June 2015 - NigeriaTravelsMart
Monthly Economic News and Views
at Lagos Business School
Executive Breakfast Meeting
June 3, 2015
Reflating a Fiscally Strangulated Economy
Presented by B.J. Rewane
Financial Derivatives Company Limited
Outline - Limited Options and Hard Choices
2
Highlights of May
Domestic Economic Performance
Commodity Update
Capital Markets
Policy & Politics
Outlook for June
Financial Derivatives Company Limited
Limited Options and Hard Choices
3
Seamless and historical hand
over from incumbent to
opponent
Well attended and organised
Low key but sophisticated
Buhari announced his
independence from political
cliques
Intends to be a statesman and
democrat
Less of politics and more of
management
Old problems do not go away easily
Financial Derivatives Company Limited
Limited Options and Hard Choices
4
Fuel scarcity continues to bite
Petroleum marketers hold country to ransom
No subsidy payment no petrol- pay as you go
Power supply from grid down to 1350MW
Partly due to gas pipeline vandalism and poor
transmission
States that owe salaries to workers could be 18 or even
more
Also huge unpaid contractor debts in excess of N800bn
Financial Derivatives Company Limited
Limited Options and Hard Choices
5
FAAC allocation to the states declined sharply to
N388bn
Allocation shared in April was N435bn
FAAC (N' bn)
600
500.13
522.05
500
435
388.34
400
420
300
200
100
Financial Derivatives Company Limited
May
April
Mar'15
feb'15
Jan'15
0
Economic Growth Down Sharply
6
GDP growth shrank sharply to 3.96% from 5.94% in Q4
2014
At a time of creeping inflation this means:
That the country is in secular stagnation
Or temporary stagflation
Quarterly GDP Growth Rate (%)
7
6.54
6.21
6.23
6
5.94
5
4
3.96
3.99
Q1'15
Q2'15
3
2
1
0
Q1'14
Q2'14
Financial Derivatives Company Limited
Q3'14
Q4'14
Limited Options and Hard Choices
7
Oil output lower, power supply hurting manufacturing
Agricultural acreage and output down in the North East
and central zones
Boko Haram attacks displaced farmers and abandoned
crops
Inflation up for 5th consecutive month to 8.7%, likely to
increase to 9.5%
Broad money supply growth annualised at 5.39% against
target of 15.2%
Financial Derivatives Company Limited
Limited Options and Hard Choices
8
Naira has appreciated in all segments of the forex
market
N198 at the interbank and N217 at the parallel and N199 at
IATA
Forex demand at the interbank market is slowly
normalising
Delayed impact of devaluation and consumer resistance
to higher prices at the retail level
Huge payments to oil marketers increased money supply
saturation
Financial Derivatives Company Limited
Limited Options and Hard Choices
9
In May, payments made were in excess of N180bn
Average oil price in May was $65.78pb
7.03% higher than April and 19.19% higher than Q1
average
Revenue impact was positive
External Reserves average level in May was $29.71bn
This was more stable with minor accretion of $160m
FBN PMI shrank sharply from 54 to 49.4
Financial Derivatives Company Limited
Limited Options and Hard Choices
10
Linked primarily to power outage and the 2000 MW
drop in the Grid
Capital inflows into Nigeria declined by 40.63% (Q-o-Q)
in Q1 to $2.67bn
Nigeria’s share of global net FDI is estimated by EIU at
0.23%
Unemployment plus underemployment as published by
NBS = 24.3%
South Africa announced unemployment rate of 26.4%
Financial Derivatives Company Limited
Les Miserables
11
Country
Unemployment
%
Inflation
%
Misery Index
%
South Africa
26.40
4.50
30.90
Angola
26.00
8.23
34.23
Ghana
5.20
16.80
22.10
Ivory Coast
15.70
1.40
17.10
Kenya
40.00
6.87
46.87
Nigeria
24.3
8.7
33.00
Financial Derivatives Company Limited
Global Economic Update
OPEC Meeting - No Change in Quota Expected
13
Next OPEC meeting will hold on June 5
Total production increased to a 2 and a half year high of
31.22mbpd in May
From 30.84mbpd in April
Gulf oil producers, led by Saudi Arabia, will resist attempts
to cut output
The 4 gulf oil producers pump an average of 16.6mbpd, 55% of
OPEC’s total production
Financial Derivatives Company Limited
OPEC Meeting - No Change in Quota Expected
14
Preserving its market share remains OPEC’s top priority
The November 2014 strategy of maintaining production
quota at 30mbpd seems to be working
As shale oil production drops and idle oil rigs increase
Financial Derivatives Company Limited
Outlook
15
Demand and supply will reach a global balance in a few
years
Demand expected to grow by over 1mbpd
Growth in U.S. output projected to end
Environmentally
Financial Derivatives Company Limited
friendly policies will curb demand
Global Economy - The 2015 Mixed Bag
16
The EIU like the IMF is forecasting a mixed performance
in the global economy
Global growth in 2015 will be at the same level as 2014
2.4% at market exchange rates
A downward revision in the U.S.
Quickening growth in Europe and Asia
A bad year in Latin America and Russia
Financial Derivatives Company Limited
U.S. Economy
17
The U.S. economy will be buoyant in Q3
Unemployment rate fell to a 7-year low of 5.4%
Consumer confidence is high and real disposable income
is climbing
The Fed is now very likely to increase interest rates in
Q3
Financial Derivatives Company Limited
Eurozone Looks Positive
18
The outlook is much brighter for Q3
Plunge in the price of oil and actions of the ECB
Consumers are spending additional money
Retail sales volumes grew at the fastest rate in 10 years
Growth was 0.4% in Q1, the fastest pace in 2 years
Improved performance in the two laggards: France and
Italy
Financial Derivatives Company Limited
UK
19
Q1’15 growth of 0.4%
Inflation rate was negative at -0.1% in April from 0% in
February and March
First time since 1960, below BoE’s target of 2%
Spurred by lower air fares, cheaper fuel, and lower ferry
tickets
Financial Derivatives Company Limited
UK
20
BoE keeps interest rate at record low of 0.5% p.a.
