Monthly Economic News and Views At Lagos Business School
Transcript of Monthly Economic News and Views At Lagos Business School
Monthly Economic News and Views
At Lagos Business School
Executive Breakfast Meeting
January 28, 2015
The Falling Naira - Are You Prepared ??
Presented by B.J. Rewane
Financial Derivatives Company Limited
Financial Derivatives Company Limited
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Outline - Catching a Falling Knife
December/January Highlights
External Markets
Domestic Economy
Capital Markets
Political Update
Outlook for February
Financial Derivatives Company Limited
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December/January Highlights
External- A Mixed Bag
Oil price declined to $46.59pb
A 5 ½ year low
Cumulative 8 week drop of 35%
December fall of 20.89% and January 14%
The price plunge is accentuated by slowing demand and
over supply
OPEC reluctance to cut production is keeping prices
close to the floor
Financial Derivatives Company Limited
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December/January Highlights
Global GDP growth revised downwards to 3.5% from
3.8%
Every $10 drop in oil price increases global GDP by 0.2%
($1.4trn)
Shifting income from oil producers to consumers
The consensus is that the floor price is $40pb
Worldwide rig count is 3570 of which 100 are idle
Idle rigs have increased from 70 to 100 since December
Financial Derivatives Company Limited
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December/January Highlights
Active rigs in Nigeria down by 1 to 18 in December
Global commodities index (BCOM) down by 19.7%
Oil is responsible for 48% of the weight
Apple reports record profit of $18bn in Q4
Equal to GDP of Yemen
Equivalent of $200m per day
Financial Derivatives Company Limited
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December/January Highlights
Domestic
Broad money supply increased 7.29%, as against target of
15%
Power output from the grid is 3700MW
Retailers inventory levels down to 5 weeks
Naira dropped past the psychological resistance of
N200/$, testing the N210 level
Dollars on offer at the auction down 42.47% to $1.49bn
in January
Financial Derivatives Company Limited
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December January Highlights
Spread between the parallel & official markets increased to
N42 or 25%
Stock market when adjusted for devaluation is down
15.48% in 2015
MPC maintained status quo at January meeting
Assures the markets that no need to panic
J.P. Morgan puts Nigeria on negative watch on bond index
Nigeria is 1.12% weight of the index
Financial Derivatives Company Limited
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December January Highlights
Russia debt instruments downgraded to junk status by
S&P
Petrol price cut by 10.3% to N87 per litre
Market reaction was that- too little too late
Electricity MYTO increase in tariff on Christmas day
Common external tariff in West Africa adopted January 1
Member countries are allowed flexibility
To impose additional import adjustment tax on 177 tariff
lines
Financial Derivatives Company Limited
IMF Cuts Global Growth
Old Projections (%) Latest IMF Projections (%)
World Output 3.8 3.5
United States 3.1 3.6
Euro area 1.3 1.2
Japan 0.8 0.6
UK 2.7 2.7
Canada 2.4 2.3
Russia 0.5 -3
China 7.1 6.8
India 6.4 6.3
Saudi Arabia 4.5 2.8
Nigeria 7.3 4.8
Financial Derivatives Company Limited
IMF Cuts Global Growth
US only major economy with an upward review in its
growth forecast
Lower oil prices have prompted cuts in the outlook for
big oil exporters
Lower oil price presents opportunity to reform energy
subsidies in both importers and exporters
Financial Derivatives Company Limited
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OECD Mixed Performance
Deflation now a reality in the Eurozone
Inflation fell to -0.2% in December from 0.3% in November
ECB begins large-scale QE
In response to sluggish growth and deflationary pressures
Euro trading at an 11-year low of 1.10/$
Down 16.16% since May 2014
