Nigeria Monthly Business Environment

Monthly Economic News and Views
at Lagos Business School

Executive Breakfast Meeting
September 5, 2012
Presented by B.J. Rewane
Financial Derivatives Company Limited
2
I dont know what they want from me
Its like the more money we come across,
the more problems we see
- Notorious B.I.G
(Life after Death)
Pension Scam N300bn missing
Subsidy Scam N400bn missing
Education 38% pass WAEC
Theme: More Money More Problems

Notorious B.I.G.
Economic Restructuring or a Failed State - Soludo
August Break-More Power More Problems
Lights out for Barth Nnaji
3
Outline
Global economic contraction continues
Financial markets expect more QE2
Nigerian economy seeks direction
Policy challenges- no easy options
Leading economic indicators- mixed blessings
Markets & Proxies- stocking up for Christmas
Residential Real Estate- in the toilet
Political Disarrangement
September Outlook
4
4
August Highlights
PIB is back on the front burner
Host Communities + State Govts. V FGN + IOCs
Oil production numbers - is it 2.2mbd or 2.6mbd ?
The more you look, the more the oil leaks.
N5,000 note - is it a done deal ?
Do higher denominations lead to inflation or vice
versa?
5
August Highlights
Inflation declines, naira strengthens and Reserves spike
to $38.9bn.
National inflation in July 12.8%, Lagos inflation in
August down to 11.34%
Prices slow and costs increase, whats going on ??
Oil price volatility continues with a surprise to the
upside at $116pb
6
August Highlights
Sovereign wealth fund gets a management team and
Board. What next?
Did Bart Nnaji jump or was he pushed ?
Power generation jumps by 100% to 4500mw
Power outage in Lagos down to an average of 30%
per day
Average spending on diesel down by 50%
7
August Highlights
Chinese group wins the Lagos-Ibadan standard gauge
railway contract for $1.487bn.
For Nigeria more money more problems.
8
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3
3.1
Q4'11 Q1'12 Q2'12 Q3'12
Fiscal Revenues (Ntrn)
0
5
10
15
20
25
30
35
40
Q4'11 Q1'12 Q2'12 Q3'12
External Reserves ($bn)
Source: CBN, FDC
Global Update
9
Output Contraction in August
Global Economic - Contraction Continues
Moody cuts the outlook for the major EU countries from
stable to negative.
A negative outlook typically precedes a ratings
downgrade.
US manufacturing shrank for the third consecutive
month in August.
The longest decline since the recession in 2009
10
Global Economic - Contraction Continues
The US institute for supply management factory index
fell to 49.6 in August.
The lowest since July 2009 when it was 49.8
Unemployment has remained stubbornly high at 8.3%
because of structural shifts.
Bernanke is promising further quantitative easing as a
stimulant
11
Uncertainty remains in Europe
Germany posted a 0.3% growth in Q2 and France
stagnated
Suggesting the euro zone as a whole contracted over the
three months
Eurozone manufacturing PMI improved to an initial
45.3 in August from 44 in July
Although eurozone economy still contracting, as is factory
activity in Germany and France
Affirmed Germanys AAA rating and maintains
outlook at stable
Citing strong economic growth
13
Falling Inflation in China
Chinese inflation falls to 1.8% y-on-y from 2.2% in
June
Helped by falling food prices and declining retail sales
growth
The Chinese Yuan continues to weaken
Trend could prevent a rate cut to boost economy
Any rate cut could prompt further capital outflows
which hit a net of $71.4bn in Q2
Japan's GDP growth unexpectedly slumped to 1.4% in
Q2 from 5.5% in Q1
Below forecasts of 2.3% and hurt by weak consumer
spending
14
Implications on Nigeria
USs growing energy independence will affect
Nigerias oil revenues
26% of oil revenues come from the US
Any downgrade by ratings agencies on trading
partners would affect Nigerias terms of trade
Nigerias trade flow will suffer if Germanys output
falls
Germany is Nigerias 7th largest importer in Q112
A weakening Yuan to reduce the value of the external
reserves
15
Regional Update
16
Tanzania - Beleaguered Power Sector
Independent Power Producers (IPPs)
Operating below capacity
Threatening to suspend production due to Tanescos
indebtedness to them
Electricity Tariffs
Power shortfalls attributed to political interference in
Tanescos management and low tariffs
Tariffs in Tanzania are lowest in the region, one unit of
electricity costs
9 US cents in Tanzania
12 US cents in Kenya
15.2 US cents in Uganda
17
Democratic Republic of Congo (DRC) - Gold Mine
Commercial production levels attained at Twangiza
gold mine
First industrial gold mine in over 50 years
Lifespan of seven to eight years
US $10m-$12m upgrade over next month
Output to reach over 10,000 oz per month
Also, production in Namoya gold mine to:
Boost DRCs gold export
Create jobs
Improve social development projects
and local contracting
18
Democratic Republic of Congo (DRC) - Gold Mine
Militant activity
Has intensified across Kivu provinces
Artisanal gold mining remains a source of finance for local
militia
DRC a resource rich country plagued by corruption,
internal strife and poor governance
Stuck in a vicious cycle of poverty
19
Ethiopia - Is there a power vacuum?
