trade Dominates
 Investment &Trade in Africa
dominated by China
 Total trade between China &
SSA is now $184bn
 Has more than doubled
between 2010 and 2014
 Over 3 times the value of
India's trade in SSA
27

28
South Africa
 Power shortage and falling commodity prices push
unemployment to 25.5% in Q3’15
 Growth is forecast at 1.5% this year
Highest rate of unemployment, % of
labour force
1 Namibia 29.7%
2 Macedonia 29%
3 Reunion 29%
4 Nigeria 28.5%
8 Spain 26.1%
9 South Africa 24.9%
Source: Economist

31
Leading Economic Indicators
INDICATORS
September’15 October’15
(Oct/Sep)%
change
November*
Oil Markets
Spot price (avg $’pb) 48.54 49.29 1.55 49.50-50.00
Production (m’bpd) 1.86(August) 1.9(September) 2.15 1.95
Money Markets (End Period)
OBB (%)p.a 5.42 0.88 (454bps) 0.75 - 1.00
Overnight (%)p.a 5.92 1.25 (467bps) 1.00-1.50
MPR (%)p.a 13.00 13.00 -- 13.00
CPI ( %) 9.30 (Aug) 9.4 (Sept) 0.1 9.5(Oct)
External Reserves ($’bn) 30.34 30.19 (0.49) 29.80
Exchange rate (End Period)
Inter-bank (N/$) 199.08 197.52 0.78 197.1
Parallel (N/$) 223.5 226.50 (1.34) 225
Other
Market cap (N’trn) 10.73 10.12 (-6.52) 10.00
FAAC N’bn) 442.6 389.9 (11.91) 320-370
M2 (N’trn) 18.42 (Jul) 18.49 (Aug) 0.36 18.50-19
FBN PMI 51.6 52.6 1.0 53.2
Vacancy Factor (Residential %) 40 40 - 40
Vacancy Factor (Commercial %) 31 31 - 31

32
LEI’s: Mixed Performance
 We expect GDP growth to start recovering in Q4 after 3
quarters of contraction
 Government plans to increase spending by 100% to N8trn in
2016
 Expect more rationing of forex until December
 PMI will expand marginally again in November
 Average inventory levels to remain flat

33
FBN Purchasing Managers’ Index
0
10
20
30
40
50
60
70
Headline PMI Output SI Employment SI New orders SI Delivery SI Stock SI
Purchasing Managers' Index
September October

34
Oil will remain Below $50pb in November
43
44
45
46
47
48
49
50
51
52
53
54
1-Oct-15
3-Oct-15
5-Oct-15
7-Oct-15
9-Oct-15
11-Oct-15
13-Oct-15
15-Oct-15
17-Oct-15
19-Oct-15
21-Oct-15
23-Oct-15
25-Oct-15
27-Oct-15
29-Oct-15
Brent Crude Oil ($/b)
 OPEC meeting scheduled for
December 4
 No changes in output picture
 An increase in oil production will
not compensate for soft price

35
Lower Interest Rates
 Volatility at the money market will
continue but rates to stay low
 Average NIBOR (OBB, O/N and
30-day) closed lower at 6.41% p.a.
relative to 13.41% p.a. in
September
 CBN’s suspension of OMO
improved liquidity
 Interbank rates expected to remain
within the 1-5% due to market
liquidity
Source: FMDQ, FDC Research
0
2
4
6
8
10
12
14
16
2-Oct 9-Oct 16-Oct 23-Oct 30-Oct
OBB ON 30
Interest Rates (%)

36
Inflation to Inch up to 9.5% in October
 Inflation inched up to 9.4% in
September
 Projection for CPI to
increase to 9.5%
 Price of diesel up from N108
to N110
 No increase in transport
costs
7.50
8.00
8.50
9.00
9.50
10.00
Inflation (%)

Forex Market
 Naira remained relatively stable
in all segments of the market
 IFEM and IATA exchange rates
somewhat steady at N197.52/$ &
N200/$ respectively
 Depreciated 1.34% at the parallel
market to N226.50/$ this week
 Exchange rate differential has
widened to N28.98 from
N24.42 in September
37
153.00
163.00
173.00
183.00
193.00
203.00
213.00
223.00
233.00
Forex N/$
parallel interbank IATA ROE
37