Russia is in a recession, expected to contract by 3% in 2015
Oil prices and sanctions taking their toll
China will face the dilemma of tighter monetary policies
and slower growth
Financial Derivatives Company Limited
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Sub-Saharan Africa - Good Policies,
Commodity Price Vulnerable
The IMF revised downwards 2015 GDP forecast to 4.9%
from an earlier projection of 5.8%
Major challenges facing SSA in 2015 include
Slower global growth
The impact of Ebola
Lower commodity prices
Increased risk of a further decline in commodity prices
amid weaker global economic conditions
Benefits of lower oil-import costs offset by falling
commodity prices
Commodity Exports as % of
GDP
Angola 53.8
Libya 46.1
Chad 34.7
Nigeria 34.5
Zambia 25
Congo 21.6
Financial Derivatives Company Limited
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Impact on Nigeria
CFA Franc is used by 9 African countries
$1.12= 1 euro, down from a high of 1.42
656.53 CFA = 1 euro
Cheaper euro means cheaper exports from CFA Franc
African countries competing with Nigerian exports
This will have a negative impact on Nigeria’s terms of trade
Hot money reverse flows
To put further pressure on Nigeria’s external reserve and the
naira
Financial Derivatives Company Limited
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Outlook
Global growth outlook for 2016 cut to 3.7% from 4%
Monetary policy divergence to continue between the
US Fed and other major central banks
Interest rates increase expected in the US later this year
Bank of Japan (BoJ) and ECB to employ stimulus measures
Capital reverse flows in search of safety
Risks more elevated among oil exporters
Slowing demand from China and Europe to stifle increase
in exports of emerging markets
Financial Derivatives Company Limited
Economics of Oil - OPEC Losing Control
Market Structure: Oligopoly
OPEC: Cartel controls 32% of daily supply (30.25mpbd)
Many buyers: 196 countries
Few suppliers: 35 countries
Control price and output
Advantage: excessive profit
Disadvantage: exploitative
Global demand: 91.15mbpd
Global supply: 92.08mbpd
Financial Derivatives Company Limited
Oil Market Dynamics
Top 5 oil producers (mbpd)
USA (12.67)
Russia (10.67)
Saudi Arabia (9.59)
China (4.22)
Canada (4.17)
Only one member of OPEC
Production costs
Saudi Arabia - $5pb
Nigeria - $28pb
Financial Derivatives Company Limited
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Weakest Link in the Chain
Russia
Venezuela
Nigeria
Iran
Low reserves
Huge population
Leakages and corruption
Financial Derivatives Company Limited
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Oil Rich vs. Oil Poor
Oil Rich
External Reserves
($’bn) Budget position(%) Income per capita ($)
Kuwait 34.35 28.93 29, 729
Saudi Arabia 740.4 6.4 18, 034
Oman 17.7 (-0.4) 13,306
Oil Producing
External Reserves
($’bn) Budget Position (%) Income per capita ($)
Angola 37.94 6.7 2, 738
Russia 386.2 (-2.7) 6, 923
Iran N/A (-0.78) 3, 132
Nigeria 34.47 (-1.8) 2,688
Venezuela 22.06 (-11.5) 6,402
Financial Derivatives Company Limited
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Commodity Prices Trending Downwards
Bloomberg Commodity Index (BCOM) is down by 19.7% YTD
Plunge in oil prices is the main driver of the decline
Oil market dynamics are driven by oversupply and weak demand
OPEC is unwilling to cut output
U.S., Russia and Iraq increasing production
Weak demand in Europe and Asia
Agric. products affected by strong recovery in global production
Strengthening dollar also becoming a significant factor affecting commodity prices
Most commodities are priced in dollars; inverse relationship
Financial Derivatives Company Limited
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Inverse Relationship between U.S. Dollars and Commodity Prices
The Bloomberg Dollar Spot Index (DXY) up 18.3% YTD
while the commodity index is down 19.7%
Source: Bloomberg
Financial Derivatives Company Limited
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Commodity Monthly Change