Relative stability after death of Meles Zenawi
Concerns over the future of the Horn of Africa by the
west
Ethiopia crucial ally to the US in fight against Al Shabab
Ethiopian economy has remained strong in the face of
leadership changes
Ethiopian airlines most profitable African carrier
Including the new 787 Dreamliner
Addis- Ababa is the multilateral capital of Africa- ILO,
FAO, etc
20
Equatorial Guinea - Oil & Gas
Gas finds on Ophir-operated Block west of Bioko
Island
20% owned by Equatorial Guineas national oil company,
GEPetrol
Recoverable gas discoveries of over 2.5trn cu ft
Expansion plans to increase capacity at LNG plant outside
Malabo
Includes connecting gasfields of Nigeria, Cameroon and
Equatorial Guinea through pipelines
21
Angola - Ruling Party Wins
Jose Eduardo dos Santos, in power since 1979,
handed a new five-year term
Absolute majority win with 72% of votes
Manuel Vincente
Successor
Highly respected
Entrenched structure with military dynasty
MPLA
Popular movement for liberation of Angola
Difficult to dislodge
22
Angola - Ruling Party Wins
Widening inequality in the country
High abstention rate of 40%
Alleged vote-rigging
Allocation of polling stations hundreds of kilometres from
peoples homes
Ghost voters and irregularities recorded
In the Southern African region, liberation parties are
impossible to dislodge
ANC in South Africa
SWAPO in Nambia
FRELIMO in Mozambique
MPLA in Angola
Zanu PF in Zimbabwe
23
Domestic Economic Performance
25
Q312 growth estimated at
6.71%
Provisional Q2 GDP growth
rate was 6.6%
Non-oil sector is key driver of
economic growth
Estimated to grow by 7.95%
Negative growth of 0.2
expected in the Oil sector
Domestic Economic Performance
Source: CBN/FDC
-4
-2
0
2
4
6
8
10
0
10
20
30
40
50
60
70
80
90
100
Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12
Oil Share of GDP Non-Oil Share of GDP
GDP Growth Rate Oil GDP Growth
Non-Oil GDP Growth
26
Policy Update
27
Fiscal Policy - SWF-Paradox of Thrift
SWF to ensure fiscal consolidation and discipline
High savings in a recession is contradictory
Current fiscal savings as percentage of GDP IS 2%
compared to average of 98% for oil producers
State governors have not given up yet
28
Monetary Policy - Currency Restructuring
CBN decision to restructure the currency an avoidable
controversy.
No empirical evidence of correlation between higher
denominations and inflation.
Higher inflation leads to higher denominations and not
vice versa
Cashless initiative makes higher denomination not a
compelling case.
29
Currency Restructuring - N5,000 Note
The cost of currency reconstruction can be used for
other priorities.
The Case for Restructuring
Currencies are constantly printed and withdrawn from
circulation
Higher denominations increase the velocity of
circulation and portability
Improves the settlement of transactions
Economic impact is neutral on resource allocation.
30
Nigeria moved from pounds, shillings and pence to
Nigerian pounds in 1966
Nigeria decimalised its currency in 1970 to naira
Buhari changed the currency in 1984 in 21 days
Attempts to rebase the currency with one new naira as
an equivalent of one U.S. dollar failed under Soludo
31
As inflation declines in July and August, MPC may
move towards easing
May reduce the CRR from 12% to 11.5% at the next
meeting
The consensus is that interest rates may be shaved
12 members of the MPC, decision is too close to call
32
Possible Scenarios for Interest Rate
25bps reduction in MPR (45% probability)
NIBOR will decline to an average of 12% p.a.