External Reserves – Depletion Continues
 External reserves declined 0.69%
($210m) to $30.19bn in October
 Pressure at the forex market
remains despite restrictions
 Import cover of 4.89 months of
goods and services
 Reserves will deplete further in
November
 Net foreign reserves after
discounting arrears down to
$24bn Source: CBN, FDC Research
38
31.32
30.37
30.19
29.80
Aug Sep Oct Nov**
External Reserves $'bn
38

40
Commodity Prices in September
 The Bloomberg Commodity Index (BCOM) down 0.45%
in October from September
 High volatility in both oil and agriculture prices
-15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00%
WTI ($/b)
Brent Crude Oil ($/b)
Natural Gas ($/MMBtu)
Gold ($/ounce)
Silver ($/ounce)
Cocoa ($/mt)
Sugar (US cents/pound)
Corn (US cents/bushel)
Rough rice ($/cwt)
Wheat (US cents/bushel)
PalmOil ($/tonne)
m-o-m change

41
Global Oil Prices remain Low
 Brent crude rose 1.3% to an average of $49.29pb in
October
 From $48.66pb at the end of September
 Decline in U.S. rig count but increase in crude stockpiles
 Increase in OPEC production

42
Softs Commodities
 Agric. commodities up 1.6% on average in October
 Gains led by:
 Sugar: Up12.7% m-o-m
 Cocoa: Up 4.8% m-o-m
 Upward movement in prices driven mainly by adverse
weather patterns caused by El Nino
 Increasing fears that supply of crops might be affected
 Excess supply continues to haunt some commodities
 Rough rice: Down 9.9% m-o-m

43
Domestic Commodity Prices
 Forex unavailability and naira volatility had a negative
impact on prices of imported commodities
Commodity Current Prices
LAGOS
Current Prices
KANO
Current Prices
ONITSHA
Cement (50kg) N1,700 N1,500 N1,400
Cassava (Garri)
(50kg)
N4,000 N5,000 N3,500
Maize (50kg) N3,500 N2,300 N2,700
Flour (50kg) N6,600 N6,300 N6,400
Sugar (50kg) N7,500 N6,200 N6,500
Rice (50kg) N10,000 N10,000 N10,000
Palm Oil (25L) N7,000 N5,000 N6,500

44
Outlook
 According to the EIU, oil prices will remain low as
markets remain well-supplied
 OPEC will continue to expand production
 The organisation’s strategy has shifted from balancing the
market to defending market share
 Iran expected to add about 500,000bpd
 Upside risks for agricultural commodities
 El Nino already factored in, but impact could be higher

46
Monetary Policy
 The IMF pressing for a downward naira adjustment
 Cites uncertainty over political and economic outlook
 CBN insists that the naira is correctly priced
 Continues to deploy administrative measures

47
Monetary Policy
 Federal government opposed to any naira devaluation
 41-item list of items ineligible for forex issuance likely to
increase
 The appointment of the cabinet should provide policy
direction for the CBN to align with
 An adjustment of the exchange rate would be inevitable
if oil prices stay below $50pb for a sustained period

48
Countries Adjusting their Currencies
Country/Region Currency adjustment
China China devalued the yuan in September
4% drop in yuan is large relative to its trading band
Eurozone The euro has fallen up to 17% against the US dollar since
August last year
Kazakhstan Kazakhstan devalued its currency, removing the tenge’s
peg
Tenge lost 29% of its value against the dollar
Angola Angola hit by oil price fall
Angola’s kwanza has lost 22% this year

49
Countries Adjusting their Currencies
Country/Region Currency Adjustment
South Africa South Africa is also experiencing currency pressures due
to depressed commodity prices and domestic factors
Rand has lost up to 15% against the US dollar this year
Russia Russia has been affected by falling oil prices
Rouble fell to its weakest since 1998
Venezuela Venezuelan economy relies primarily on oil exports
Between May and August, the bolivar lost nearly half its
value

50
Fiscal Policy
 Revenue down by over 50%
 Expenditure cut by 4.87%
 Deficit widening to 2% of
GDP
 Bailout funds to states
Key Issues
 State govt financing
 Subsidy
 Debt financing

51
Amount Spent on Subsidy
Source: FBN Capital

52
Nigeria’s Revenue Profile
 Gross federally collected revenue declined by 27.7%
in Q2
 Attributed to the decline in oil and non-oil revenue
0
100
200
300
400
500
600
700
Q1'15
Q2'15