(Dec/Jan)
Y-T-D Change
Energy
Brent -21.49% -55.38%
WTI -19.58% -50.25%
Natural Gas -15.37% -32.99%
Grains
Corn -2.68% -11.03%
Wheat -9.82% -8.52%
Rough Rice -6.87% -22.60%
Soft
Sugar 0.67% -1.48%
Cocoa -0.07% 1.30%
Oil Seeds
Palm Oil 7.72% -14.68%
Source: Bloomberg, Reuters, FDC Research
Commodity Prices Trending Downwards
Financial Derivatives Company Limited
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Nigerian Companies Vulnerable to Commodities Prices
Commodities Companies Comments
Wheat Honeywell, Flourmills
(Importers of wheat)
•Decline in price brings down
cost
•But may be negated by
exchange rate risk
(devaluation)
Sugar Manufacturers: Bua, Dangote, Flour
Mills(Golden sugar)
FMCGs:P & G
Beverage Manufacturers: 7up
Guinness, NB
•Reduces profitability for
manufacturers
•Decline in price brings down
cost for importers but face
exchange rate risk
Palm Oil Okomu, Presco
(Manufacturers of Palm Oil)
•If international prices are
cheaper, might lead to
increased imports
•Reduces profitability for
manufacturers
Cocoa Nestle, Cadbury
Decline in price brings down
cost
Financial Derivatives Company Limited
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Outlook – Food, Feedstuff & Beverages
Outlook remains bearish
Increased supply and weak global demand, especially in
China, will keep oil prices low
China is one of the largest consumer of grain, energy and
metals
Speculation that oil price may bottom out at $40pb
For agric. products, expectation of large global supplies
in 2015 to keep prices down
EIU forecasts that grains and oilseeds will show the
largest declines in 2015, of around 8% and 12%
respectively
Financial Derivatives Company Limited
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Outlook – Food, Feedstuff & Beverages
Plans for higher export subsidies in India may boost
supply of sugar and dampen its price
India is the second largest producer of sugar in the world
Export controls by Russia limiting the supply of wheat
Russia is the third largest producer of wheat in the world
A global shortage of cocoa might lead to an increase in
prices
Financial Derivatives Company Limited
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Outlook- Industrial Raw Materials
Prices for industrial raw materials are expected to rise
by 4.5% in 2015
Below their highs of 2011 but will reflect market
fundamentals more closely
Prices for base metals will show the strongest gains
Due to a strong recovery in aluminium prices
Financial Derivatives Company Limited
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Indicators December January % Change February
Oil Price ($’pb) 52.39 49.18 6.13 45
Exchange Rate (N/$ -
Inter-bank)
186.10 192 2.79 195
Inflation Rate (% - ave) 8.0 *8.3 0.30 9.14
MPR(% p.a.) 13 13 - 13
External Reserves ($’bn) 34.47 34.46 0.03 32
NSE ASI (% change) 0.33 14.07 -14.4 -10
Source: EIU, EIA , OPEC, CBN, FDC Research , (* FDC’s forecasts)
Leading Economic Indicators (LEI’s)
Financial Derivatives Company Limited
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Inflation Projected to Increase in January
Headline inflation forecast to
increase to 8.3% in January
Up from 8% in December 2014
Seasonality effect, planting period
Higher electricity tariff
Depreciating value of the naira and
pass through effect on consumer
goods
Inflationary pressures from political
spending
Lower global commodity prices
10% drop in petrol price having no
impact
8.0%
7.7%
7.8%
7.9%
8.0%
8.2%
8.3%
8.5%
8.3%
8.1%
7.9%
8.0%
*8.3%
7.5%
7.7%
7.9%
8.1%
8.3%
8.5%
8.7%
Headline Inflation Rate
Source: NBS, FDC Research
Financial Derivatives Company Limited
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Money Supply & Interest Rates
Annualized money supply (M2)
increased to 7.29% in December
2014
Interest rates continue to move in
tandem with liquidity level
Average OBB & ON rates peaked
at 74.13%p.a. in December 2014
Declined below the floor of
10.25% p.a. to 6.29%
Due to excess liquidity and
limited outlets after FAAC
MPR still at 13% p.a.