Further weakening of the exchange rate to N160/$1 at
the official market
External reserves depletion to $33bn
Leaves MPR Unchanged at 12% (40% probability)
NIBOR remains flat at an average of 14.2% p.a.
Slow depreciation in the naira to N157/$1
Slow growth in external reserves to $39.5bn
33
Possible Scenarios for Interest Rate
Tight credit availability to the private sector
High government bond yields
Use of other monetary policy tools to stem inflation
Increase interest rates by 25bps (15% probability)
Tightened liquidity in the system
Exchange rate appreciation to N153/$1
External reserves accretion to $40bn
Inflation slows to 10.5% in December
34
Financial Derivatives Company Ltd.
Leading Economic Indicators
36
Indicators June12 July12 Aug12 June/Aug
(%)
Oil Markets
Spot price ( end of month) 99.31 105.93 114.68 15.48
Spot price (avg $pb) 95.16 102.62 113.42 19.19
Production (mbpd) 2.15 2.16 *2.2 *2.33%
Money Markets (End Period)
OBB (%)p.a 14.54 15.29 10.29 425bps
Overnight (%)p.a 15.08 15.71 10.58 450bps
MPR (%)p.a 12.00 12.00 12.00 -
T-Bill Rate(%)p.a 14.19 13.85 14.00 19bps
CPI ( %) 12.90 12.80 *12.4 50bps
External Reserves ($bn) 36.72 36.50 38.87 5.17
Market Capt 6,895.29 7,340.06 7,560.06 9.64
Exchange rate (End Period)
Official (N/$) 155.90 155.84 155.80 0.06
Inter-bank (N/$) 162.50 160.7 158.14 2.68
Parallel (N/$) 164.50 163 161 2.13
5ource: l4 ,lMu4, OPc, c8N, l5un, luc , {* lucs forecosts)
Oil prices strengthen with Bonny Light futures at $117
in October
August crude oil production is estimated to remain flat
at 2.2mbpd with positive revenue effect
Lagos inflation to slow to 11% in September
Dollar demand at WDAS to reduce as the Sovereign
Debt notes suspension eats into liquidity
38
Money supply growth to remain sluggish as impact of
cashless policy further kicks in
M2 declined by 2.38% month on month in July
High interest rates to persist as CBN continues to
tighten liquidity
But for how long?
Real interest rates are positive
39
Currency stability is expected in September as dollar
demand eases
Naira appreciated across all market segments in August
by an average of 0.64%
Effect of NOP has led to a decline in banks appetite for
forex
Steady accretion in external reserves
A result of higher average oil prices, strong crude
production and stable exchange rate
Stock market at its peak of N7.56trn year to date
40
Oil Markets
Oil prices increased by
10.52% (m-o-m) in August
OPEC- $109.74pb
Bonny- $114pb
Brent- $113.42pb
Bonny Light is $116pb
(Sept. 4)
Prospects of a global
policy stimulus boost has
kept oil prices above
$100pb
Source: OPEC, EIA, CBN, FDC
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
3-Jul 10-Jul 17-Jul 24-Jul 31-Jul 7-Aug 14-Aug 21-Aug 28-Aug
Oil Price Volatility
41
Oil Data Controversy
CBN estimates Q2 output-
2.12mbpd
14.52% below budget
projection of 2.45mbpd
OPECs July figure-
2.16mbpd
NNPCs August figure-
2.7mbpd
Coalition figure shows
production was flat in August
Raising questions about oil
data and oil theft
2
2.02
2.04
2.06
2.08
2.1
2.12
2.14
2.16
2.18
Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12
Oil Production(mbpd)
Source: OPEC, FDC
42
Oil Production
Production is estimated at 2.18mbpd in Q3 and oil price
at $113.27pb
Relative peace in Niger Delta, increased security measures
Nigerias oil revenue in September is estimated to increase
to $16.36bn
This implies that production has more impact on revenue than
price
43
Q112 Q212 *Q312
Production
(mbpd)
2.06 2.12 2.18
Price ($pb) 121.10 109.32 113.27
Revenue($ bn) 12.77 15.35 16.36
Money Markets
Average NIBOR was volatile
in August
Reached an average high of
32% p.a. (August 8
th)

Returned to normal trends of
an average of 10-15% p.a.
