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Vetiva Research’s 2011 Economic Outlook

3 Mar 2011

Vetiva Research recently released their Economic Outlook for the Nigerian economy for 2011. It is a very detailed report and the accompanying document includes their underlying assumptions.
Vetiva Research 2011 Economic Outlook (733).
Vetiva Research - 2011 Outlook and Underlying Assumptions (516)

An excerpt of their outlook for the different sectors of the economy is below:

Sector Outlook

Banking Sector: Risk gives way, eyes on fundamentals
We are overtly upbeat on 2011 earnings, as the key drags on growth fizzle out. Aside our modest outlook on loan growth which is expected to enliven interest income as well as fee and commission books, the steady uptick in the overall yield environment will provide support for appreciable growth in FY’11 earnings over 2010 levels. Our top calls in the sector are ZENITHBANK, ACCESS and FIRSTBANK. These three banks have an expected return of 27%, 25% and 17% respectively.

Consumer Sector: Tough year ahead…efficiency, requisite
The global factor of rising commodity prices, and constrained domestic credit growth will combine to pose challenges for companies within the consumer sector in 2011. It is worthy to note that these stress points would play differently for the sub-sectors within the Consumer industry. Importantly, the ability of consumer companies to improve and sustain production efficiencies would gird against some of these pressures. In the consumer space, we are bullish on Dangote Flour and Flour Mills on the basis of our expected return of 29% and 11% respectively.

Energy Sector: Elections to slow reforms
With far reaching reforms in the pipeline in of the oil, gas and power segments of the Energy industry, electioneering for the April polls seems to be shifting the focus of the legislators, and also the ability of the executive arm of government to focus on implementation. We note that for most segments, less activity on the reforms would be felt pre-election, whilst the Government is likely to put more focus on the pressing issues in the Energy Industry, post-elections. Our top shot in the sector remains Oando, based on our estimated return of 32%.

Infrastructure Sector: Set for mixed realities
Our focus on the building materials sub sector is on the cement producers, as they dominate the infrastructure sector. The outlook for the cement producers follows from our overall expectations of slow infrastructure development. In line with the additional capacities expected to come on stream this year, the sub sector is set to witness a major boost in cement supply. On consumption, we expect some improvement in Q1’11 given the onset of the dry season. The construction sub sector will still be dependent on government capital expenditure. We expect a reduced level of government contract awards and mobilization as focus on elections stalls decision making in government quarters. Notwithstanding the strong fundamentals of the sector, most of the stocks are stretched at current prices. However, we remain bullish on Lafarge WAPCO and Julius Berger based on our estimated potential return of 18% and 14%.

Insurance Sector: Searching for value
With the Nigerian economy forecast to grow at 7.0% in 2011, and given rising income levels and higher risk awareness among the populace, we are cautiously optimistic about the demand for insurance products. However, intense competition with rate undercutting, moderate returns from investments, and adjustments to the new regulatory guidelines is likely to continue to taper short-term profitability. Our favorite in the Insurance space remains Custodian and Allied Insurance based on our estimated return of 32.1%

Capital Markets: High Expectations Amid Uncertainty
Our expectation is that the equity market will close 2011 18% up, with the benchmark index ending the year at 29,246.49. In our view, this base case scenario would be driven by a 30% return by banks, while Petroleum Marketing and our new Infrastructure (includes building materials and construction companies) sectors are forecast to return 18% and 9% respectively. We expect our new Consumer group to return 15%, however, sub sector forecast puts Food & Beverages at 21%, the Brewers at 12%, while the Conglomerates will throw in a 6% return. As in 2010, we believe the Insurance sector would once again lag the broader market with 2011 return forecast at 5%.

Our Bull case estimate for the equity market performance rises 606 bps above our base case scenario to 24%. Again the banks will lead with a 40% return, Petroleum Marketing and Consumer sectors will follow with 25% and 19% respectively. The Infrastructure sector will post 18% return, while Insurance counters will return 10%.

Our Bear case estimate sees equities returning 10% for the year. This scenario forecasts banks adding 25%, the Petroleum Marketing and Consumer sectors posting gains of 10% and 6% respectively, while the Infrastructure and Insurance sectors will shed 4% and 5% respectively.