0
10
20
30
40
50
60
70
80
OBB ON 30 90 180
Year to
date high
4 year
low
Financial Derivatives Company Limited
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Interest Rates Flat
No major change expected until after the elections
MPR will remain at 13% p.a. in February
Lobby groups will pressure CBN for downward review
To boost lending and spur economic growth
Financial Derivatives Company Limited
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Falling Naira, Declining External Reserves
Recent policy measures have heightened pressure on the
naira
Leading to a record low of N210/$ at the parallel market
Naira has lost 17.9% (y-o-y) at interbank market
Remained flat at N168/$ post November devaluation
CBN’s ability to defend the naira is limited
Financial Derivatives Company Limited
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Falling Naira, Declining External Reserves
$1.49bn was sold at the RDAS compared to $2.59bn in
corresponding period in 2014
External reserves is down to $34.46bn
5.13months of imports and payments
32.00
33.00
34.00
35.00
36.00
37.00
38.00
39.00
40.00
Oct'14 Nov'14 Dec'14 Jan'15
External Reserves ($'bn)
Source: CBN, FDC Research
Financial Derivatives Company Limited
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How to Use a Hamburger to Determine the Value of a Currency
Financial Derivatives Company Limited
Burgernomics: True Value of the Currency
Source: CBN, FMDQ, FDC Research
153
163
173
183
193
203
213
N/$
Forex N/$
official parallel interbank
Dec’14 Jan’15 %
Change
Euro 0.83 0.88 6.02
Pound 0.64 0.66 3.13
Chinese
Yuan
6.20 6.24 0.65
Financial Derivatives Company Limited
Burgernomics: True Value of the Currency
Big mac index is a one item basket
No Macdonalds in Nigeria
Johnny Rocket is a proxy at N1200
Using exchange rate in January 2015: $7.14
The Big Mac substitute suggests the naira is overvalued
by 32.91%
The true value of the naira based on burgernomics today
is N223.48/$ (N214.5/$ in July 2014)
Financial Derivatives Company Limited
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Implications of MPC Decisions
CBN will engage J.P Morgan on GBI-EM index
Market fears will continue
Anxiety as election approaches
Spread of N35 between parallel and official rate is a major
factor
The selling pressure may resume if oil prices fall below
$45
If external reserves decline below $33bn
Financial Derivatives Company Limited
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Decision Consistent with African Peers
Source: FDC Research, Bloomberg, Trading Economics
Country
Interbank Exch
Rate Y-o-Y %
depreciation
Inflation Rate
(%)
Policy Direction
(% p.a.)
Nigeria 17.9 8 13
South Africa 10.47 5.3 5.75
Angola 4.9 7.48 9
Kenya 6.03 6.02 8.5
Ghana 28.12 17 21
Financial Derivatives Company Limited
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Outlook
Possible scrapping of RDAS and adoption of a pure
interbank market
Interest rate will remain at 13%p.a.
Increasing NOP to 1%
Allow BDCs back into the market
Financial Derivatives Company Limited
NSE ASI
26,000.00
27,000.00
28,000.00
29,000.00
30,000.00
31,000.00
32,000.00
33,000.00
34,000.00
35,000.00
36,000.00
ASI (
poin
ts)
Dec 2014
ASI
Extreme volatility in December
2014
Index recorded its worst and best
post-2009 crash
Index rose by 0.33%
26,000.00
27,000.00
28,000.00
29,000.00
30,000.00
31,000.00
32,000.00
33,000.00
34,000.00
35,000.00
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ASI (p
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Jan2015
ASI
Slippery slope or bottom
fishing?
