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2019 MACROECONOMIC AND INVESTMENT OUTLOOK

Dear Client/Reader,

Dear Client/Reader,

MBC Securities Limited presents its 2019 macroeconomic and investment outlook titled; “OPPORTUNITIES IN THE MIDST OF TURBULENCE”. The report reviews economic and market outcomes in 2018, presents the economic and investment forecasts for 2019 and highlights the investment opportunities in the year 2019 in spite of the expected “turbulence” the year presents. Below is the EXECUTIVE SUMMARY which summarizes the highlights of the report.

Executive Summary

  • Global economic growth in 2018 shed some of the strong momentum recorded in the second half of 2017 especially in the United Kingdom, Europe and Asia on the back of US-China trade war, slower export growth, tighter financial conditions and Brexit uncertainties amid various domestic issues. In the oil market, oil price recorded its first annual decline in 3 years as it went down by 21% in 2018 resulting from concerns about the impact of Sino-US trade dispute on global economic growth and oversupply challenges.
  • Global Equities markets were affected by a variety of unpalatable events in 2018; most especially the trade war among major economies supported by the uncertainties and controversies surrounding Brexit amid other localized challenges. Frontier markets were the largest losers going down by 19% while the emerging markets followed with a negative return of 17% year-on-year.
  • Nigeria’s economic growth failed to consolidate on the tepid recovery of 2017 as the nation recorded GDP growth of less than 2% in the first three quarters of 2018 driven majorly by the non-oil sector. The major drag for this lackluster performance was the lack of clarity about policy direction by the current administration which weighed heavily on economic performance. The Nigerian stock market also put up a disappointing performance in 2018 as it shed 17.83% y/y, attributed to happenings in the global economy amid political uncertainty.
  • The International Monetary Fund (IMF) maintained its 2019 global growth forecast to remain at 3.7% in 2019, same level achieved in 2017 on the back of rise in the downside risks to growth caused by continuing trade tensions and low potentials for growth in the advanced economies. According to World Bank, Global growth is expected to edge down over the next two years growing by 2.9% in 2019 as global growth prospects dissipates, trade and investment moderate, and financial conditions tighten.
  • Some of the activities that will shape the year in the global space are the US-China trade war, Brexit outcome, tighter monetary systems and swing producer status between OPEC and US while, in the domestic space, political activities pre and post-elections will dictate the direction of the year.
  • 2019 is seen to be a year of two halves as the first half is expected to be slow on the back of activities towards the 2019 general elections which might coincide with delay in the passage of 2019 budget while the second half would be stronger than the first upon resumption of new/existing government to office. MBC projects 2019 GDP growth at 2.2%, Average oil price at $59/barrel, average Inflation at 12.7% and exchange rate to be within N358 – N380/ $1.
  • Based on technical, fundamental and scenario analysis, we envisage a more rewarding investment in the fixed income space in 2019 while also expecting a rebound in the stock market in the second half of the year. Our model portfolio comprising of FGN Bonds, Treasury Bills, Quoted stocks and NASD gives a return of 24.95% which is above our average inflation rate of 12.7% in 2019 and the risk free rate of 14.5%.

Please find attached the full copy of the Report.

We hope you find it useful.

Regards.

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Investment Opportunity in Nigeria Infrastructure Debt Fund (NIDF) @ 17.03%

Dear Esteemed Client,

MBC Securities Limited is delighted to present to you an investment opportunity in the Nigeria Infrastructure Debt Fund (“the CHD NIDF” or “the Fund”) Series IV Offer of up to N16.26 Billion (‘’the Offer’’) under the CHD NIDF’s N200 Billion Issuance Programme. The proceeds from the Offer will be applied towards infrastructure loans approved by the Fund manager’s investment committee.