OBB: 10.29% p.a.
ON: 10.58% p.a.
60-days fund: 13.67% p.a.
Real interest rates remain
positive
91-day T/bill at 14%
Inflation at 12.8%
10
15
20
25
30
35
03-Apr 03-May 03-Jun 03-Jul 03-Aug
NIBOR (% p.a.)
OBB ON 7-day 30-day 60-day
Source: FMDA, CBN, FDC
44
Forex Markets - Stable Naira, Strong Reserves
Naira strengthened by an
average of 0.64% (m-o-
m)across all market segments
in August
Inter-bank market recorded
the highest increase in value
with 1.59% to N158.14/$1
(August 31st)
CBN measures, oil firms
dollar sales have contributed
to the gain in naira value
Naira is expected to
continue to trade around the
target midpoint of N155/$1
at the spot market
0
1
2
3
4
3
6
7
8
9
10
146
148
130
132
134
136
138
160
162
164
166
3-!ul 10-!ul 17-!ul 24-!ul 31-!ul 7-Aug 14-Aug 21-Aug 28-Aug
arallel(n/$ - le scale) Cmclal(n/$ - le scale) Spread (rlghL scale)
Exchange Rate (N/$1)
Source: CBN, FMDA, FDC
45
Reduced Forex Demand boosts Naira Value
Ytd naira has gained
0.57% to N155.8/$1 in
official market
1.73% to N157.88/$1 in
inter-bank market
1.23% to N161/$1 in
parallel market
Total forex sold in August
declined by 24.07% to
$1.64bn
Banks are selling off dollar
positions to meet new NOP
of 1%
46
Source: CBN, FDC
-
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
J
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Forex Sold @ WDAS
Business Proxies
48
Stocking up for Christmas
Business Proxies Inventory Build up
July FAAC
allocation
declined to
N520bnkOR high
Value of cheques
inches upwards to
N1.59trn in July
606.45
620.7
613
563.09
519.35
569
520
460
480
300
320
340
360
380
600
620
640
!
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'
1
2

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IAAC (N' bn)
49
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
0.00
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
jan'12 feb'12 mar'12 apr'12 may'12 jun'12 jul'12
Value of Cheques
Value (N'bn) LHS (Volume' m) RHS
Source: FMF, CBN, FDC
Business Proxies
5 5
4 4
5
4
9
14
13 13
11
10
15
8
0
2
4
6
8
10
12
14
16
18
20
!an'12 leb'12 Mar'12 Apr'12 May'12 !une'12 !ul'12
Cshore and Cnshore k|g Count
Cnshore Cshore 1oLal
50
Oil rig count in July down by 2 rigs
Huge decline of 7 offshore rigs
Source: Baker Hughes, FDC
126 Ships awaiting berth (Aug 22)
Compared to 108 in July
Business Proxies Stocking up for Xmas
Wheat and rice products increase by 20% due to hike
in import levies
Retail sales still flat
Adoption of POS terminals still below expectation
Due to technological constraints
Only 10% of POS terminals being used in greater
Lagos
51
Business Proxies
Agege, Alaba and Ikota major areas of utilization
Emerelda Zegna, the luxury good retailer, opening an
outlet on Akin Adesola street
Intercontinental Hotel to open in November
Hermes the makers of Birkin bags and silk scarves has
sued LVMH for its sudden attack on its capital
Louis Vitton now controls 22.3% of the tightly held
capital of Hermes
Despite opposition of the Hermes family, both are
French Companies
52
Real Estate Sector 53
Economics of Real Estate
SUPPLY DEMAND
Boom led to excess capacity especially
in prime areas (Ikoyi and VI)
Current demand significantly lower
than pre-crisis position
Prices above equilibrium levels Lull in business activities reduces
demand for real estate
Economic downturn led to excess
capacity and shrinkage in supply growth.