Investors losing N1.5trn of value
Index down by 14.07%
Financial Derivatives Company Limited
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January Highlights - New Year, Old Fears
Investors resume trading with negative sentiment
Took profit from the Santa Claus rally
And Foreign Portfolio Investors exit further
Leading to 5 consecutive losses for the NSE ASI
Index lost 13.02% before recording its first gain
More fears as crude oil prices hit $45pb
CBN NOP rule worsened investor sentiment
Financial Derivatives Company Limited
Sectors in January
Banking and Consumer stocks significantly hit
The darlings of FPIs feel the heat; NESTLE, NB, GUARANTY, ZENITH
Banking sector P.E of 6.49x and P/BV of 0.61x
Any buying opportunities, post-election rebound?
Teaser; FBNH at N7.50 and P/BV of 0.53x offers 10% dividend yield potential
-16.00% -14.00% -12.00% -10.00% -8.00% -6.00% -4.00% -2.00% 0.00%
Banking
Insurance
Consumer
Oil & Gas
Industrial
Sectors Performance
Return (%)
Financial Derivatives Company Limited
Winners and Losers…..Nov - Jan
Stock/Company Jan'2015 Nov'2014
Change
%
E-Tranzact International Plc 3.39 2.21 53.39%
Omoluabi Savings and Loans 0.92 0.67 37.31%
Beta Glass Co. Plc 30.00 22.05 36.05%
Academy Press Plc 1.18 0.95 24.21%
Evans Medical Plc 2.27 1.99 14.07%
Stock/Company Jan'2015 Nov'2014
Change
%
Dangote Flour Mills Plc 3.19 6.23 -48.80%
Champion Brew. Plc 6.08 9.8 -37.96%
FCMB Group Plc 2.09 3.3 -36.67%
Costain (W A) Plc 0.65 1.01 -35.64%
Diamond Bank Plc 4.00 6.2 -35.48%
Sudden preference for small
caps and ASEM listed stocks
Heavy cap stocks depressed
significantly
An all round rout of banking
stocks
But Sterling Bank performed;
returned 4.66%
Bottom fishing the way to go
The rout seems to be over despite the negative sentiment
NSE ASI at 28,000 points with P.E of 19.71x
A recovery is imminent
Financial Derivatives Company Limited
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Crude Oil Prices
No direct correlation between oil price and the Nigerian
market
As crude oil tests $45pb floor
Depression of Oil stocks: SEPLAT & OANDO
Fear
Due to rising insecurity and political tensions
Citing possible pre and post-election violence
Stock Market Drivers in January 2015
Financial Derivatives Company Limited
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Policy Makers and the naira
MPC maintains status quo
CBN battles to defend the naira as JPMorgan bites
NOP 0.1% to 0.5% right after post-MPC press briefing
Naira tests new levels at interbank and parallel market amidst
high illiquidity
Stock Market Drivers in January 2015
Financial Derivatives Company Limited
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Banking Sector…….A Stress test
CBN broaching the idea of stress testing banks
The banks need it like a bullet in the head
Increased NPL and provisioning
Oil and Gas risk assets in focus
Banks with Oil and Gas exposure will be the focus
Higher NPLs, lower earnings and dividends
Capital increases to build buffers
CBN will most likely allow the banks ride out the storm
A bail out too expensive
Nigeria cannot afford a bankingshock
Financial Derivatives Company Limited
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Outlook
The downturn in the equities market will continue
As negative sentiment would dominate
Because FY’2014 Corporate earnings will be weak
Also due to Political tensions as general elections
approach
Expect increased volatility
As current prices present buy opportunities
Market P.E ratio of 19.71x is a gift
Financial Derivatives Company Limited
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Outlook
Next three weeks would see a downward, choppy trend of
the index
Battle between bargain hunters and profit takers would
intensify
NSE ASI would remain below 30,000 points
Financial Derivatives Company Limited
FAAC Allocation will Decline Further
The naira value of dollar assets will
be sharply higher
FAAC allocation is down by 23.2% to
N580.38bn
From 2014’s high of N755.95bn when
oil prices was at $115pb
A persistent decline in oil will cause
FAAC to reach a low of N350bn
Payment of salaries will be a
challenge
Source: FMF, FDC Research
60
755.95
654.6
611.7 603.5 593.3 628.8
580.38
300
360
420
480
540
600
660
720
780
840
900