Since inception, the NIDF has delivered consistent and predictable above inflation returns – TTM returns of 24.8% and annualized cash yield of 17.03%. Besides delivering attractive returns, the NIDF is also at the core of Nigeria’s economic transformation by adding to the country’s infrastructure stock, channeling institutional capital into productive assets, and supporting sustainable economic growth.

Please find below a summary of the terms of the offer:

Entity Nigeria Infrastructure Debt Fund  
Structure Close-ended Unit Trust, regulated by SEC Nigeria   Compliant with PENCOM Investment Guidelines and SEC Rules on Infrastructure Funds
Programme N200 billion under which the Units will be issued from time to time
Fund Manager Chapel Hill Denham Management Limited
Offer size             N16.268 billion
Offer Price             N108.45 per unit
Yield 17.03%
Offer Units             150 million Units
Minimum Subscription N10,000,000.00
Closing Date             January, 16, 2019
Issuance cost             1.20% of the Offer Size
Listing FMDQ-OTC

The offer is scheduled to close on January, 16, 2019. Application forms can be submitted during the offer period, but investors are required to remit their investment amounts into the designated offer proceeds account (please refer to Application Form for details) between January 14th and January 16th, 2019.

Kindly find attached the investment teaser and the application form.

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Nigeria’s GDP Rebounds in Q3’ 2018, Up By 1.81% Year-On-Year

Dear Client/Reader,

The National Bureau of Statistics just released the third quarter 2018 GDP report. According to the report, the nation’s Gross Domestic Product (GDP) grew by 1.81% (year-on-year) in real terms.

This growth in Q3 2018 is 0.64% points higher than the rate recorded in the corresponding quarter of 2017 (1.17%) and also 31 basis points higher than the rate recorded in the preceding quarter (1.50%). Quarter on quarter, real GDP growth was 9.05%.  

In the quarter under review, aggregate GDP stood at N33.37 trillion in nominal terms. This represents a 10.70% increase in nominal GDP when compared to the preceding quarter (N30.69trillion) and 13.58% increase when compared to the corresponding quarter of 2017 (N29.38trillion).

The Oil Sector

During the period under review, Oil production is estimated to have averaged at 1.94 million barrels per day (mbpd), 0.10 million barrels higher than the revised daily average production recorded in the second quarter of 2018 (1.84 mbpd). Oil production during the quarter was however lower by 0.08 million barrels per day relative to the corresponding quarter in 2017, which recorded an output of 2.02 mbpd.

Real growth of the oil sector was -2.91% (year-on-year) in Q3 2018. This is lower by 25.94% points compared to the rate recorded same quarter, 2017 but increased by 1.04% points than the second quarter of 2018. As a share of the economy, The Oil sector contributed 9.38% to total real GDP in Q3’2018, down from figures recorded in the corresponding period of 2017 but up from the preceding quarter, where it contributed 9.84% and 8.55% respectively.

The Non-Oil sector

The non-oil sector grew by 2.32% in real terms during the reference quarter. This is higher by 3.08% point compared to the rate recorded same quarter, 2017 and 0.28% point higher than the second quarter of 2018. The non-oil sector was mainly driven by Information and communication services. Other notable drivers included Manufacturing, Agriculture, Transportation and Storage and Other Services.

In real terms, the Non-Oil sector contributed 90.62% to the nation’s GDP, higher than 90.16% recorded in Q3’2017 but lower than the 91.45% recorded in the second quarter of 2018.

Regards,

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FGN SOVEREIGN SUKUK BOND OFFER

Dear Esteemed Client,

The Federal Government of Nigeria has begun the sale of its second tranche of the 7 year NGN100 billion Ijara (lease) sukuk bond due 2025 at an annual rental rate of 15.743%. Rentals will be paid in two equal instalments annually, while purchase price representing principal investment will be paid to investors at the end of the 7th year of the sukuk.

Sukuk is an investment certificate that represents ownership interest of the holder in an asset or pool of assets.

