The document provides an economic analysis and outlook for Nigeria and the global economy in May 2016. Some key points: - Nigeria's GDP declined to 1.9% in Q1 2016 due to poor power supply and low oil production. Inflation spiked to 13.2% due to higher food and fuel prices. Unemployment is expected to increase to 30%. - Globally, the IMF lowered its 2016 growth forecast to 3.2% due to weak conditions. The US saw slow growth of 0.5% in Q1. China's growth slowed slightly but remained within target at 6.7%. Sub-Saharan Africa growth is forecast at 3.3%. - Domestically

1. 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. 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 butYou Can’t Hide
Business Proxies & Stock Market- Markets Stay Flat
Political Risk Analysis- Buhari to Reach Out

3. April in Review - States Go Belly Up

4. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 16
Liquidity Saturation Continues
 Average opening position in banks was 38.21% higher at
N423.58bn in April
 Interest rates increased across board
 91-dayT/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. 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. 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

19. Beer Market

20. 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

22. Global & Regional Context

23. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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 viaTanzania instead of Kenya
 Kenya to tender own oil pipeline costing $2.1bn

33. 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. 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. 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

37. Domestic Economy

38. Commodities Market

39. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 51
Slowing Growth to Continue in Q2’16
 Despite the recovery in oil prices, non oil sector to remain key
driver of growth
 IMFWorld Bank revises downwards Nigeria’s 2016 GDP growth
forecast to 2.3%
 Slowest GDP growth since the return of Democracy in 1999

52. 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. 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

55. Policy Direction or Contradictions-
You can Run but You can’t Hide

56. 56
Key Events to Watch
 Signing of budget
 April inflation data: May 18
 MPC meeting: May 23 &24

57. 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. 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. 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. 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. 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. 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. 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. 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

65. Business Proxies

66. 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. 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)

68. 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-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Ships Awaiting Berth
Parallel Rate (N/$)
68

69. 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

70. 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

71. Retail Industry

72. 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. 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. 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 JointVenture
 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. 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

77. Real Estate Industry

78. 78
Lagos VFIX- Marginal Increase

79. 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 urbanVFIX
 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. 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. 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. 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. 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. 84
Office Spaces
 CommercialVFIX 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. 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

86. Aviation Update

87. 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. 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. 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. 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. 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. 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. 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

95. Stock Market

96. 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. 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%
 BringingYTD 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-Apr-16
08-Apr-16
12-Apr-16
16-Apr-16
20-Apr-16
24-Apr-16
28-Apr-16
NSE ASI May 2016
Daily Volume Traded

98. 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. 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

100.  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 Earnings100

101.  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 BeforeTax declined by 8.7% to N160.5bn
 Impairments are also up by 38.15% to N41.47bn
Q1’16 Earnings101

102. 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. 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%)

104. 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. 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. 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

107. Political Risk Analysis –
Buhari to Reach Out

108. 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. 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. 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

111. Outlook For May
Sell in May and Go Away

112. 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. 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. 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. 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. 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. 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. 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

120. 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.”