Market sentiments suggest
properties still overvalued
Increased downward pressure on prices Higher cost of capital affecting
demand
Opening of Lekki expressway has
increased supply and location pressure
AMCON holding period of 2years
has helped the market
Bank foreclosures and fire sales
54
Average Residential Vacancy Factor
Victoria Island vs. Ikoyi
55
42%
36%
16%
10%
9%
4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Cooper Probyn Glover Cameron Lugard Raymond
Njoku
Ikoyi
(Vacancy Factor)
42%
26%
18%
12%
8%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Karimu kotun Elsie Femi
Pearce
Kofo Abayomi Idejo Akinolugbade
Victoria Island
(Vacancy Factor)
Source: FDC
Property Vacancy Factor - FDC Survey
Street Name No. of
Houses
Vacancy
Factor
(Houses)
No. of
Flats
Vacant
Factor
(Flats)
Vacant
Factor
(Commercial)
Average
Residential
Vacancy
Factor
VICTORIA ISLAND
Karimu Kotun Street 25 16% 20 75% 4% 42.1%
Elsie Femi-Pearse
Street
20 5% 15 53% - 25.7%
Idejo Street 21 24% - - 24% 12%
Kofo Abayomi Crescent 71 7% 50 38% 4% 18.2%
Akin-Olugbade
Crescent
22 9% 15 7% 9% 8.1%
Average 12.2% 43.25% 10.25% 21.22%
IKOYI
Cooper Road 39 13% 40 70% - 41.8%
Probyn Road 26 4% 33 61% - 35.6%
Cameron 45 20% 42 0% - 10.3%
Glover Road 55 7% 200 18% 7% 15.7%
Lugard Avenue 38 5% 75 8% 11% 8.8%
Raymond Njoku Street 92 4% - - 4% 4.3%
Average 7% 37% 10.5% 19.42%
Real Estate Still A Toilet Deal
Residential Real Estate suffering and crying
High vacancy factor experienced in the residential
segment compared to the commercial segment
Shopping malls has the lowest vacancy factor in the sector
Residential Real Estate suffering due to:
High asking price and increased supply on the Lekki/
Ajah corridor
Adopted real estate converting back to pure office
blocks
High interest rate will continue to take its toll on the
market
57
Aviation Sector
59
Fewer players higher fares
Global Aviation - Things are getting better
US airlines showing the strongest performance
# A|r||nes keg|on 2 2011 2 2012
Cperanng
proht
Net post-tax
proht
Cperanng
proht
Net post-tax
proht
13 norLh Amerlca 3864 1763 4288 1821
12 Asla-aclc 204 33 736 240
9 Lurope 693 248 777 -S3S
3 Laun Amerlca -84 -141 182 0
3 Mlddle LasL 44 32 61 41
42 Samp|e tota| 4723 1977 6064 1S67
In US$ Million
*Excludes AMR reorganization items, totaling US$1.4billion
Source: IATA Economics
60
Global Aviation
Passenger traffic and worldwide market has grown
consistently in 2012 by 3% average
Compared to 6% in 2011
Business travel has been undermined by falling
confidence
Air freight and cargo has stagnated since end 2011
Airlines have announced reduced capacity expansion
plans for later 2012
Compressing the margins of airlines
61
Global Aviation
Airline profits in Q2 was good and held close to 2011
levels
The second half of 2012 looks more challenging
Passenger capacity continues to rise at a slower pace
Rose 3.6% in July
International passenger demand was up 3.5% compared
to July 2011
African airlines rose 5.2% y-o-y
Airline share prices fell by 3%
62
Global Aviation
63
Lufthansa cabin crew to strike throughout Germany on
Friday for 24 hours
Cabin crew walked out at Frankfurt, Munich and
Berlin airports on Tuesday
Lufthansa cancelled hundreds of flights
Lagos Frankfurt flight delayed for 5 hours till 2a.m.
Lufthansa operates daily flights into Lagos and Abuja
from Frankfurt
Dispute is over a 5% pay increase demanded by the
Union
Global Aviation
Load factors still relatively high at 83.1%
Expected to decline from 2
nd
-3
rd
week in September
Growth in US passenger yields remain positive
There was a slight contraction of 0.4% in July
High US load factors of 86.8% continue to support the
continued increase in yields
Average worldwide fares continue to decline
Majority of airlines are struggling to maintain profitability
and load factors
Load Factor (%)
European carriers 85.7
North America 86.7
Latin America 82
African airlines 73.1
Source: IATA, FDC
64
Regional Aviation
Arik Air is enjoying the supply gap created by Air
Nigeria
Expanding the routes of Air Nigeria
Commenced operations between Lagos and Douala,
operating three times weekly
Asky also a key beneficiary of Air Nigerias
suspension
Abuja- Lome- Accra route
RwandAirinauguratesLagos-Johannesburg route via
Kigali
65
Dana Airlines license has been reinstated after a 3
month suspension
No airline has ever survived in Nigeria after a crash
ADC, Sosoliso, Bellview, EAS all faded away
Air Nigeria has been suspended from IATA Clearing
House
China State Construction Engineering Corporation
(CSCEC) agrees to invest in Nigerian Aviation
The Chinese company plans to aid in the development of
the Nigerian aviation industry.