Left the volume of its QE stimulus program unchanged at
£375bn ($588bn)
Expects inflation to pick up in subsequent months
Unemployment in the UK has decreased from 5.6% to
5.5% in Q1, the lowest since May-July 2008
Financial Derivatives Company Limited
Emerging Markets
21
The structural slowdown in Chinese growth will
continue
Growth of 7% will be achieved
Due to fiscal policy relaxation and reduction in high real
interest rates
The IMF has declared that the yuan is no longer
undervalued
Due to substantial real effective exchange rate
appreciation in 2014
Financial Derivatives Company Limited
22
The Impact of Global Developments on
Nigeria
Nigeria’s Leading Markets in 2014
Nigeria’s Leading Suppliers in 2014
France,
3.30%
Spain, 9.80%
India,
17.70%
India, 4.70%
Netherlands,
9.80%
US, 9.80%
China, 25.50%
Brazil,
11.80%
Source: EIU
The markets that export to Nigeria are flat to improving
Export destinations are enjoying positive growth
Demand for Nigerian oil will now be threatened
Financial Derivatives Company Limited
SSA
AfDB – African Development Bank
24
Akinwunmi Adesina emerges as AfDB President
First Nigerian to be elected as President
The immediate past Minister of Agriculture and Rural
Development in Nigeria
The new President will have to deal with:
A slowdown in some of the key economies
Issue of relevance especially with respect to lending
Financial Derivatives Company Limited
AfDB – African Development Bank
25
The AfDB has total assets of $33bn
Bigger than the U.S.’ 38th largest bank - Bank of Oklahoma
Biggest financier of infrastructure in Africa
Africa has a huge infrastructure deficit of $930bn
Nigeria’s infrastructure gap of $350bn is 37.63% of this
Financial Derivatives Company Limited
Monetary Policy Decisions of SSA
Economies
26
Inflation
Rate
Inflation
Trend
Interest
Rate
Angola
8.23%
Upward
9.25%
Further Tightening
Ghana
16.8%
Upward
22.00%
Further Tightening
Kenya
7.08%
Upward
8.50%
Status Quo
South Africa
4.5%
Upward
5.75%
Status Quo
Nigeria
8.7%
Upward
13%
Country
Policy Direction
Status quo (CRR harmonized)
Inflation trend was broadly the same across the region
The fundamentals are unchanged:
Weak currencies
Slowing growth
Low commodity prices
Political uncertainty
Financial Derivatives Company Limited
South Africa
27
GDP Growth slowed to 1.3% in Q1’15 from 4.1% in
Q4’14
Power outages continue to impact on manufacturing and
farm output
The purchasing managers’ index, an indicator of
manufacturing activity, fell to the lowest level in 11 months
in April
South Africa’s Reserve Bank keeps interest rates
unchanged at 5.75% p.a.
Reduced its growth forecast estimates for 2015 from 2.2%
to 2.1%
Financial Derivatives Company Limited
Ghana
28
Annual producer price inflation (PPI) increased to 19.5% in
April
From a revised 19.2% year-on-year in March
Reflecting the weakening of the cedi and unstable power
supply
The cedi has depreciated 18% since January
Inflation increased to 16.8% from 16.6% March
Ghana is currently running a three-year aid program
worth $918m with the International Monetary Fund
Started in April
Financial Derivatives Company Limited
Ghana - Outlook
29
Election Watch
Economic Growth
According to the EIU, Nana Akufo-Addo of NPP is expected
to win against the incumbent party in the coming elections in
Dec 2016
GDP growth will remain at 3.4% due to inflationary pressures
on economic activities
Inflation
According to the EIU, inflation forecast increases, averaging
15.6% for 2015 from previous forecast of 14.4%
Financial Derivatives Company Limited
Ghana - Outlook
30
Policy Trends
Cornerstone of policy agenda will be fiscal consolidation
which will require trimming bloated public-sector wage bill
and strengthening revenue management
Financial Derivatives Company Limited
Election Update
31
Ethiopia recently concluded its presidential elections
Ruling party, Ethiopian People’s Revolutionary
Democratic Front (EPRDF) expected to win by a
landslide
The election is the first since Prime Minister Zeravi’s
death in 2012
Provisional results should emerge with final results
announced in June
Country
Election Date
Burundi
Postponed to June 5, 2015
South Sudan
Postponed to July 2017
CAR
Postponed to August 2015
Financial Derivatives Company Limited
Commodities
Oil Up, Grains Down
33
The Bloomberg Commodity Index (BCOM) declined by
2.05% in May from April
Oil prices further up amidst speculation of declining U.S.