53
2016 Budget Process is Underway
 Budget office and national planning commission produce
initial planning document
 Introduction of a zero based budgeting
 Estimated growth rate of 3.4% in 2015, 4.4% in 2016
 Increase in oil output to 2.20mbpd from 2.11mbpd
 FGN has allowed IOCs to fund their J.V. budget
 Reducing government expenditure by $5bn

FAAC Allocation Down in October
 FAAC allocation shared was
N390bn in October
 12% lower than N442.6bn shared
in September
 Revenue loss of $32m due to
$9.4pb decline in oil prices
between July and August
 Last time it was this low was in
April
 Expect a minor increase in
FAAC shared in November
 Slightly due to higher oil prices in
September Source: FMF, FDC Research
500.13
388
518.5
442.6
390
400
300
360
420
480
540
600
FAAC (N'bn)
56

Ships Awaiting Berth Up
 Ships awaiting berth in Lagos
ports increased to 53 in October
 From 34 in September
 Christmas orders by traders and
retailers
 New customs personnel likely to
reduce smuggling
Source: NPA, CBN, FDC Research
61
51
49
46
49 49
57
59
34
53
0
10
20
30
40
50
60
70
No of Ships Awaiting Berth
57

Rig Count Up in Nigeria
 Active rigs in Nigeria not
following the global trend
 Increased to 10 in
September from 9 in the
previous month
 US rigs down by 7.7% to
591 in the same period
Source: Baker Hughes
0
2
4
6
8
10
12
14
16
18
20
2014 2015
Rig Count (Nigeria)
58

Power Generation Down
 Average power output from
the national grid down to
4,200MW in October
 6.7% lower than 4,500MW
in September
 Peak: 4,688MW
 Lowest: 3,466MW
 Maintenance at Egbin power
plant
 Power expected to fluctuate
around 4,000MW by year end
Average Daily Power Generation (MW)
Source: Nigeria Power Reform
4073.75
3926
4748
2000
2500
3000
3500
4000
4500
5000
16-Jan
29-Jan
11-Feb
24-Feb
09-Mar
22-Mar
04-Apr
17-Apr
30-Apr
13-May
26-May
08-Jun
21-Jun
04-Jul
17-Jul
30-Jul
12-Aug
25-Aug
07-Sep
20-Sep
03-Oct
16-Oct
29-Oct
59

61
 Domestic retail sales remained mostly flat in October
 Now beginning to pick up as seasonal effect sets in
 Inventory levels still low due to difficulty in sourcing for
forex
 Weekday and weekend traffic relatively unchanged
 More electronic payment transactions as cash-to-card
ratio declines to 64:36
 From 65:35
Domestic Retail

62
 According to the Nigeria Inter-bank Settlement System
Plc (NIBSS):
 Volume of transactions through PoS terminals rose by
approximately 80% to 27 million as at June 2015
 From 15 million in 2014
 Volume of cheques cleared reduced by 7% to 14 million
as at June 2015
 From 15 million in 2014
Domestic Retail

64
 Real estate activities remained sluggish
 Vacancy still high as some new property developments have
been completed or are nearing completion
 Residential vacancy factor up in Ikoyi to 25% in October
 From 23% in September
 Commercial vacancy factor up to 13%
 From 9% in September
Real Estate – Domestic

65
New Developments
Location Type Status
Civic Tower Ozumba, V.Island Commercial Completed
Vita Tower Kofo Abayomi, V.Island Residential Completed
Heritage Place Ikoyi Commercial Nearing Completion
BAT Sun Rising Ikoyi Commercial Nearing Completion
Maldives Adeola Odeku, V.Island Commercial Completed

66
Vacancy Factor Up
Source: FDC Research
0%
5%
10%
15%
20%
25%
30%
35%
40%
Victoria Island
0%
5%
10%
15%
20%
25%
30%
35%
40%
Ikoyi
0%
10%
20%
30%
40%
50%
60%
70%
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15
Residential Vacancy Factor Commercial Vacancy Factor
Lekki

69
Global Aviation Outlook
 Airline profit expectations for 2016 have fallen but still
positive
 Recent gains in profitability have been driven by strong
growth in passenger volumes and falling input costs in Q3
 Growth outlook remains positive for passenger and cargo
businesses but at a slower pace
 Reflecting concerns of weak global business environment
and emerging market economies