66
Domestic Aviation
Domestic Aviation
Delta Airline launches new elite business class flat bed
for Lagos- Atlanta route
201-seat Boeing 767-300ER aircraft offering 36 seats
United Airlines to launch its new Houston- Lagos route
January 2013
Ethiopian Airline launched first B787 Dreamliner in
Abuja
ET is the first airline outside Japan to own the 787
ET is growing 20-30% a year for the past 7 years
It operates over the 12 flights a week out of Abuja and
Lagos
67
Domestic Aviation
International load factors inbound Lagos at record
levels of 90%
Changing travel pattern this summer due to Olympics,
Golden Jubilee, French Open and Wimbledon
Kenya airways laid off 126 as part of a cost
reduction programme
Kenya airways says its wage bill more than doubled
over the last 6 years
68
Aerohas started 3rd party aircraft maintenance
The business model shows that maintenance is more
profitable than airline flight operations
Airline Operators of Nigeria (AON)reject proposed
15-year age limit
The trade organization rebuffed the proposal to limit the
age of aircraft in Nigeria from 22 to 15 years
69
Domestic Aviation
Stock Market
71
Market Scales New Height Despite Volatility
The strong performance of July could not be matched
ASI gained 3% compared with the 7% gain in July
Fundamentals are improving which should point to a higher market
7,200.00
7,250.00
7,300.00
7,350.00
7,400.00
7,450.00
7,500.00
7,550.00
7,600.00
22,600.00
22,800.00
23,000.00
23,200.00
23,400.00
23,600.00
23,800.00
24,000.00
01-Aug-16 06-Aug-16 11-Aug-16 16-Aug-16 21-Aug-16 26-Aug-16 31-Aug-16
NSE INDEX MARKET CAPITALIZATION (N'b)
72
The Rally May Not Have Legs, But...
Market now within striking distance of psychologically-
important milestone levels
24,000 resistance point was crossed on Tuesday
N8tn market cap is within shouting distance
Is this a sustainable rally or another bubble?
It is fair to say that a bull rally is has started
11/21 trading sessions above 23,300
Ten new high points in August alone.
Persistent new high for stocks difficult to bring down
Nestle hits a new all-time high of N550
Increased interest in the banking and brewery sector
73
Equities Limp On in Tepid Volume
The value traded for August declined by 6.6%
Illiquidity in the market as investors hold on to losers
International investors are taking tentative positions in
fundamentally strong companies
Insurance and downstream petroleum company stocks
are being dumped
74
Winners and Laggards
Company
Price
@ 31
st

July
Price @
31
st
August % Change
DN Meyer Plc
0.50 0.81 62.0%
Smart Products
Nigeria Plc
0.99 1.48 49.5%
International
Breweries Plc
5.68 8.42 48.2%
Cadbury
Nigeria Plc
14.30 17.85 24.8%
UTC
0.61 0.75 23.0%
Company
Price @
31
st
July
Price @
31
st

August % Change
Arbico Plc
18.19 12.73 -30.0%
Conoil Plc
25.50 19.73 -22.6%
Intercontinental
Wapic
Insurance Plc
0.63 0.50 -20.6%
Custodian &
Allied
Insurance Plc
1.49 1.20 -19.5%
Nigerian Bags
Manufacturing
Company Plc
1.77 1.50 -15.3%
75
How to Make Money in this Market
Three features of winners in this market:
Earnings Growth,
Quality and sustainability of Business model
Valuation and versatility
76
Show me the way Not for the faint hearted
Earnings growth
Most important attribute of a winning stock is its earnings
growth profile
Nestle, Cadbury, Flour Mills, Okomu and GTBank have a
smooth earning growth
Quality and sustainability
Quality of the company's product/service, financial health
and management.