The Offer for Subscription opened on Thursday, December 06, 2018 and closes on Monday December 17, 2018. We highlight below the details of the FGN Sovereign Ijarah Sukuk that the DMO released to the public:

IssuerFGN Roads Sukuk Company on behalf of the Federal Government of Nigeria.
TrancheII
Programme SizeUp to NGN100 billion
Tenor7 Years
Rental rate15.743%
Use of proceedsConstruction and rehabilitation of key roads across the six geopolitical zones of the country.
Status1. Qualifies as securities in which trustees can investunder the Trustee Investment Act.2. Qualifies as Government securities within themeaning of Company Income Tax Act (“CITA”)and Personal Income Tax Act (“PITA”) for TaxExemption for Pension Funds, amongst otherinvestors.3. To be listed on The Nigerian Stock Exchange andFMDQ OTC Securities Exchange.4. Classified as Liquid Asset by the Central Bank ofNigeria.5. Certified by the Financial Regulatory AdvisoryCouncil of Experts (FRACE) of the Central Bank ofNigeria.
FormRegistered

To participate, kindly send an email instruction authorizing us to bid on your behalf by indicating the tenor and the amount, then credit our account with the required amount as the case may be.

Also submit the completed form to MBC Securities before the close of business on Monday December 17, 2018. 

Please see below our bank details.

GTBMBC SECURITIES LIMITED0012200376
FIRST BANK PLCMBC SECURITIES LIMITED2005543742
ECOBANK PLCMBC SECURITIES LIMITED2562036993
ZENITH BANKMBC SECURITIES LIMITED1011736779

 For further enquiries, kindly reach:

Obianuju Egwuatu- oegwuatu@mbcgroup.com.ng/08137475868

Yussuf Apena- yapena@mbcgroup.com.ng/08062070332  

Vivian Onije- vonije@mbcgroup.com.ng/08022307996  

Thank you. 

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FGN SAVINGS BOND DECEMBER 2018 OFFER

Dear Esteemed Client,

Please be informed that the December offer of the FGN savings bond opened officially on Monday 3rd December, 2018 and will close on Friday, 7th December, 2018. All completed forms should be submitted on or before the stipulated deadline. MBC Securities is one of the appointed Distribution agents by the DMO.

Please find details of the bond below:

 2-YEAR BOND

Auction  Date 03/12/2018
Closure Date 07/12/2018
Settlement Date 12/12/2018
Maturity Date 12/12/2020
Tenor 2 years
Coupon 12.40%
Coupon Payment Date March 12th, June 12th, September 12th, December 12th
Minimum Investment N5,000
Maximum Investment N50,000,000

3 – YEAR BOND

Auction  Date 03/12/2018
Closure Date 07/12/2018
Settlement Date 12/12/2018
Maturity Date 12/12/2021
Tenor 3 years
Coupon 13.40%
Coupon Payment Date March 12th, June 12th, September 12th, December 12th
Minimum Investment N5,000
Maximum Investment N50,000,000

 The Minimum subscription amount is N5 000.00 with additions in multiples of N1, 000.00, subject to a maximum of N50,000,000.00

The Interest on FGN Savings bond is paid quarterly and the bond is backed by the full faith and credit of the Federal Government of Nigeria and charged upon the general assets of Nigeria.

Kindly complete the attached subscription form. Fill, send the completed form and make payment into any of the bank accounts stated below.

Please note that you will not be charged any commission for investing in FGN Savings bond during the auction period.

Please see below our bank details.

GTB MBC SECURITIES LIMITED 0012200376
FIRST BANK PLC MBC SECURITIES LIMITED 2005543742
ECOBANK PLC MBC SECURITIES LIMITED 2562036993
ZENITH BANK MBC SECURITIES LIMITED 1011736779

  

For further enquiries, kindly reach:

Obianuju Egwuatu- oegwuatu@mbcgroup.com.ng /08137475868

Yussuf Apena- yapena@mbcgroup.com.ng/ 08062070332

Ezekiel Matuluko – ematuluko@mbcgroup.com.ng /07034809072

Thank you.

