Economic, business and financial headlines

Banks borrow N52tr from CBN as liquidity pressure intensifies –Vanguard

Banks’ borrowing from the Central Bank of Nigeria (CBN) shot up by 80 percent to N52 trillion in 2017, from N29 trillion in 2016, due to pressure to survive the impact of high interest rate regime and ceaseless liquidity mop-up, driven by the tight monetary policy of the apex bank.

To enjoy this huge liquidity lifeline, accessed through the apex bank’s Standing Lending Facility (SLF), the banks paid N40.48 billion as interest to the CBN, representing 84 percent increase from N22 billion paid in 2016. In sharp contrast, banks’ deposit placement with the apex bank, through its Standing Deposit Facility (SDF) fell by 15.6 percent to N9.35 trillion while interest earned also fell by 10 percent to N4.27 billion in 2017.

According to analysts, the above development was triggered by the high interest rate regime, which made the CBN’s Standing Lending Facility (SLF) the cheapest source of borrowing for banks, and the standing Deposit Facility (SDF) unattractive for deposit placement for banks.

 Firms to raise N600bln new capital – The Nation

About 10 companies have been said to be considering raising new capital from the capital market over the next nine months. They include; May&Baker Nigeria, Fidson Healthcare, Red Star Express, Medview Airlines, Wema Bank, Jaiz Bank and Diamond Bank, among others. Already, MTN Nigeria, Dangote Cement and Africa Export and Import Bank (Afrexim) have confirmed plans to raise new capital.

Many second tier banks are also expected to raise new capital to improve on their capital adequacy level, said Sewa Wusu, Economist and Head, Investment Advisory at SCM Capital Markets.

MTN plans to reignite the primary market with an initial public offering (IPO) of some N153 billion. The much-awaited IPO will be the market’s first major IPO in a decade, after the 2008 capital market recession. Dangote Cement has outlined plan to raise some N255 billion or $833 million in a multi-tranche debt issuance, that is likely to start this year. Dangote Cement-Nigeria’s largest quoted company, will issue a Naira-denominated bond to support its capital investments.

Equity

The local bourse opened the week on a negative note and this trend was sustained till Wednesday as the All Share Index lost 105bps on the first three trading days. The extended sell off created attractive entry opportunities; thus, investors took positions in consumer goods and banking stocks- ZENITH, NIGERIAN BREWERIES and GUARANTY. However, loses in DANGCEM pulled the index 39bps lower at week close

We believe declining level of valuation has presented investors with attractive entry opportunity and thus expect a reversal of the bearish trend in the near term.

Stock picks, performance and recommendation

Nigerian Breweries Plc – Sell
The shares of NB fell by 4.89% last week to N126.50. NB trades at forward PE of 23.6x, below its 5-year average of 31.5x.

NB published its results for the period and year ended 31 December 2017. For the year end, net sales and earnings grew 9.8% and 16.3% respectively. Q4-17 net sales declined 1% y/y while net earnings grew by 9%. NB has issued NGN57 billion out of its NGN100 billion commercial paper program. Gross debt was NGN8.5 billion as at December 31.

Management does not anticipate FX-related losses in 2018F (-33% in 2017FY to NGN5 billion), given the sizeable clearance of USD-denominated trade payables in 2017, and the expectation of continued healthy FX liquidity.

Access Bank Plc – Hold
The shares of ACCESS fell by 3.00% last week to N11.30. ACCESS trades at forward PE of 4.3x, above its 5-year average of 2.9x.

Access Bank Nigeria Plc (ACCESS) released its FY-2017 results, showing growth in Gross earnings in the year by 20.39% to NGN459.08 billion – short of our estimates by 5.71%. PBT (-11.36%) and PAT (-13.23%) declined to NGN80.07 billion and NGN61.99 billion – missing our estimates by 17.16% and 19.28% respectively, and were below Bloomberg’s polled estimates by 12.41% and 16.26%.

Interest income (+29.35% to NGN319.85 billion) increased at a slower pace than Interest expense (+44.63% to NGN156.40 billion), resulting in a 17.47% increase in net interest income, lower than the 32.04% rise recorded in the previous year. As a result, net interest margin dipped 40 bps to 5.80%, from 6.20% in the previous year. Asset yield was 11.30% from 11.10% in 2016, while cost of fund increased to 5.10% from 4.30% in the previous year.

Flour Mills Of Nigeria Plc – Hold
The shares of FLOURMILL was flat at N38.00. FLOURMILL trades at 2018 PE of 7.4x, below its 5-year average of 19x.

Following the conclusion of the NGN38 billion Rights Issue (RI) successful subscription (oversubscribed), we have a fairly strong view of FLOURMILL over the medium term.

Management has continued to reiterate that its emphasis going forward is on driving returns from the investments of the recent years. Management also said it does not expect opex-to-revenue ratio to change materially to the upside going forward, given its emphasis of growing revenue, while focusing strongly on containing costs.

Zenith Bank Plc – Hold

The shares of ZENITH appreciated by 9.42% to N30.20. ZENITH trades at forward PE of 5.3x, above its 5-year average of 5.0x.

Zenith Bank released its FY 2017 results which showed that Gross earnings was higher by 46.69% during the year at NGN745.19 billion – 55.14% higher than Bloomberg’s polled estimates. Interest income (+23.42%) increased to NGN474.63 billion. NIR surged by 119.18% to NGN270.56 billion, owing to significant rise in trading income by 456.29%.

As a result, total operating income in the year was 45.36% higher at NGN528.55 billion – 178.00% higher than polled expectation. Loan impairment provision surged by 203.64% to NGN98.23 billion. Operating expenses was 29.99% higher than the previous year at NGN226.86 billion.

PBT and PAT stood at NGN203.46 billion and NGN177.93 billion, 29.80% and 37.24% higher than their respective figures in the previous year, and Bloomberg’s polled forecasts of NGN193.59 billion and NGN159.52 billion.