Given the expected hyperactivity in local Bond issuances by AMCON and the federal government early in the year, we expect the bond market to continue to attract capital flows as bond yields would trend higher in 2011, hence shaving off, only slightly though, some of the potential investments in equities. Stronger still, the uncertainty in the Nigerian Political environment might delay significant investments in the capital markets further into the year as investors exhibit caution over the outcome of the elections.

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Tags: outlook, specialreport

Vetiva’s Economic Note For February 2011

In: special reports

3 Mar 2011

Here is Vetiva Research’s review of the economic activities for February 2011.

And here is their outlook:
Vetiva Research Feburary 2011 Monthly Economic Note (237)

Outlook

Inflation
We expect inflation to trend higher in the short-term thereby piling pressure on the need to continue raising interest rates. We emphasize “short-term”, as the drivers of inflation are clearer and more persuasive over this time frame. Fiscal spend in the run up to the April elections, expectations on the back of the recently approved N18,000 minimum wage, high oil prices owing to rising tensions in the MENA region and, spiking food prices on the back of adverse weather conditions are a few of the risks somewhat certain to linger up till H1’11. Our view is that these risks are short-lived, and we expect inflation will finish the year in the 10%-11% range.

Interest rates
The lack of clarity on the fiscal direction of the government and the anticipation of higher oil revenues have pushed ahead market expectations of the likely timing and pace of monetary policy tightening. On this assumption, we expect interest rates to edge higher gradually in reaction to the tightening measures. In addition, we anticipate there will be a more dramatic reaction as soon as the CBN’s guarantee on interbank market transactions is removed as expected in H1’11.

Exchange rates
Without discounting the possibility of short-lived volatilities, we remain positive on the stability of the naira on the back of a steady accretion of reserves and well managed demand base. We are cautiously optimistic that the withdrawals from the Excess Crude Account (ECA) as seen in 2010 will not recur.

From all indications, oil prices are not a major risk to reserve accumulation in 2011 as prices are forecast to remain significantly above the budget benchmark. The major risk we see is the health of oil production volumes, which will depend on the outcome of the April elections. Another slightly worrying consideration is the devaluation of the US dollar which is the world’s reserve currency. The Bloomberg Dollar Index has lost 4.8% and 1.1% in the last three months, and one month respectively. There is no gainsaying that the greenback will devalue further in 2011, as the government is committed to closing its huge deficit gap. It may make sense for the CBN to actively pursue diversification of Nigeria’s reserve currency exposure.

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Tags: monthlyreport

NSE Weekly Reports For Weeks Ended Feb. 11th and 18th

In: weekly report

23 Feb 2011

Here are the NSE reports from IBTC, Lead Capital, FSDH Securities and Afrinvest for the weeks ended February 11th and 18th.

Week ended February 18th:

Afrinvest Weekly Market Summary & Stock Recommendations, Week Ended 18th February 2011 (237).

NSE Weekly Report - FSDH - Feb 18 2011 (284).

NSE Weekly Report - IBTC - Feb 18 2011 (249).

NSE Weekly Report - Lead Capital - Feb 18 2011 (285).

Afrinvest Nigeria Bi-Weekly Report - Feb 18th 2011 (290)

And for the week of the February 11th:

Afrinvest Weekly Market Summary & Stock Recommendations, Week Ended 11th February 2011 (255).

NSE Weekly Report - FSDH - Feb 11 2011 (228).

NSE Weekly Report - Lead Capital - Feb 11 2011 (226)

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NSE Report For Week Ended Feb 4th 2011

In: News|weekly report

9 Feb 2011

Courtesy of FSDH, Lead Capital, and Afrinvest, here are there reports on the activities at the NSE for the week ended February 4th, 2011.

Highlights:

+ The market succumbed to the bears this week losing 217 basis points with a brief respite mid-week.

+ Rumours of a possible corporate action brought brief respite to the banking sector mid-week, however the trend turned bearish by the close of the week as bids and offers were fairly matched for most companies. The brief respite mid-week led to marginal losses at the close of the week. On the uptick were Intercontinental Bank, Spring Bank, Access Bank and Diamond Bank. Unity Bank however recorded the largest loss this week dropping 11.6% followed by UBA and Oceanic Bank losing 6.3% apiece.