New FGNSB Subscription Form

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Nestle Nigeria Plc 9M’18 results – Sturdy performance supported by lower costs…

Nestle Nigeria Plc (NESTLE) 9M’18 results – the firm grew its top line by 9.7% YoY to N203.1 billion in the period, in line with our estimate of N207.2 billion (-2.0% deviation). In the same vein, after-tax earnings advanced by 44.1% YoY to N33.1 billion, in line with our estimate of N33.5 billion.

Following its impressive 9M’18 earnings, the company proposed an interim dividend of N20.0/share (vs. N15.0/share in the prior year. This represents a dividend yield of 1.4% based on its last close price of N1,380.0.

Other highlights:

• In Q3’18, NESTLE’s revenue grew by 7.1% YoY to N67.8 billion. According to provided breakdown, the food segment, which contributes c.65% to top line, advanced by 12.4% YoY to N43.9 billion. This offset the shortfall in the beverage segment, which declined by 1.3% YoY to N23.9 billion in Q3’18.

• In the same vein, we note that cost of sales grew at a slower pace (+4.1% YoY) than revenue (+7.1% YoY). We believe this was impacted by the moderation in the cost of some key raw materials, notably sugar, which declined by 22.2% YoY relative to the same period in the corresponding year. All in, gross margin expanded by 1.6 ppts YoY and 1.1% ppts QoQ to 45.1%.

• Down the line, we observed operational efficiency, as EBIT margin was relatively flat in the period at 25.4% (Q3’17: 25.9%, Q2’18: 26.0%). On finance costs, lower FX related losses (-99.2% YoY) accompanied with a 2.0% YoY moderation in finance cost, drove overall finance costs for the period to N1.5 billion (-79.4% YoY). Together with finance income amounting to N551.7 million in the period, the company posted net finance cost of N990.8 million (-84.4% YoY).

• Overall, increased sales growth, manufacturing cost savings and significantly lower net finance costs boosted bottom line growth, as after-tax earnings surged by 81.3% YoY to N11.7 billion in the quarter.

Analyst take:

NESTLE’s ability to continuously drive top line growth despite weak consumer wallets is applaudable. For us, this speaks to consumer loyalty, as well as improved route-to-market strategies. In Q4’18, we expect increased volumes to continue to drive top-line growth, given the festivities during the period. On finance costs, we do not expect further material losses relating to FX, given the stability of the Naira – which should inherently lead to significant decline in finance costs, on a year-on-year basis. In sum, we expect the key drivers for earnings in the coming quarter to remain buoyant revenue growth and further cost savings. NESTLE currently trades at a P/E of 24.94x, a premium to Bloomberg MEA peer average of 19.64x. Based on our last review, our target price for the counter is N1,157.60 (SELL).

nestle

nestle

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Portfolio Rebalancing Likely, As Investors Await March Year-end, Half Year Accounts

The Nigerian Stock Exchange had yet another positive trading session, reversing previous day’s down market, kicked starting the week with increased buying interest that boosted transaction volume, amidst continued repositioning value-laden stocks by traders and investors. This has supported the recovery move in the past one week.

The day started with a gap up at the opening which was sustained till the mid-morning and into noon, following which the benchmark NSE All-Share index hit intraday highs of 38,856.06 from the low of 38,649.41 points. There was however a slight pullback in the afternoon session as the index closed for the day at 38,845.31 on a positive market breadth.

The positive performance of the market is coming amidst new economic data showing that the Nigerian economy is still robust and upbeat, helped by the sustained oil production, helped by peace in the Niger Delta at a time oil price remain high. Therefore, helped by the contribution of oil production and sales, the nation recorded balance of trade surplus in the first quarter of 2018, according to data by the National Bureau of Statistics (NBS) last week. Also, we note recent steps by the fiscal authorities to speed up economic recovery, as the House of Representatives passed approved the government’s plan to issue Promissory Notes to settle contractor’s debts, among others.