inventory
Cocoa and palm oil gain while grains declined on planting
progress
Average m-o-m change
PalmOil (MYR/tonne)
Cocoa ($/mt)
Wheat (US cents/bushel)
Silver
WTI
Gold
Brent Crude Oil
Corn
Natural Gas
Sugar
Rough rice
-8.00%
-6.00%
-4.00%
Financial Derivatives Company Limited
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
Oil
34
Oversupply concerns are far from over
Goldman Sachs and Citi Bank expect increased merger &
acquisition activities to boost efficiency in production
High level of US crude oil inventories will stifle any
meaningful recovery in oil prices
Rebound in oil prices will motivate OPEC to leave
production unchanged at its June meeting
Battle for market share will continue
Financial Derivatives Company Limited
Softs – Sugar and Cocoa
35
Concerns about shortage of cocoa in West Africa will
continue to spur a rally in prices
Increased cost of production for Cadbury and Nestle
Huge stockpile of sugar in India and Thailand will keep
prices low
In addition to weakening of the Brazilian real
Strong dollar poses an upside risk
Financial Derivatives Company Limited
Grain and Oil Seeds
36
Ample global supplies and planting progress in U.S. crops
will weigh on grain prices
Reduced cost of imports to offset devaluation impact
Strong rainfall poses upside risk due to crop damage
Fear of El Nino weather condition will spur a rally in palm
oil
Financial Derivatives Company Limited
Impact of commodity price movements
37
Oil price spike of 4% w-o-w and 14% YTD implies:
Expect increased FAAC allocation in July – current FAAC is
388bn
FGN & State revenue will improve
Impact
on imported items marginal but if sustained could
fuel inflation
Stock
prices – good for Presco & Okuomu oil
Financial Derivatives Company Limited
Impact of commodity price movements
38
Sugar
price increase is negative for Nestle, Cadbury and
7up
Nestle
stocks current trade at N850.01
However
increase is too marginal to have a significant
impact
Financial Derivatives Company Limited
Domestic Economic Performance
Leading Economic Indicators (LEIs)
40
Indicators
April’15
May’15
May/Apr (%)
June’15
Spot price ( end of month)
65.38
65.33
0.08
65-68
Spot price (avg $’pb)
60.83
62.41
2.59
63-66
Production (mbpd)
1.86
*1.86
-
1.90
OBB (%)p.a
8.58
8.83
0.25
9-.00-7.00
Overnight (%)p.a
9.33
9.33
-
10.00
MPR (%)p.a
13.00
13.00
-
1.00
CPI ( %)
8.70
*8.80
0.1
8.5
External Reserves ($’bn)
29.53
29.59
2.03
30-30.5
197.55
197.93
0.19
199
222
217
2.25
220
11.57
11.57
-
11.7-11.9
PMI
54
49
9.26
45
FAAC
435
388
10.80
3.
Oil Markets
Money Markets (End Period)
Exchange rate (End Period)
Inter-bank (N/$)
Parallel (N/$)
Market cap (N’trn)
Source: EIA ,FMDQ, OPEC, CBN, FSDH, FDC Research ; (* FDC’s forecasts)
Financial Derivatives Company Limited
LEIs - Negative & Neutral Trends Outlook
42
Oil production below the budget benchmark of 2.28mbpd
at 1.8mbpd%
Devaluation has impacted fiscal revenues and is slowly
manifesting in consumer prices as inflation increased to
8.7%
Further contraction in FBN’s PMI to 49.4 in May
From 54 in April and 55.2 in March
Currency pressure muted at the interbank and parallel
markets
Financial Derivatives Company Limited
LEIs - To Rebound in June
43
GDP growth is projected to increase to 4.1% in Q3
Oil prices (Brent) to trade within $60 -$65 range
Headline inflation likely to increase further to 9.5%
Devaluation impact on consumer prices to remain in June
Delayed effect of fuel scarcity on prices to manifest
Interest rates direction to be determined by market
liquidity
Further naira devaluation likely to remain unchanged
Financial Derivatives Company Limited
Money Supply Growth - Increased FGN Borrowing
44
Annualized Money Supply (M2)
growth remains positive but below
the benchmark
M2 growth was 1.8% YTD
18
19
16
10
17.5
8
17
6
9.66% in net domestic credit
(NDC)
15.5
Increase in aggregate credit was
driven by FGN borrowing
14.5
Annualized increase of 531.78%
Financial Derivatives Company Limited
12
18
16.5
14
18.5
Driven by 177.26% in aggregate
credit
Down to 5.39% from 15.67% in
February
19.5
4
16
2
0
15
-2
-4
Aug'14 Sep'14 Oct'14 Nov'14 Dec'14 Jan'15 Feb'15 Mar'15
M2 (N' trn - LHS))
Source: FMDQ, FDC Research
M2 Growth rate (% - RHS)
Interest Rates Driven by liquidity
45
Market liquidity level continues to
drive NIBOR
Interest rates spike significantly on
CRR debits
88
78
68
58
Eases on FAAC inflows
48
OBB/ON peaked at 41%p.a/44%p.a.
respectively
From the aberrational
78%p.a./80%p.a
Closed at an average of 9.08% p.a.