70
Global Aviation Outlook
 Global GDP for 2015 is projected at $760 billion in 2015
 Translating into higher profits and returns on capital for
airlines
 Predicted 7.5% returns on capital for airlines in 2015
 Air fares are expected to fall as supply increases

71
Passenger Travel in August
 International passenger traffic was up 6-7% in Q3
 Reflecting strong growth within the Europe travel
market
 Economy class travel has experienced slightly stronger
growth so far in 2015
 More price sensitive travel market

72
Passenger Travel in August
 Growth in premium international travel has been relatively
slower
 Due to weakness in business travel demand drivers and weak
global business confidence in emerging markets

73
Aviation - Load Factor
 Higher air traffic but lower yield
 Changes in the passengers portfolio have affected
destination and profit
 Decrease in traffic to popular destinations
 Only North America saw a marginal increase in traffic
 Higher number of economy passengers who take advantage
of promos

74
Aviation- Load factor in Nigeria
 Reduction in traffic of premium passengers
 Trader traffic has declined
 Restrictions on FOREX clamp down on domiciliary accounts in
Nigeria complicating transactions
 Informal trade is more risky due to anti-smuggling policies, tighter
borders and higher customs and/excise duties
 Oil industry traffic has declined
 Sharp cutting of costs to make up for drops in revenue
 Government officials traffic down
 Anti-corruption sweep and austerity measures

75
Airline News
 Emirates, Lufthansa,Air France-KLM and other European
and Middle Eastern airlines stop flying over site of
Russian plane crash
 Airlines will reroute flights around the peninsula
 Airline representatives to meet with CBN to ensure
orderly pipeline for payments
 Backlog of airline remittances for ticket sales proceeds

76
Airline News
 Delta Airline will discontinue flight to Dubai from Feb
2016
 Due to heavy competition from Emirates
 British Airways has stopped sale of Sold OutTicketed
Out (SOTO) and Sold OutTicketed In (SOTI)
 Only tickets for flights originating from Nigeria would be
issued

77
Airline News
 Etihad plans to launch new airbus A380 on its 2X-daily
Abu Dhabi-Melbourne service from June 2016
 Increasing capacity by 2,370 seats from 9,120 seats a week
 Airbus would also fly from onward destinations such as
London and the recently announced NewYork JFK A380
service
 The NewYork JFK A380 will start in December 2015

78
Airline News
 Qatar Airways announces fourth UK destination between
Doha and Birmingham from March 30th 2016
 The new destination will include 8 flights a week, including two
flights on Saturdays
 South African Airways to introduce Abuja-Johannesburg
route
 3 flights a week
 Yield questionable due to visa restrictions
 Threat to domestic airlines

79
Airline News
 Arik Air to begin IPO on the Nigerian Stock Exchange
(NSE) in 2017
 Airline has also launched a travel insurance
 Flight cancellation/delay of more than 8 hours: N20,000
 Emergency medical expenses: up to N50,000
 Mishandled/missing/damaged baggage: up to N20,000
 Personal accident resulting in death/permanent injury: up to
N1,000,000

80
Flight Promos
Destination Ticket Price
New York (Premium economy) from $2549
Aberdeen (Business Class) from $3389
Amsterdam (Business Class) from $3169
Barcelona (Business Class) from $3059
 Exclusive 25% discount with HRG on emirates flights to
Manchester
 Fly in Luxury with Lufthansa:

81
Domestic Outlook
 Decline due to restrictions on naira card overseas
 Only cards of individual accounts allowed
 Push to impose policy restrictions on foreign airlines
 To curb multiple point entry
 To promote partnership with domestic airlines
 National carrier project an infeasible one
 Nigeria too poor to afford luxury of decision making

84
Global Equity Markets
 Strong rally in global equity markets as major indices
post positive performance
 S&P 500 gained 8.29% in October, Dow Jones, MSCI and
FTSE 100 gained 7.23%, 7.04% & 3.77% respectively
 Volatility returns to the Shanghai index
 Gains 10.80% in October
 NSE ASI returns 6.53% as poor Q3 results dampen
investor confidence

