Research Reports

Nigeria Bank Sector Update

September 2014

Sector Valuation and Recommendation

The average current P/B multiple of our universe of Nigerian banks today is similar to what it was as at end-June 2013, at around 1.1x. Between June 2013 and August 2014, the multiple rose initially, peaking at 1.2x in December 2013, but subsequently fell to a low of below 1.0x around the February/March 2014 period before steadily picking back up towards 1.1x.

Ytd, the banks sector has averaged a loss of -5.7% (All Share Index: -0.4%), reflecting what we see in the P/B multiple movement. Over the Jun-13 to Aug-14 period, the MSCI EM Banks Index recorded a P/B multiple expansion of around 7% to c.1.35x; Nigerian banks today are trading at a discount of 18% to their overseas peers vs a discount of 12% just over a year ago.

Click here to view the full report: FBN Capital Nigeria Banking Sector Update September 2014


Nigeria Economic Outlook

August 2014

Drivers of the economy

Vibrant non-oil sectors GDP growth has exceeded 4% each year since 2000. Population growth slowed to 2.3% in 2012 according to CBN data. This strong GDP growth has been driven by the non-oil sector, which can traced to the reforms of the second Obasanjo administration (2003-07), favourable weather conditions and low interest rates in developed economies. This has pushed growth in Nigeria ahead of the BRICS excluding China.

Click here to view the full report: FBN Capital Nigeria Economic Outlook_August 2014


Nigeria | Equities | Agriculture | Palm Oil Sector Initiation 

26 February 2014

Favourable outlook; supportive fundamentals

Positive outlook for the Nigerian palm oil industry: We initiate coverage on Okomu Oil and Presco, the two largest commercial operators in the Nigerian palm oil sector. After decades of neglect, the agriculture sector as a whole is recovering strongly, thanks in part to supportive government reforms. Both companies are expanding their plantation area aggressively; by 2020, we expect their combined land area to have more than doubled from around 39,000 hectares (ha) in 2012.

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Fixed income Q4 2013

November 08, 2013

Rates Range-bound And Still Attractive

Still tighter monetary stance a possibility: The MPC has maintained a tight monetary stance through its policy rate and tools such as the CRR for banks. Rather than ease in the period to end-2014, our view is that it is more likely to tighten its position further in defence of its objectives.

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Economic Outlook

 October 28, 2013

 Some Fallout From The Election Build-up 

 

Non-oil economy the driver as before: We project Nigeria’s GDP growth at 6.7% this year on the back of the healthy non-oil economy. While it cannot escape all the global headwinds, we are confident that Nigeria will avoid a fall in its oil price. This should compensate for the loss of significant oil production to leakages. We see growth at 6.8% in 2014.

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Nigerian non-financials

 June 21, 2013

 Costing More Than An Arm And A Leg

The great slowdown of 2012: After years of consistent sales growth by Nigerian non-financial companies, in the past 18 months several of the companies under our coverage have seen a marked deceleration in growth. Strictly speaking, our narrow definition comprises consumer goods companies and cement producers. There are exceptions to the rule: the cement producers have seen significant growth thanks to the ramp-up of recently added capacity. However, the majority are in the former camp: excluding the cement companies, seven saw a deceleration in sales growth compared with three that saw an acceleration in 2012. Among the seven is Guinness Nigeria, while in the minority group food conglomerate UAC of Nigeria (UACN) stands out with around 17% y/y sales growth in 2012.

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Nigerian Banks

 June 17, 2013

 Post Recovery: Getting Used To A New Normal 

Improved earnings in 2012 captured in valuations: The recovery in the Nigerian banking sector gathered momentum in 2012, resulting in a 1,610bp expansion in ROAE for our universe. While the sector is now on a more solid footing for the longer term, we believe the time is right to pause for some breath. On average, the sector has gained 42.3% ytd compared with the All Share Index’s (ASI) 32.7%. In 2012 the sector appreciated 44% (ASI: 35.5%). Following this impressive rally, our universe is now trading on a 2013E P/B multiple of 1.1x (vs MSCI EM banks on 1.3x) for an average 2014E ROAE of 19.0%. On reflection, the market’s reaction to the Q4 2012 / Q1 2013 earnings season appears to suggest that better-than-expected results did not lead to a commensurate multiple expansion necessarily because valuations were approaching fair value levels, and the market may have begun to anticipate some headwinds that are likely to limit earnings growth in the near term. 

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Economic outlook

May 03, 2013 

Taller Waves Ahead In 2014 

Non-oil economy still the driver: We project Nigeria’s GDP growth at 7.3% this year on the back of the robustness of the non-oil economy. While Nigeria cannot escape all the global headwinds, we feel that the world will be spared a rapid fall in the oil price on the scale of late 2008. Slower growth is likely in 2014 on the basis of a loss of macroeconomic discipline before the elections. 