(OBB & O/N) relative to
8.52%p.a. in May
Financial Derivatives Company Limited
38
28
18
8
OBB
ON
Source: FMDQ, FDC Research
30
90
180
Inflation Trend & Outlook
46
Headline Inflation Rate
8.9%
8.8%
8.7%
8.6%
8.5%
8.5%
8.5%
8.4%
8.3%
8.1%
7.9%
8.3%
8.3%
8.2%
8.1%
Inflation rate at a 9 month high of
8.7% in April
May inflation expected to increase
marginally to 8.8%
Effect of fuel scarcity
Cost push effect of currency
depreciation
Exceptional and regression
projections
M2 growth muted
8.0%
7.9%
7.7%
7.5%
Source: NBS, FDC Research
Financial Derivatives Company Limited
Further price increase expected in
June
External Reserves - Stabilizing & Accretion
47
Leakages reduced
Up marginally by 0.2% m-o-m to
$29.59bn
35.00
34.28
34.00
From $29.53bn in April
$30-30.5bn expected in June
33.00
4.79 months of import of goods
any services
32.00
External Reserves ($'bn)
If subsidies are removed, the ease
in currency pressure will impact
positively on reserves
A marginal accretion should occur
to $30bn
31.36
31.00
29.79
30.00
29.50
29.00
28.00
27.00
Jan'15
Feb'15
Mar'15
Source: CBN, FDC Research
Financial Derivatives Company Limited
29.63
April
May
Forex - Naira Marginally Up Again
48
Depreciated marginally by 0.03% at
interbank
203
213
223
parallel
Financial Derivatives Company Limited
interbank
Source: CBN, FMDQ, FDC Research
IATA ROE
28-May
26-May
24-May
22-May
20-May
18-May
233
16-May
Exchange rate differential still high
at N21.07 from N24.45 in May
193
14-May
IATA ROE also gained 0.5% over
the level in April to close at
N199/$
183
12-May
Relative to N222/$ in May
173
10-May
Parallel market rate closed slightly
stronger at N219/$
Closed at N197.93/$ from
N199.7.99/$ in April
08-May
163
06-May
153
04-May
Forex N/$
Naira traded relatively flat in May
N/$
MPC - Administrative Rather than Market Tools
50
Harmonizes the CRRs to 31% while keeping other policy
rates unchanged
Refund of 44% on public sector funds against an 11%
mopping up of private sector deposits
Major beneficiaries of this move are the tier 1 banks
Private sector dependent banks will face challenges
Immediate impact on the market was neutral
Medium term impact will increase system liquidity due
to the volume of the refund
Financial Derivatives Company Limited
Outlook & Market Response
51
Debiting the CRR weekly
Increases the stabilizing effect
Already hitting the private sector deposit dependent
banks
Effectively making a 12% p.a. deposit equivalent of 15%
p.a. in cost
Financial Derivatives Company Limited
PPP Analysis
Purchasing Power Parity
52
Apr-15
Apr-14
=N=
US $
PPP ('=N=/US$)
=N=
US $
PPP ('=N=/US$)
1 Bottle of Coke
100
2.00
50.00
100
2.00
50.00
2 Heineken
350
2.11
165.88
350
1.50
233.33
3 Hamburger
1,200
4.80
250.00
850
3.14
270.70
4 Uncle Ben's rice
1,500
3.48
431.03
1,500
3.50
428.57
Toyota Corolla
6,900,000
16800
410.71
4,300,000
16,230
264.94
Bottled Water
100
0.41
241.21
100
1.49
67.11
5 Big Loaf Bread
300
3.50
85.71
300
2.50
120.00
6 Irish Spring Soap
250
3.59
69.64
250
2.00
125.00
7 Cigarette
200
8.00
25.00
170
8.00
21.25
8 Chicken Drumsticks
800
8.00
100.00
800
7.45
107.38
9 Eggs
600
4.19
143.20
400
2.75
Average PPP
179.31
Naira Price at IFEM
197.00
10
Decision: Naira is
Undervalued
-8.98%
11 Spot Rate (Parallel)
221
Outcome: Compared to official spot rate of N197/$1, the Naira is undervalued by 8.98%
Financial Derivatives Company Limited
145.45
166.70
160.50
3.87%
163
PPP Analysis
53
Using a basket of items to determine the currency value
PPP index shows that naira is slightly undervalued by 8.98%
An indication that the Inter-bank Forex Market rate may be
trading at its fair value
Further devaluation may not be necessary
As the PPP adjusts to the spot rate when the 28% devaluation
effect impacts fully on consumer prices
Financial Derivatives Company Limited
Burgernomics & Milk Proxy Values
54
Using the one item basket – the Big Mac Index
Price of MacDonald's Burger in the US: $4.53
KFC as a proxy at N1200 in Nigeria
Using the current exchange rate : $6.03
This suggests the naira is overvalued by 24.88%
The true value of the naira based on the burgernomics
today is N248.7/$
It was N223.48/$ in January
Financial Derivatives Company Limited
Burgernomics & Milk Proxy Values
55
Use of Milk indicated a 71% overvaluation
A one item basket may be insufficient relative to a multiple
items index
Other overvalued currencies are:
Zambian kwacha is 87% overvalued
Moroccan dirham is 30% undervalued
Egyptian pound is 2% overvalued
Financial Derivatives Company Limited
Fuel Subsidy Dynamics
56
Total subsidy payments made so far in 2015: N150bn out
of an outstanding N250bn
Marketers suspend strike after meeting with the then
Minister of Finance
Assured that payment will be included in the handover note
to the new administration
Oil unions’ strike worsen an already bleeding situation
Were available, petrol was being sold at outrageous
prices
Between N200 and N400 per liter
Financial Derivatives Company Limited
Fuel Subsidy Dynamics
57
Imports are 750,000mt per quarter
Far in excess of the national demand subsidy payments
Historical data shows disconnect in y-o-y consumption
rate
29.71% increase in PMS consumption between 2006 and 2008
Without relative increase in vehicle imports
Economic growth contracted by 0.5% in the same period
Volume of vehicles registered increased by just 10%
Financial Derivatives Company Limited
Power Generation
58
New government facing a daunting task to improve the
crippled energy sector
Power generation at a low of 1,327MW on 22 May,
down from 3,100MW in April
7 of the 10 National Integrated Power Projects (NIPPs)
operating the same south-west gas pipeline axis
9 of the 11 distribution companies have declared force
majeure as a result of 50% tariff reduction in the run-up
to the election
Financial Derivatives Company Limited
FAAC Allocation Down by 11%
60
FAAC allocation is down by 10.8% to
N388bn in April
From N435bn in March