Cadbury, GTBank, Okomu and Guinness have strong
management and are in good financial position
77
Show me the way Not for the faint hearted
Valuation = Rich Stocks
Looking at the company's valuation multiples, such as
price-to-earnings (P/E) or price-to-book (P/B), and
comparing those to its peers
Relative to Peers, Okomu, Flour Mills of Nigeria, UACN
and Cadbury are our top picks
78
Outlook
The bull run has commenced
Still 60% below the 2008 peak
Nigeria is one of the markets yet to recover all losses
Breweries stocks are high but have strong
fundamentals
3 way race between Heineken, SAB miller and Diageo
leading to more innovativeness
79
Outlook
SAB Miller has increased capacity and Nigeria is now 18
th

biggest producer of beer, up from 33
Banks, Food & Beverages, Agriculture and Brewery sector
remain our preferred destination
Market likely to gain 5% in September
Some choppiness as bulls will confront the profit takers
80
Political Update
81
Scirocco- Winds of Change in West AfricaPolitical
Trends in West Africa
82
Political Dynamics in West Africa
83
84
War
Military
Civil Democracy
85
Civil Opposition
Coup
Counter Coup
Political Goodluck on the Ropes
The sporadic rise of ethnic nationalism across the
country is undermining the PDP and Goodluck
The Yorubas have issued a powerful communiqu
The Ijaws are also coagulating with other South/South
groups
The Urhobos under Kokori claim marginalisation both
at national and state level
The Social media which helped Goodluck in the 2011
election have become a problem
From Facebook to Twitter, opponents of the administration
are on a rampage
86
Political Goodluck on the Ropes
President has appointed another media adviser, but
the war on image remains unrelenting
The recent alliances of normally squabbling former
heads of state is a threat to the PDP.
The 2015 project is now under threat
The race now appears wide open
The call for state policing is unlikely to be passed
The North looks determined to wrest power
88
Ghana In Play
DaMina statistical model predicts Opposition
NPP poised to recapture presidency and
parliament
Traditional incumbency advantages will not
help Mahama during two and a half month
long campaign
Victory by NPP will see reversal in countrys
currency, fiscal, education and foreign policies
89
Ghana In Play
2010 national census confirms pro-NPP Ashanti region
as most populous region
NDC party disunity and absence of key campaigner
former President Rawlings to dent tough 2012
campaign
Despite likelihood of capital Accra remaining in NDC
hands, opposition to win national vote by about 5%
Nomination of Muslim opposition vice president, in
contrast to all-Christian NDC ticket to weaken
traditional Muslim support for NDC
90
Ghana In Play
Mahama-Amissah Arthur NDC ticket electorally
weaker than Akuffu Addo-Bawumiah NPP ticket
Sympathy from ethnic Fantes for recently deceased
president will not translate into decisive NDC votes
Key oil producing Western region to flip to NPP after
generalized disappointment on oil revenues, jobs
Swing Brong-Ahafo region to back Akan-ist NPP over
now northern-led NDC
45 new parliamentary seats to also generally favor
opposition NPP
91
Outlook
92
Outlook
Inflation figures for August to decline marginally to
12.4%
4 in 10 probability that CBN will shave MPR by 25bps
Bond market rally to reinforce equities
Bonny light will trade in the upper range of $110-
$115 per barrel
Positive revenue impact
Stronger reserves level to $40bn in September
Leakages will continue inspite of Ngozis efforts
93
Outlook
System is too porous to plug, win some, lose some
Political brinkmanship within the PDP will continue
Opposition coalition will be undermined by
ethnocentric tendencies
94
Corporate Humour
A little sincerity is a dangerous thing, and a
great deal of it is absolutely fatal.
The man who has no inner life is the
slave of his surroundings.
- Thomas La Mance
Chaos often breeds life, when order
breeds habit.
95
- Oscar Wilde
- Henry Adams
Corporate Humour
In youth and beauty, wisdom is but rare.
A common mistake that people make when trying to
design something completely foolproof is to
underestimate the ingenuity of complete fools.
As a child, my family menu consisted of two choice:
take it or leave it.
96
- Homer
- Douglas Adams
- Buddy Hacket
Corporate Humour
A mind that is stretched by a new experience
can never go back to its old dimensions.
Behind every great man is a woman rolling her
eyes
If you dont like something, change it. If you cant change
it, change your attitude.
97
- Oliver Wendell Holmes, Jr
- Jim Carrey
- Angelou
98
Thank you for your attention
Bismarck J. Rewane, MD/CEO
Lagos, Nigeria
01 - 7739889

Nigeria Monthly Business Environment

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