+ The building materials sector was in line with current market trend. Dangote Cement and CCNN cumulatively shed 2.9% and 4.0% respectively, closing bids for Dangote Cement at the close of Friday’s session were thin with a possible quiet session next week. Ashaka Cement and Lafarge Wapco closed flat this week.

+ The petroleum marketing sector also went fully to the bears this week. Beco Petroleum topped the losers’ list with a 10.1% drop while Eterna Oil shed 6.0%. The likes of Oando, AP and Total also shed 0.1%, 2.4% and 2.7% respectively.

Reports for week ended February 4th:
Afrinvest Weekly Market Summary & Stock Recommendations, Week Ended 4th February 2011 (240).
NSE Report - Afrinvest - Feb4th 2011 (232).
NSE Report - FSDH - Feb 4th 2011 (321).
NSE Report - Lead Capital - Feb4th 2011 (222)

Reports for week ended January 28th:
Afrinvest Weekly Market Summary & Stock Recommendations, Week Ended 28th January 2011 (238).
NSE Report - Afrinvest - Jan 28th 2011 (201).
NSE Report - FSDH - Jan 28th 2011 (251)

Stats:

Results:

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Tags: NSE, weeklyreports

FSDH Securities’ Economic And Financial Outlook For 2011

In: Economy|special reports

9 Feb 2011

FSDH Securities recently released their Economic and Financial Outlook for 2011. You can download it below.

Here is an excerpt from the report on their outlook for 2011:

Outlook for 2011
Global Economy
The highlights of the consensus from the IMF, World Bank and OPEC on the outlook of the world economy for 2011 are:
+ Looking at the world economic growth rate in 2011, IMF projects 4.5%, OPEC projects 3.9% while World Bank projects 3.3%. The IMF’s projection is slightly lower than the estimated growth rate of 5% in 2010, but represents an upward revision from 4.25% released in the WEO, October 2010. IMF added that signs are increasing that private consumption – which fell sharply during the crisis – is starting to gain in major advanced economies.
+ IMF however notes that downside risks to the recovery remain elevated. According to the Fund, the most urgent requirements for robust recovery are comprehensive and rapid actions to overcome sovereign and financial troubles in the euro area and policies to redress fiscal imbalances and to repair and reform financial systems in advanced economies more generally. These need to be complemented with policies that keep overheating pressures in check and facilitate external rebalancing in key emerging economies.
+ IMF projects oil price around US$90/b in 2011.

The Nigerian Economy
The general elections into various political offices in Nigeria will commence with the National Assembly Elections on April 02, 2011. This will be followed by Presidential Elections on April 09, 2011 and lastly Government/State Assembly Elections on April 16, 2011. Although there are some securities issues around the country which the government has vowed to deal decisively with, we are of the opinion that with the success of the just concluded party primaries across the nation, the election will be void of crisis that can adversely affect the smooth running of the economy and the financial market.
+ There are renewed commitments from the Federal Government to privatize the Power Holding Company of Nigeria (PHCN) by June 2011. This is in line with FSDH Research recommendation. When actualized, it is capable of thrusting the economy on a growth path never witnessed before.
+ We expect the FGN to adopt more Public Private Partnership (PPP) in its bid to improve the state of infrastructural facilities in the country.
+ We expect the current Sovereign Debt Note (SDN) where the FGN guarantees the payment of the subsidy to oil importers to end toward mid-year. This will also be in preparation for the deregulation of the sector.
+ The current high yields on government securities may serve as disincentive for the banks to lend to the real sector of the economy thus further crowding-out the private sector and driving up lending rates.
+ We expect the Bill establishing the Sovereign Wealth Fund (SWF) to be passed and signed into law. If this is established, we expect it to provide additional cushion for the economy and instill more discipline in political office holders in handling public finances. If the average oil price in 2011 stands at US$88/b, we estimate a total of about US$13.75bn to be saved in the SWF given the production of 2.3m/b and a budget oil price of US$65/b in 2011.
+ Our forecast inflation rate range for 2011 is 12.50% -13.00%.
+ We expect that the FGN, after the general election will have the political will to implement the much desired full deregulation of the downstream sector of the oil and gas industry in Nigeria.
+ Forecast exchange rate for 2011 is the region of N150.50/US$1-N152.50/US$1. The CBN has also approved forward trading on foreign exchange.
+ With the cleanup of the microfinance subsector of the financial industry, the sector is now well positioned to promote credit creation among the active poor, promoting synergy and mainstreaming of the informal sector in the national financial system and contributing to rural transformation.
+ Our forecast GDP Growth range for Nigeria in 2011 is 7%-8%. We however believe that Nigeria has the capacity to achieve double digit GDP growth rate if the country has stable power supply, relevant transportation network and with the proposed deregulation of the downstream sector of oil and gas.
+ External reserve: Our forecast figure to end 2011 is US$35.58bn.
+ Estimating the public debt position of the FGN both from the domestic and external markets from available data and forecast, we expect the domestic debt to increase to N5.11trn, while the external debt should increase to US$5.21bn.