Despite higher oil prices in the
month, oil revenues declined
Due to increase in deferred
production from pipeline shut-ins
We expect an increase to N400 –
FAAC (N'bn)
900
Govt. revenue falling
840
780
755.95
720
660
600
540
480
388
420
360
300
N450bn in May and June
Source: FMF, FDC Research
Financial Derivatives Company Limited
450
420
Ships Awaiting Berth Inch up slightly
61
Ships Awaiting Berth vs. Interbank Rate
Ships awaiting berth improved
90
slightly to 49 in May
250
80
200
70
From 46 in April
60
150
50
Reflects relatively stable naira
40
100
30
during the month
20
50
10
Expect further increase
0
0
Ships Awaiting Berth
Interbank Rate N/$)
Source: NPA, CBN, FDC Research
Financial Derivatives Company Limited
Rig Count Trends Downwards
62
Baker Hughes report further
decline in active rigs in Nigeria
Rig Count
20
18
16
Down to 9 in April from 13 in
14
12
10
March
8
6
Corroborates the decline in oil
4
2
0
revenues due to lower production
January
February
2014
Financial Derivatives Company Limited
March
2015
Source: Baker Hughes
April
Power Generation Down
63
Power output from national grid
down to 1,350MW
Average Daily Power Generation (MW)
4500
56% below 3,100MW in April
4000
Attributed to striking union and
3500
gas pipeline vandalism
3000
Power output will likely remain
2500
low for fear that Buhari will
reverse transactions
Financial Derivatives Company Limited
2000
24-Jan
24-Feb
24-Mar
24-Apr
24-May
Global Consumer Goods and Retail Outlook
65
Global retail sales volume is
expected to grow by 3.1%
20
3.5
18
3
Growth will be led by the Asian
continent
16
Indian retail sales expected to
surpass $1trn
12
Making it the 3rd largest retail
market in the world
8
2.5
14
2
10
1.5
1
6
0.5
4
2
2010
0
2011
2012
2013
2014
2015
Retail Sales (US$trn)LHS
Retail sales volumes (%change) RHS
Financial Derivatives Company Limited
2016
Regional Outlook (Western Europe & Asia)
66
Annual volume growth for Western Europe is expected
to average only 0.8%
Sales are declining in China, a key market driver for Asia
and Australia
Major retailers like: H&M, Marks & Spencer and WalMart are still optimistic
Financial Derivatives Company Limited
Regional Outlook (Middle East & Africa)
67
Retail volumes are expected to increase by 4.2%
Nigeria continues to draw positive interest inspite of
political challenges and falling oil prices
Projected growth on a 10 year forecast could justify
early investment
The region appears ready for consolidation with several
FCMG brands having established presence
Financial Derivatives Company Limited
Market Trends
68
Attention is gradually shifting away from BRIC’s to
MINT’s (Mexico, Indonesia, Nigeria and Turkey)
Consumers are becoming more price sensitive and
brand loyalty is declining
Online retail platforms are gradually taking over
conventional retail outlets
Financial Derivatives Company Limited
Retail Update - South Africa
69
Gucci has signed a joint venture with a local partner,
GMT Investcorp Ltd and is opening a new store in
Sandton City, Johannesburg.
Joining a host of the world’s most luxurious brands,
including Louis Vuitton, Prada, and Salvatore Ferragamo
Gucci believes that South Africa is now positioned to
become the fashion hub in Sub-Saharan Africa in the
medium to long run
Financial Derivatives Company Limited
Nike - Most Valuable Apparel Globally
70
Nike ranks No1 apparel in the world
From 34th in 2014
The athletic wear company beat several fast fashion and
higher-end names
Ranks 28th in the top 100 brands overall
In the fashion world,
It beat Louis Vuitton (32, the top luxury brand)
Hermès (55)
Adidas (7)
Lululemon (9)
Financial Derivatives Company Limited
Nigerian Retail Industry
71
Retail activities negatively affected by fuel scarcity
Electronics sales down 10% and Garments down 13%
But FMCGs sales are up 2% with consumers focusing on
essential goods
Financial Derivatives Company Limited
Domestic Retail Industry
72
Consumers stocking up to reduce the number of trips to
stores
Weekday-weekend traffic has eased
Retailers still holding on to normal inventory level with
hope demand will return
Increase in electronically paid transactions
Cash to card ratio of 66:34
From 68:32
Financial Derivatives Company Limited
Vacancy Factor
74
Residential vacancy factor was flat in Victoria Island, Lekki
and Ikoyi
But commercial vacancy factor increased in Victoria Island
and Lekki
V.I: up from 12% to 13%
Lekki: up from 47% to 48%
Commercial vacancy factor in Ikoyi unchanged at 4%
Financial Derivatives Company Limited
Commercial Vacancy Factor Up
75
Victoria Island
35%
40%
35%
30%
25%
20%
15%
10%
5%
0%
30%
25%
20%
15%
10%
5%
0%
Ikoyi
Lekki
60%
50%
Residential Vacancy Factor
40%
30%
Commercial Vacancy Factor
20%
10%
0%
Source: FDC Research
Financial Derivatives Company Limited
Real Estate Market in Lagos
76
Suffering from the lingering excess capacity
Distortion between rental values, replacement costs and
sale prices
Typically real estate markets are in equilibrium
Aligning location, vacancy factor and proximity to the
Central Business District
Lekki Phase I has been the beneficiary of proximity to
Ikoyi
Advanced infrastructure and mixed use neighbourhood
Excess capacity and high market pricing – supply gap
Financial Derivatives Company Limited
Real Estate Market in Lagos
77
Lamudi Barometer shows contradiction between sales
prices and rental values
Sales prices table shows Lekki at the bottom but high in
rents
The disconnection is because Lekki investors are:
Less interest rate sensitive
Many money laundering type investors
Not willing to sell
Financial Derivatives Company Limited
An Alternative View of Real Estate
78
According to Lamudi, there were significant disparities in
average sales price based on LGA:
Ikoyi has the highest average sales price per bedroom at
N51.58 Mn; that is 3.75X that of Lekki, which is surprisingly
cheaper than Ketu, Maryland and lagos Island.