85
Nigerian Stock Market Review- A Red October
 Market sentiments turn negative as dismal Q3 results worry investors
 BC30 index lost 7.01% in October as against 6.52% gained in September
 30 day volatility of 12.14%
 Sharpe ratio of -4.54
 1 year return of -24.35%
 Trailing P/E 6.68%
Scottfree BC30 Index
9,700.00
9,800.00
9,900.00
10,000.00
10,100.00
10,200.00
10,300.00
10,400.00
10,500.00
10,600.00
10,700.00
28,000.00
28,500.00
29,000.00
29,500.00
30,000.00
30,500.00
31,000.00
31,500.00
NSE INDEX MARKET CAP (N'b)
NSE ASI
Source: Solactive, FDC Research Source: NSE, FDC Research

86
October 2015 Highlights
 NSE ASI lost 5.67% during the month, -15.1%YTD
 Market capitalization decreased by 5.34% from N10.59tn
to N10.02tn
 Barclays bank to review Nigeria’s listing in it’s bond index
 Mixed performance of Q3 results released so far
 Banking sector results outperform all other sectors
 Oando releases shocking results
 Posts loss of N183.9bn
 Worst performance of any NSE listed company

87
Sectoral Performance
 Apart from the insurance sector, all other sectors record negative
performance
 Consumer goods sector records worst performance on weak Q3 results
 Nestle down 5.17%
 Guinness down 20.13%
 Cadbury down 16.04%
 Unilever down 14.29%
0.45%
-5.62%
-8.00% -6.00% -4.00% -2.00% 0.00% 2.00%
NSE 30
Insurance
Banking
Oil & Gas
Consumer Goods
Industrial Goods
Sectors in October

88
Regulatory Tyranny
 Stanbic IBTC indicted by FRCN
 Ordered to pay N1bn in fines
 NSE accused of complacency over Oando’s breach of
reporting procedure
 UBA & FBN fined N4.8bn over non compliance on TSA
 NCC slams MTN with fines of $5.2bn
 Group’s 2014 full year revenue: $10.65bn
 Trading suspended on JSE
 Regulatory environment sending out mixed signals?

89
Banking Industry Performance (Y-O-Y)
Tier 1
Bank Earnings Growth PBT Growth Loan Growth
Net Interest
Margin
Impairments
Growth
Access Bank 42% 45% 16.86% 6.99% 66%
FBNH 14.95% 19.24% -11.29% 7.85% 248.98%
Guaranty Trust Bank 15% 14% 0% 9.41% 35%
UBA Plc 17.32% 34.84% 5% 7.57% 129.88%
Zenith Bank 23.06% 19.85% -11.765 7.74% 99.20%
Tier 2
Bank Earnings Growth PBT Growth Loan Growth
Net Interest
Margin
Impairments
Growth
Diamond Bank Plc 3.26% -21.68% -15.35% 8.72% 32.65%
ETI 17.43% 18.30% 15.12% 7.56% 48.10%
Union Bank 6.44% 15.34% 15.57% 10.19% -20.38%
Sterling Bank 12.01% -2.34% -14.29% 7.48% 50.43%
Skye Bank 33.06% 21.45% 6.61% 8.11% -14.89%
Stanbic IBTC 10.34% -48.80% -0.30% 6.80% 521.34%
Fidelity Bank Plc 10.98% 2.99% 1.65% 9.51% 107.59%

90
Analysis of Results
 Increase in interest income salvages sector performance
 Significant increase in impairment costs as lenders
struggle with repayments
 Negative effects of government policies implemented in
Q2 & Q3 affect quarterly results
 Zero net effect of TSA regulations and reduction in CRR
in quarterly results

91
Q3 Performance by Industry
FMCG
Revenue Cost of Sale Finance Cost Profit After Tax
Unilever -2.14% 4% 100% -92%
Cadbury -10% 0% 0% -98%
Nestle 5% 3% 92% -90%
Dangote Sugar -1% -3% 191% 2%
Oil & Gas
Forte -25.26% -28.05% -74.44% 6.69%
Eterna Oil 83% 2% -28% -28%
Mobil -25.35% -28.97% 50.10% -39.13%
Seplat -10% 21% 135% -62%
Oando -5.48% 47% 27% -1022%
Breweries
Champion Breweries 3.94% -8.33% 0.00% -103.26%
Nigerian Breweries 10.36% 14.48% 53.58% -12.22%
Guinness 3.30% 18.45% -1.16% -75.60%