Fixed Income Securities
Considering the interactions of several factors, the following factors may dominate activities in the money market in the next six months:
+ Liquidity tightness
+ Inter-bank rates to maintain upward trends in response to the tightness in the market.
+ We expect further drop in the prices of FGN Bonds in response to rising interest rates, yields and increase in the domestic borrowing of the Federal Government.
+ Treasury Bills may command higher discount rate.
+ Deposit rate may also inch up to attract deposits.
+ Increased activities in the state government bond market after April election, particularly for states where the incumbent governors win the April election. We expect a gradual slow down in the activities in the state government bonds and corporate bonds issuances to close the year.
+ Any new corporate bond will command high coupon rate given the current high yields on FGN Bonds in the market.

Equities Market
FSDH Research believes that the current improved regulatory oversight on the equities market will boost investors’ confidence both locally and internationally. In our view, the following factors will sustain the growth of the market in 2011.
+ Improvement in earnings of quoted companies;
+ Success of the general elections and smooth transition of power;
+ Stability in foreign exchange rate and other macroeconomic factors;
+ Taking over of non-performing assets of banks by AMCON;
+ Sustained global economic recovery which will keep oil price around current level of US$90/b;
+ Signing into law the Petroleum industry Bills;
+ Deregulation of Downstream sector of oil and gas;
+ Adoption of PPP in improving the state of infrastructure in the country;
+ The resolution of the leadership crisis at the NSE;
+ Privatization of PHCN;
+ Commitment on the part of the Federal government to improve power generation and relevant transportation (road and rail).

However the downside risks to the growth of the NSE in 2011 are as follows:
+ Election crisis;
+ The wave of insecurity in the some parts of the country which may scare foreign investors;
+ Rising yields and rates on fixed income securities;
+ Tightening policy thrust of the MPC;
+ Rising prices of food and other intermediate raw material in the international market which may reduce the margins of the companies that rely on them;
+ Delay in AMCON taking over the non-performing assets of banks which may make investors lose confidence in the whole process;
+ Possibility of bubble capital from the Foreign Portfolio Investment(FPI);
+ The possible adverse impact of the euro area crisis on the domestic financial market.

We are of the opinion that these factors are to a large extent subdued and the factors in favour of the economy and the financial market outweigh these risks. We are therefore inclined to release a forecast growth rate of 17.42% for the NSE ASI in 2011. Given this growth rate, we expect the NSE ASI to close the year in the region of 29,085.96 points.
FSDH - Economic And Financial Outlook For 2011 (791)

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Tags: Economy, sprecialreport

NSE Report For The Week Ended January 21st 2011

In: weekly report

28 Jan 2011

Courtesy of FSDH, Lead Capital, IBTC and Afrinvest, here is the analysis of the Nigerian Stock market for the week ended January 21st 2011:

+ The NSE All-Share Index inched up at the end of the week by 153 bps, despite a weakened start.
+ The banking sub-sector rallied with more gains than losses this week, in spite of profit taking activities by participants. Few banking stocks recorded losses as Skye Bank, Stanbic IBTC, Union Bank, Bank PHB and Afribank all shed above 2.0% apiece. Low priced stocks were participants’ favourites this week and this led to some recording double digit gains at the end of the week. FinBank, Unity Bank and Spring Bank gathered 13.0%, 15.9% and 25.4% respectively, while some of them closed with unsatisfied bids. Some top-tier banks also recorded gains in excess of 3.0% each.
+ In the building materials sector, Dangote Cement emerged the lone gainer in the sector this week inching up marginally, while Lafarge WAPCO and Ashaka Cement both shed over 2.0% apiece.
+ Guinness inched up with a 13.5% gain, while International Breweries bagged a 9.0% gain to close the week. On the flip side, profit taking activities shaved off 6.0% from NB, signaling the end of its week-long rally.

Charts:

And here are the reports:

Afrinvest - Weekly Market Update January 21 2011 (191).

Afrinvest Forthnightly Update - January 21 2011 (310).

Afrinvest Weekly Market Summary & Stock Recommendations, Week Ended 21st January 2011 (247).

FDC Economic Monthly Publication for January 2011 (239).

FSDH - NSE Weekly Report - January 21 2011 (251).

IBTC - NSE Weekly Report - January 21 2011 (220).

Lead Capital - NSE Weekly Report - January 21 2011 (171)

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Speeches By CBN Governor

In: CBN|Economy

26 Jan 2011

Below are 2 speeches given by the CBN Governor at Igbinedion University and Tafawa Balewa University respectively. One is on the growth prospects of the Nigerian Economy and the other on the impact of the global financial meltdown on the Nigerian banking sector.

Convocation Lecture - Growth Prospects For The Nigerian Economy - Sanusi - Nov 2010 (187).
Global Financial Meltdown and The Reforms In The Nigerian Banking Sector - Sanusi - Dec 2010 (206)

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Tags: CBN, Economy

Minutes Of The CBN’s January MPC Meeting

In: CBN|News|special reports

26 Jan 2011

The minutes from the just concluded meeting of the Central Bank’s monthly Monetary Policy Committee meeting has been released. The excerpts are below:

MPC Decisions
In the light of the above considerations, the Committee is committed to maintaining price stability by pursuing the current policy thrust of monetary tightening in view of the perceived inflation risks in the near term. The Committee took the decision to further tighten monetary policy. This was a decision taken by a majority of 11:1. The following measures were approved:
1. Raise the MPR by 25 basis points from 6.25 per cent to 6.50 per cent with immediate effect (a majority vote of 11:1);
2. Maintain the symmetric corridor of +/- 200 basis points by 7-5; 4 members voted for asymmetric corridor by 50 basis points increase in Standing Deposit Facility rate;
3. Raise the Cash Reserve Requirement (CRR) Ratio by 100 basis points from 1.00 per cent to 2.00 per cent with effect from February 1, 2011 with a majority vote of 11:1; and
4. With effect from March 1, 2011, raise the Liquidity Ratio (LR) by 500 basis points from 25.00 per cent to 30.00 per cent with a majority vote of 11:1.

And you can download the full minutes below.
Communique for MPC Meeting of January 24th-25th 2011 (135)

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Tags: CBN, Economy

NSE Report And Stat For Week Ended January 14th 2011

In: News|stock exchange|weekly report

21 Jan 2011

Market notes:

The market resumed on a profit-taking note this week as the NSE All-Share Index cumulatively gained 419 bps.
Participants, reacting to the disbursement disclosure by AMCON, scrambled for the available shares of rescued banks leading to cumulative gains in excess of 16.7% for Spring Bank, Afribank, FinBank and Oceanic Bank. Some mid-tier banks were also favoured this week, with Fidelity Bank, Sterling Bank and Stanbic IBTC bagging gains all week and recording cumulative appreciation of 11.1%, 11.4% and 15.8% respectively. Selling pressure however curbed the ascent of top –tier banks to marginal gains.
News on investments by Heineken in some breweries acted as a catalyst for the rally on NB. This and a combination of held back offers by sellers fuelled a frantic demand for the stock as it subsequently bagged a 10.0% gain at the close of the week. Demand for Guinness shares also remained strong this week, however illiquidity acted as a barrier to any price appreciation.
In line with the market trend, all companies in the building materials sector recorded price appreciations this week; Ashaka Cement inched up with a 5.2% gain, while CCNN and Lafarge WAPCO recorded gains of 6.0% and 4.2% respectively. Dangote Cement also inched up by 2.7% this week.