The southern Lagos outskirts of Badagry and Ojo recorded
the lowest average sales prices of below N2.4 Mn per
bedroom.
Financial Derivatives Company Limited
An Alternative View of Real Estate
79
Top 10 Neighbourhoods (Sale)
Neighbourhood
Avg price/
bedroom (N)
Top 10 Neighbourhoods (Rental)
Neighbourhood
Avg price/
bedroom (N)
Ikoyi
51.58 Mn
Ikoyi
2.38 Mn
Victoria Island
28.43 Mn
Victoria Island
1.55 Mn
Apapa
23.77 Mn
Lagos Island
985k
Ikeja
19.89 Mn
Lekki
821k
Ketu
15.46 Mn
Apapa
762k
Maryland
13.80 Mn
Maryland
679k
Lagos Island
13.76 Mn
Mushin
587k
Lekki
13.74 Mn
Badagry
528k
Festac
11.71 Mn
Ogudu
508k
Isolo
10.79 Mn
Ikeja
500k
Financial Derivatives Company Limited
An Alternative View of Real Estate
80
According to Lamudi, though there were few exceptions,
rental price patterns generally reflected sales prices:
The high availability of overpriced rental stock in Lagos Island
and Eti-Osa LGAs resulted in a relatively high average rental
price of N694,000 per bedroom.
Lekki’s overpriced rental price is potentially a sign of
speculative pricing for low demand housing stock rather than
an actual lack of available housing stock.
Financial Derivatives Company Limited
An Alternative View of Real Estate
82
Lowest 10 Neighbourhoods (Sale)
Neighbourhood
Avg price/
bedroom (N)
Lowest 10 Neighbourhoods (Rental)
Neighbourhood
Avg price/
bedroom (N)
Iju
5.40 Mn
Egbe
185k
Ejigbo
5.32 Mn
Agege
175k
Ipaja
4.51 Mn
Iju
174k
Ikorodu
4.25 Mn
Egbeda
144k
Igando
4.19 Mn
Ipaja
140k
Ikotun
3.78 Mn
Ikotun
119k
Abule-Egba
3.54 Mn
Ikorodu
113k
Egbe
3.21 mn
Igando
112k
Ojo
2.33 Mn
Abule Egbe
110k
Badagry
1.84 Mn
Ojo
108k
Financial Derivatives Company Limited
Market Pressure by LGA
83
According to Lamudi, demand pressures on available housing
(volume of demand / volume of available supply) in the
central districts of Lagos far outstripped the rest of the city
Neighbourhoods with highest market pressure by property type
Apartment
Rent
Houses for
Rent
Apartments
Sale
Houses for
Sale
Land for
Sale
Yaba/Akoka
Yaba/Akoka
Ajah
Lekki
Ogudu
Lekki
Lekki
Ikoyi
Ikoyi
Surulere
Ikeja
Ketu
Lekki
Ikeja
Yaba/Akoka
Surulere
Ikeja
Victoria Island
Ajah
Ipaja
Shomolu
Shomolu
Berger
Maryland
Agege
Financial Derivatives Company Limited
Outlook
84
Real estate activities expected to pick up in June
Expect increased demand as expatriates return to the
country
Construction will resume after payment of contractor
arrears
Expect increased demand for properties after payment
of salary arrears
Lagos and Abuja same political party: impact positive
Financial Derivatives Company Limited
Aviation Update
Traffic to Increase to the U.S this Summer
86
86
Expectations are based on the recovery in the US
economy
Leading to greater jobs and in turn increasing the
demand for air travel
Industry trade group has projected a 4.5% y-o-y increase
in traffic for June - August 2015
Airlines in America expect 2.4 million passengers to fly
between June and August 2015
Highest demand is expected to be for non-stop flights
from the US to Canada, Mexico, the United Kingdom,
Germany, and Japan
Financial Derivatives Company Limited
Alitalia - Making Up to Break Up
87
87
Alitalia says arrangements with Air France is no longer
commercially or strategically beneficial
Threatens not to renew arrangements upon expiration
in 2016
Reorganisation ongoing since Etihad acquired 49% stake
in Alitalia
Alitalia still open to renegotiate with Air France KLM
Talks on future collaboration ongoing
Financial Derivatives Company Limited
Summer Time!!!-Passenger Traffic Redirection
88
Preferred Destinations
Preferred Carriers ex Lagos
London
British Airways
Dubai
Emirates Airlines
Houston
Lufthansa
KLM
Air France
South Africa Airways
United Airlines
Delta Airlines
Amsterdam
Johannesburg
Financial Derivatives Company Limited
Steals and not Deals!!!
PEAK SEASON FARES
89
British Airways
Emirates Airline
United Airline
South African
Airways
Financial Derivatives Company Limited
Business Class: $6,804.00
Economy: $702.00
Business Class: $4,220.00
Economy: $305.00
Business Class: $9,180.00
Economy: $1,265.00
Business Class: $4,681.00
Economy: $350.00
Steals and not Deals!!!