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 research team to access the full report.*


2013 OUTLOOK 

January 15, 2013 

This Is The Year To Deliver 

Growth set to move back over 7%: We see a pick-up in Nigeria’s GDP growth this year to 7.3%, after the squeeze on household consumption and security issues drove the rate down to an estimated 6.6% in 2012. The non-oil economy will again be the driver while oil sector growth will be constrained by underinvestment.

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Economic outlook

 October 19, 2012

 Riding The Larger Waves 

Non-oil economy again to the rescue: We see Nigeria's GDP growth at 7.5% this year on the basis of the resilience of the non-oil economy. While Nigeria cannot escape the global headwinds, we feel that the world will be spared a rapid fall in the oil price on the scale of late 2008.

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Nigerian Banks

 September 17, 2012 

Glass Half Full; Risk-reward Still Favourable

On track to deliver significant ROE expansion in 2012:

After a nervous start to the year, reminiscent of 2011, Nigerian banks’ earnings momentum has grown through H1 2012. The banks under our coverage are on course to deliver, on average, ROAE expansion of around 1,500bps in 2012E to 18.8%. Ytd, our coverage has seen an average capital appreciation of 31% (ASI: 22%); Outperform-rated Access Bank leads the group with a 93% ytd gain. 



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Nigerian Oil and Gas

August 16, 2012

There's Method In The Madness 

Initiating coverage with a Neutral view: We initiate coverage on the oil and gas sector with a Neutral but cautiously optimistic view. Strictly speaking, our coverage comprises the only listed sub-sector in this space i.e. petroleum marketers. Some upstream companies may list over the next 12-24 months.

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Nigerian consumer goods

 July 16, 2012

 

Robust Demand, Good Demographics

Initiating coverage with a long term positive outlook: We initiate coverage on the Nigerian consumer goods sector with a positive long term view, albeit in the near term we see some temporary headwinds. Our universe comprises two of the largest flour millers in Nigeria (DFM, FMN), a sugar refiner (DSR), subsidiaries of three multinationals (Nestle, PZ Cussons, Unilever) and a diversified consumer name (UAC). The sector is in an expansionary phase, thanks to robust demand, and the leading players are adding capacity. We believe the sector has been the third largest recipient of FDI flows into Nigeria in recent years, after the oil & gas and telecoms sectors.

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Economic Outlook

 

July 30, 2012 

Some Protection From Global Headwinds

Rates seen on hold, the next step modest easing: The MPC has held its monetary policy rate at 12.00% since its bombshell in October. Our call is that, by tightening early and vigorously, the committee will contain core inflationary pressures. The next move in the policy rate is seen as gently downwards in H2 2012. If global headwinds were to deteriorate, it would accelerate its easing.

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Fixed income Q2 2012

 May 12, 2012 

The Carry Trade After A Change Of Clothing 

 

Rates seen on hold, the next step modest easing: The MPC has held its monetary policy rate at 12.00% since its bombshell in October. Our call is that, by tightening early and vigorously, the committee will contain core inflationary pressures. The next move in the policy rate is seen as gently downwards in H2 2012. If global headwinds were to deteriorate, it would accelerate its easing. 

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Fixed income Q1 2012

 February 07, 2012

 Not A Market For The Cautious 

 

Rates on hold, the next likely step easing: The MPC has held the policy rate of 12.00% unchanged twice since its bombshell of 10 October, when it announced a hike of 275bps. Our take is that, by tightening early and aggressively, the committee will contain core inflation pressures. The next move in the policy rate is likely to be gently downwards. 

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Nigerian Brewers

 February 20, 2012

The Benchmark Within The Consumer Space 

Solid growth supported by multiple factors: Historically, Nigerian brewers have had one of the highest growth rates within the broader consumer space. Over the five-year period to 2010, the sector's unit volume grew at an average annual rate (5-year CAGR) of around 12%. This is faster than the average annual growth rate of around 10% that most other names in the consumer sector tend to deliver. The sector's growth has been underpinned by solid GDP growth, increasing urbanisation and a young population with over 40% under the age of 15.

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Nigerian Oil & Gas 

An Industry In Transition 

Nigeria, heavily reliant on oil: Nigeria's proven oil reserves are estimated at 37.2 billion barrels (bbls) by OPEC, the tenth largest in the world, while gas reserves are estimated at 182.0 trillion cubic feet (tcf), representing the eighth largest in the world and foremost in Africa. After several years of successful oil exploitation, the country is regarded as a matured oil province. Crude oil alongside associated products is the single most important export commodity in Nigeria, accounting for around 69% of export trade, 75% of federal government earnings and 14% of GDP. 

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