Performance:

Reports:

NSE Weekly Report - IBTC - January 14th 2010 (140).

NSE Weekly Report - Afrinvest - January 14th 2010 (127).

NSE Weekly Report - FSDH - January 14th 2010 (178).

NSE Weekly Report - Lead Capital - January 14th 2010 (110).

Afrinvest Weekly Market Summary & Stock Recommendations, Week Ended 14th January 2011 (191)

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Stanbic IBTC’s Quarterly Economic Review Q4:2010

In: Economy|special reports

21 Jan 2011

Below is the excerpt from Stanbic IBTC’s Quarterly Review for Q4 2010 and their outlook for 2011. You can download the full report below.

ECONOMIC REVIEW

The economy continued to record impressive output growth in Q4 2010. Provisional data from the National Bureau of Statistic (NBS) indicates a real Gross Domestic Product (GDP) growth of 8.29% compared to 7.86% in Q3 2010. The overall GDP growth for 2010 is estimated at 7.85% compared to 6.96% recorded in 2009. This also compares favourably with the average growth rate in Africa of 4.5%. The growth was driven by the Agricultural and Crude Oil sectors, which makes up approximately 42.32% and 19.70% of GDP respectively. The CBN’s Monetary Policy Committee (MPC) shifted its policy stance from accommodative to monetary tightening. The benchmark interest remained unchanged at 6.25% but the standing deposit facility rate rose to 4.25% from 3.25%. Consequently, headline inflation fell to its lowest level since the CPI basket was rebased, from 13.40% inOctober to 12.80% in November. We expect the CBN to maintain the current policy in 2011. Similarly, the CBN maintained its stable exchange ratepolicy throughout the year despite the slight pressure witnessed on the demand side in the second half of the year. As such, the CBN exchangerate (offer) which opened the year at N147.60/$ reached a high of N149.55/ $ and closed the year at N149.17/$.

MARKET REVIEW
The All Share Index (“ASI”) opened the quarter at 23,050.59 closed at 24,770.52 representing an appreciation of 7.46%. For the year in review, the ASI rose by 18.93% as against -33.78% returned in 2009. Similarly, all sectors of the Exchange closed on a positive note with the banking sector recording the highest appreciation (21.93%) for the quarter, while the building material sector recorded the highest appreciation (44.98%) for the year.

Our analysis attributes this change in market trend to the increase in confidence in the market as a result of the announcements from the Asset Management Corporation of Nigeria (“AMCON”), the sanitization of the Nigerian Stock Exchange and strong Q3 performance by majority of the banks. During the quarter, AMCON announced the purchase of all non-performing loans in excess of the 5%. These loans were paid for with 3 year Zero coupon bonds guaranteed by the Federal Government of Nigeria. Our analysis suggests that this will increase the liquidity of banks and theirability to create risky assets, thereby boosting their profitability further. In addition, we expect this to significantly reduce the sellingpressure experienced in the equities market due to the overhang of margin loans. The selection of Mr Oscar Onyeama as the new Director General of the Nigerian Stock Exchange was also announced on the last day of the quarter.

In the fixed income market, the Debt Management Office (“DMO”) raised a total of N282.17 billion via bond issuance which was lower than the N351.46 billion raised in Q3. The DMO reduced the total debt raised in Q4 due to increased crowding out of private sector borrowing by the federal government. The 3, 5, and 20 years FGN Treasury Bonds opened the quarter at yields of 8.43%, 9.90% and 12.53% respectively and closed higher at yields of 10.82%, 11.42% and 14.24% respectively. In addition, Edo State, Ebonyi State and Flourmills of Nigeria issued 7 year, 5 year and 5 year bonds in N30 billion, N16.5 billion and N35 billion tranches at yields of 14%, 13.50% and 12% respectively. Also the Federation Account Allocation Committee (“FAAC”) disbursed a total of N880 billion during the quarter.
Quarterly Economic Review - Q4 2010 And 2011 Outlook - Stanbic IBTC (166)