However, the continued delay by President Muhammadu Buhari in signing the 2018 Appropriation Bill passed into law last month by the National Assembly is a sore point in the economic recovery drive which is key to the administration’s Economic Recovery & Growth Plan (ERGP).

Market technicals for the day were positive and strong as traded volume was huge in the midst of positive market breadth and strong demand for stocks.  Investdata daily sentiment reports reveals that market players are buying, with pressure at 95% and selling volume- 5% on a volume index of 1.81of the day’s total transactions.

The force behind the buying sentiment for the day slowed down marginally as reflected in the money flow index at 24.26 points from the previous day’s 25.92 points, which is an indication that profit takers are holding funds. Meanwhile, investors and traders demand for medium and high cap stocks remain high.

Index and Market Cap

The composite index on Monday gained 176.08 basis points to close at 38,845.31bps, after opening at 38,669.23bps, representing a 0.46% growth on a huge volume that was higher than the previous day’s. Similarly, market capitalisation was up by N63.79bn to close at N14.07tr from an opening value of N14.01 trillion, which also represented 0.46% value gain that further moved the year-to-date position into green.

If you are hunting for the right stocks to buy on this recovery, join Investdata Buy & Sell Signal setup. We have a watchlist of stocks for different investment purposes that you may position in, as the market sets for another phrase of recovery. To register and become a member send Yes or stocks to the phones numbers below. Our watch list has increased due to the lingering bear transition, take advantage of this service to buy right and sell right.

The upturn recorded at the end of Monday trading session was driven by price appreciations in   low, medium and high cap stocks like Nigerian Breweries, Guaranty Trust Bank, Zenith Bank, FBNH, Access Bank, Flourmills, Oando UBN, Dangote Flour, and Honeywell. These impacted positively on the market and raised the NSE’s Year-to-Date gain to 1.57%; while market capitalisation gain for the period stood at N461.9bn representing 3.39% above the year’s opening value.

Mixed Sector Performance

Sectorial performance was mixed as NSE Industrial and Oil/Gas closed in the red, while other sector indexes closed green and in the same direction with the general market. NSE banking index led the best performers with 1.05% due to value gained in Guaranty Trust Bank, Zenith Bank, UBN and Access Bank, followed by the NSE insurance and Consumer goods as Equity Assurance, Aiico, Niger Insurance, National salt, Flourmills and Nigerian Breweries appreciated in price.

Market breadth was positive with advancers outweighing decliners in the ratio of 30:20 to halt last Friday down market.

Market activities were mixed as volume was up by 187.19% to 603.17m shares from the previous day’s 210.03m units, while value was flat at N3.89bn. The day’s volume was boosted by trading in financial services, consumer goods and hotel services stocks like Ikeja Hotel, United Capital, Africa Prudential, Dangote Sugar and Access Bank that witnessed increased trading to top the activity chart.

National Salt and Diamond Bank were the best performing stocks that topped the advancers’ table, with 7.14% and 6.6% respectively to close at N24.00 and N1.62 each. This was as a result of improving earnings and low price attraction.

On the flip side, Berger Paints and BOCGAS were the worst performing, losing 5% each to close at N8.55 and N4.21 on profit taking.

Market Outlook

We expect the trend to slow down due to profit taking ahead of the forthcoming long holiday. Volatility is likely to continue as investors and other players rebalance their portfolios for March full-and half year earning season as equities remain undervalued with higher yields. Investors should review their position in line with their investment goals and take action as events as it unfolds in the global and domestic environment.

However, we would like to reiterate our advice that investors should go for equities with intrinsic value, especially during this season were less earnings are released ahead of march full year earnings release and Q2 interim dividend payment  are expected in the market arena very soon.
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.

Ambrose Omordion

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