90
90
Rwandair
Buy 10 tickets and get one free
Etihad Airways
Buy ticket to India/UK/USA/Far East and Asia and get free Abu
Dhabi and Dubai stop over
British Airways
Royal baby offer with infant flying free and children paying 25%
fare
Financial Derivatives Company Limited
NSE - ASI Performance
92
NSE-ASI
43,000.00
40,000.00
42,000.00
35,000.00
41,000.00
30,000.00
40,000.00
25,000.00
39,000.00
20,000.00
38,000.00
15,000.00
37,000.00
10,000.00
36,000.00
35,000.00
5,000.00
34,000.00
20-May-15
13-May-15
06-May-15
29-Apr-15
22-Apr-15
15-Apr-15
NSEASI 2015
08-Apr-15
01-Apr-15
25-Mar-15
18-Mar-15
Financial Derivatives Company Limited
11-Mar-15
04-Mar-15
25-Feb-15
18-Feb-15
11-Feb-15
04-Feb-15
28-Jan-15
21-Jan-15
14-Jan-15
07-Jan-15
31-Dec-14
NSEASI 2014
Market Performance
93
Stock market was volatile to flat in May
With a YTD return of 0.3%
The index traded within a range of 33,943.29 to close at
34,044.65
Market Capitalisation is N11.6trn
Diverging from the MSCI index by 5.9%
Waiting for Jonathan to fade and team Buhari to take over
Financial Derivatives Company Limited
Market Performance
94
Market expectations have been cautiously optimistic
Fuel shortage, power outage and a MPC meeting that
was liquidity neutral
The move against a major Broker/Dealer sent jitters
amongst market operators
Corporate earnings released in the month of May failed
to spark
Financial Derivatives Company Limited
Market Performance
95
Key results released in Q1’15 were:
Earnings Growth
(Q1’14 – Q1’15)
Share Price m-o-m
% of Market
Capitalisation
GTB
17%
0.7%
7%
ZENITH
20%
1.6%
6%
FBNH
17%
-4.3%
3%
WAPCO
15%
4.3%
4%
DANGCEM
11%
-2.4%
26.22%
SEPLAT
12%
-10.3%
2%
Company
Financial Derivatives Company Limited
Market Performance
96
Institutional investors are tentative until Buhari’s first
policy statements
Looking for sectors and companies that will benefit from:
Deregulated downstream petroleum and possible subsidy
removal
Stable and equilibrium exchange rate in 2015/16
Marshall plan in the North/East & Central
Fiscal incentives in the upstream petroleum sector
Financial Derivatives Company Limited
Market Performance
97
Attractive sectors include:
Building materials
Civil works & engineering
Fast moving consumer goods
Downstream multinationals
Financial Derivatives Company Limited
Lafarge – Revving up to compete
98
Revenue increased by12.79% in
Q1’15 from N49.37bn to
N56.9bn
Current P.E. at 11.85x; Sector
P/E 15.79x
Profits declined 22% to N8.5bn
Q1’15 slow down in total Asset
growth to 4.74%
Investment to Sales recorded
for the period was 28%
compared to 6.5% in Q1’14
Financial Derivatives Company Limited
Lafarge
Ashaka
Dangcem
CCNN
Revenue
Growth
15%
(29.8%)
10.78%
(5.29%)
PAT Growth
(22%)
(53.6%)
44.09%
(9.58%)
P/Book
2.34x
0.92x
4.57x
1.39x
P/Earnings
11.85x
26.87x
15.08x
6.86x
P/Sales
1.91
2.50
7.48
0.87
EPS
7.45
1.50
10.71
1.90
Lafarge – Looking Strong
99
P/E of 11.85x lower than industry average of 15.79x
Company has significant synergy benefits from Ashaka
affiliation
Strategic benefits from being a subsidiary of world’s
largest aggregate and cement company
Building materials business complements civil works
Civil works will benefit from massive construction and
infrastructure initiatives
Financial Derivatives Company Limited
Stock to Watch – Fidelity
100
Revenue increased by 13% in
Q1’15
Q1 2015 Fidelity Diamond Skye Sterling
With PE of 3.90, the stock trades
below the sector average of 6.71%
Earnings
growth
12.5%
5.3%
23.4
%
10.2%
Market share growing at slower
pace
PBT
Growth
5.6%
-9.5%
81.4
%
14.1%
P/Book
0.3
0.47
0.26
0.68
P/Earnings 3.90x
3.84x
3.07x 3.38x
Loan
growth
(YoY)
0.95%
2.5%
-7%
5.7%
EPS
0.48
1.15
0.86
0.40
Unable to clinch an M&A
transaction
Continues to consolidate its
position as a retail franchise
Strong & dominant portion in the
South east and North Central
Tiding on the coattails of the old
FSB Bank
Considered highly undervalued
with tremendous upside
Financial Derivatives Company Limited
Fidelity – Undervalued gravy train
101
P/E of 3.9x lower than industry average attractive
valuation
Cost to income ratio declining by 2.7% to 71.5%
Lower exposure to unstable oil and gas industry
than industry peers
25.5% of loan portfolio as at end of Q1’15
Bank is a leading player in real sectors – Power, Oil &
Gas, Telecoms
Financial Derivatives Company Limited
Stock to Watch – Presco
102
Leading CPO producer
Has a capacity of 15,184ha
Projected to grow it to 20,000ha
by 2020
Sales growth of 7.7% was
recorded for FY 2014
By land area and refining capacity
Despite the 16.4% decline in global
CPO prices
Sales driven primarily by volume
growth
COS reduction due to cost
efficiencies
Additional investment being made
to diversify into Cocoa and
Rubber
Financial Derivatives Company Limited
Q1’2015
Actual
Y/y
Q/q
Sales
2,153
2.1%
-2.9%
Cost of Sales
-800
-21.5%
-200%
Operating Profit 1,013
55.6%
129%
PBT Margin
39.9%
1168bps 2124bps
PAT Margin
25.9%
657bps
840bps
Presco – The duopoly king
103
Massive investment anticipated in the Agricultural sector
Expected to increase export earnings
Increased business activities and profit expected in
return
Financial Derivatives Company Limited
June Outlook
104
Sentiment in June to remain flat and tentative
Fundamentals will remain unchanged
Most stocks to bottom out following disappointing
earnings
Sustained demand for treasuries and bonds likely to
dampen interest in equities
SEC’s deadline for recapitalization of Capital Market
Operators to influence activity
Financial Derivatives Company Limited
Political Update
106