92
Analysis of Results
 Reduced PAT despite growth in revenue as increasing
finance costs is squeezing margins
 Oil & Gas sector performance lackluster as oil prices
remain soft
 Forte Oil, new industry poster boy
 Economic headwinds affect Q3 top-line growth in FMCG

93
The Nigerian Stock Market Today
 Short term investors bearish on weak Q3 results
 Stock prices cower as regulators brandish whips
 Portfolio investors continue to exit positions and seek
alternative asset classes
 Increased liquidity driving trading volumes

94
 New cabinet will emphasize incentives for investors
 International investors await new price bottoms as calls
for currency devaluation intensify
 More bargain hunting but market recovery will be in
January

97
Political Update
 Buhari consolidates power and control
 PDP in disarray, but regrouping
 Ministerial approval was a piece of cake for Buhari
 APC is now in government and also in power
 Next step is to dismantle the PDP patronage network
 The political balance of power in the Niger-Delta is
changing rapidly
 Annulment of Wike’s election in Rivers and 22 state
House of Assembly members is a game changer

98
Political Update - Niger Delta is Volatile
 The death of former governor Alamieyeseigha and
grounding of Deziani are notable developments
 Bayelsa State election is a toss up but likely to be
retained by the PDP
 Kogi state is more dicey, unpaid salaries is a big problem
 Incumbent is on the ropes
 APC candidate has considerable baggage but is now an
odds-on favourite

99
Political Update
 APC candidates have serious baggage
 Buhari’s fiscal stance and leakage blocking will starve APC
machine of funding
 Substantive ministers and ministers without portfolios a
new phenomenon in the 4th republic
 Ministerial positions will now be a sacrifice rather than an
opportunity to loot
 The scramble for board appointments will intensify by APC
operatives

100
Political Update
 The APC big wigs will need to stitch the party back
together
 Expect major defections from the PDP to the APC
 Even among serving governors and senators
 The investigation and prosecution of Jonathan’s men will
keep the PDP busy
 The confirmation of the new INEC leadership is a
significant development

101
Political Update
 INEC will send an amendment of the electoral act to
make PVC use mandatory
 Not fat enough for use in Bayelsa and Kogi elections
 But in good time for the re-runs in Rivers, Akwa Ibom
and others

103
 Naira weakness will intensify at the parallel market
 The authorities will make naira misalignment a subject of
a national debate
 It will become clearer that the adjustment is inevitable
 Inflation will creep up to 9.5% in October data

104
 Government spending will start as a reflation package is
approved by cabinet
 The states will receive another bail out
 Many states will lay off workers in November
 External Reserves will decline to $28bn
 MPC will lower the MPR for signalling effect to 12% p.a.

105
 Bank loan impairment will increase, sharply undermining
capital adequacy
 Stock market will remain very soft through November
 International investors will shun the market especially
after the fines on MTN & others
 Government ambitious spending plan of N8trn in 2016
will whet the appetite for Nigerian risk

106
Corporate Humour
William Buckley
An incompetent lawyer can delay a trial for
months or years. A competent lawyer can
delay one even longer.
- Evelle Younger
There are no exceptions to the rule that
everybody likes to be an exception to the
rule.

107
Corporate Humour
Anything you buy will be on sale next week.
Statistics are figures that prove that the best
time to buy anything was last year.
There are two kinds of statistics; the kind you look
up and the kind you make up.
- Erma Bombeck
Jack Benny
- Bob Mortimer

108
Corporate Humour
A politician is a man who will lay down your life
for his country
I think the voters misunderestimate me.
- Texas Guinan
George W. Bush
A fool and his money are soon elected.
- Will Rogers

109
Corporate Humour
109
Governments are like underwear. They need to
be changed often and for the same reason.
Bill Clinton gets so much in speaking fees
these days that when I saw him in New York
the other day and said hello he said that will
be $10.
- Italian Proverb
Bob Dole -

110
Corporate Humour
Beauty is only sin deep.
I did a physical test for some life insurance, all
they would give me was fire and theft.
- Saki
Milton Berle -
My father invented a cure for which there was no
known disease. My mother caught the cure and
died of it.
- Victor Borge

111

Bismarck J. Rewane, MD/CEO
Financial Derivatives Company Ltd.
Lagos, Nigeria
01-7739889

LBS presentation by FDC - November 2015

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