Political class stunned by Buhari’s victory
APC team were preparing for a post-election fight
A struggle that never was
Initially unprepared for governance
Shakespeare in the Twelfth night in 1602 said “Some are
born great, some achieve greatness and some have
greatness thrust upon them”
Financial Derivatives Company Limited
Political Update
107
Buhari’s inauguration speech key phrases
“I belong to everybody, but belong to nobody”
“There is a tide in the affairs of men which taken at the floods,
leads on to fortune. Omitted all the voyage of their life is
bound in shallows and in miseries”
Brutus tells Cassius in the Shakespearian play - Julius Caesar
Financial Derivatives Company Limited
Political Update
108
The APC consolidates power
Party wants to govern and make a difference
Afraid of being accused of nepotism
Wants to be egalitarian and balanced
After 16 years of PDP and 2 decades of corrupt military
rule
Party can hardly find capable, trusted and untarnished
people
There are very few politicians who are smelling like roses
Financial Derivatives Company Limited
Political Update
109
The party is being inundated by professional hustlers and
political jobbers
Most confusing service for reward
The thin line between abuse of office and corruption is
lost on them
The difference between corruption and impunity was the
PDP’s bane
Financial Derivatives Company Limited
Major Political Challenges
110
Aligning the political interests with national interest
All politics is local – Tip O’Neill
How to achieve consensus at the NASS to spend huge
amounts on
Revitalising the North East & Central
Increase defence spending
Equitably distributing infrastructure spend
Economic reform that reduces rent and puts some regions at
a disadvantage
Funding a poverty safety net that encourages national
indolence
Financial Derivatives Company Limited
Major Political Challenges
111
Getting Buhari and his generation to accept that
borrowing is not a crime
Bringing back the Chibok girls
Ending the amnesty scam in the Niger-Delta, while
spending on a Marshall plan in the North
Sanitising a corrupt, polluted and ineffective armed forces
Transition from opposition freedom fighting party to a
near one-party state
Financial Derivatives Company Limited
Major Political Challenges
112
How to accommodate the deluge of PDP members
carpet crossing
How to cut the benefit of legislators and stop them from
demanding bribes
This is the real problem after 16 years of an extortion
racket
State and federal legislators get their salaries, allowances
and expect to get shakedown fees
Financial Derivatives Company Limited
Economic Reform & its Sequence
113
Financing the arrears gap without creating macroeconomic instability
The political class and legislators are married to the
vested interests
The progressive alliances will be strained or could break
down
Transparency will emerge as the winner in the end
Financial Derivatives Company Limited
Flash Points
114
Shake up in the military high command
Complete reorganization of the JTF in the creeks of the
Niger Delta
Restructuring and reorganising the Nigerian Customs
service
The total restructuring of the anti corruption agencies
which have all failed
The dismantling of the NNPC structure and its total
reorganisation
The first convention of the PDP after electoral defeat
The reaction of the disaffected, after ministers are
appointed
Financial Derivatives Company Limited
Outlook
Outlook for June
116
Inflation for May will increase to 9%
Stock market will trade flat again with more profit taking
Naira will appreciate marginally in the parallel market to
N215
Subsidies will be removed
Startling revelations about corruption in the oil sector
Financial Derivatives Company Limited
Outlook for June
117
Scandals relating to public exposed persons and their
banking accomplices will heighten reputation risks
International money laundering investigations will
commence against many existing and former office
holders
Voluntary exile will increase sharply mainly to Zimbabwe
Property values will begin to climb in Lagos marginally in
Lagos
Financial Derivatives Company Limited
Corporate Humour
119
The poor wish to be rich, the rich wish to be
happy, the single wish to be married and
the married wish to be dead.
- Ann Landers
Husbands are like fires. They go out if
unattended.
Zsa Zsa Gabor 119
Financial Derivatives Company Limited
Corporate Humour
120
I am impressed with people from Chicago.
Hollywood is hype, New York is talk, Chicago is
work.
- Michael Douglas
There are 2 kinds of pedestrians, the quick
and the dead.
Robert Dewar A painter can hang his pictures, but a writer can
only hang himself.
Financial Derivatives Company Limited
- Edward Dahlbery
120
Corporate Humour
121
Originality is the art of concealing your sources.
- Anonymous
Living with a conscience is like driving a car
with the brakes on.
Budd Schulberg121
Financial Derivatives Company Limited
Corporate Humour
122
Idealism is what precedes experience, cynicism
is what follows.
- David Wolf
Monogamous and monotonous are
synonymous.
Thaddens Golas -
Financial Derivatives Company Limited
122
Corporate Humour
123
The optimist invents the aeroplane and the
pessimist the parachute.
- George Bernard Shaw
The main difference between men and women
is that men are lunatics and women are idiots.
Rebecca West -
Financial Derivatives Company Limited
123
124
Financial Derivatives Company Limited
Bismarck J. Rewane, MD/CEO
Financial Derivatives Company Ltd.
Lagos, Nigeria
01-7739889
© Copyright 2024