FAAC (N'bn)
Financial Derivatives Company Limited
Value of Cheques Expected to Increase
Value of cheques in 2014 was at an
average of N2.13trn
13.2% of money supply
The lowest value of N1.18trn coincides
with the drop in government revenues
as oil prices began to plummet
We expect an increase in the value of
cheques due to political spending
during the elections
Source: CBN, FDC Research 61
Financial Derivatives Company Limited
0.000.501.001.502.002.503.003.50
2013 2014
2013 vs. 2014
2.10
1.76 2.07 1.94
2.67 2.94
1.84
2.66
1.18
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Value of Cheques (N'trn)
Financial Derivatives Company Limited
Ships Awaiting Berth Declined Further
Ships awaiting berth at Apapa
declined to 71in December
10.13% lower than 79 in
November
Devaluation of the currency is
expected to affect imports
Which implies less ships awaiting
berth at the ports
Source: NPA, FDC Research
105
52
79
71
0
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40
60
80
100
120
Jan-
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Feb
-14
Mar-
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Ap
r-14
May-1
4
Jun-
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Jul-1
4
Aug-1
4
Sep-1
4
Oct
-14
Nov-
14
Dec-
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No of Ships Awaiting Berth
Financial Derivatives Company Limited
Rig Count Down Marginally
Number of active rigs declined
from 19 to 18 in December
Worldwide rig count down by
100 to 3570
Oil contractors are idling rigs
and laying off workers
Expect a further decline in rigs
as oil prices fall further
Source: Baker Hughes, FDC Research
0
5
10
15
20
25
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2013 2014
15
9
19 18
02468
101214161820
Jan-
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Feb
-14
Mar-
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Ap
r-14
May-1
4
Jun-
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Jul-1
4
Aug-1
4
Sep-1
4
Oct
-14
Nov-
14
Dec-
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Rig Count
Financial Derivatives Company Limited
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Retail
Total sales for year end celebrations increased by
approximately 6%
Increase in shopping traffic during the holidays
Driven by increased demand for groceries, FMCGs and
white products
Online retailing received a major boost
Partly due to attractive promos advertised
Inventory levels down to 5weeks
Cash to card ratio unchanged at 75:25 in Lagos
Financial Derivatives Company Limited
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Retail Outlook for Nigeria
Retail activities are election neutral
Customers are buying ahead of the devaluation repricing
FMCGs highly vulnerable to exchange rate risks in 2015
due to high import content
Financial Derivatives Company Limited
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Global retailers will focus on penetrating emerging markets
Shifting demographics and expectation of rising demand in the region
And increased disposable income due to reduced petrol prcie
High population and growing middle class
Key growth countries are:
India
Indonesia
China
Nigeria
Retailers have their eyes on Emerging Markets
Source: PWC, FDC Research
Financial Derivatives Company Limited
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Retailers have their eyes on Emerging Markets
The MINTs and SSA will be targeted
Due to higher margins and per capita spend
Decreasing margins in new store openings will give rise
to increased productivity within existing stores
Barriers to global trade will continue to decline
Developing markets will liberalize trade barriers
Source: PWC, FDC Research
Financial Derivatives Company Limited
70
Slow construction activities for highly capital-intensive
projects
Funds are channelled into elections instead of new contracts
But pending commercial developments still on schedule
for completion in 2015
Heritage Place, Ikoyi
Civic Centre Towers
Jabi Lake Mall, Abuja
Real Estate
70
Financial Derivatives Company Limited
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Real Estate
Less capital-intensive projects continue to gain traction
Devaluation of the currency began to take its toll on
activities
Landlords unwilling to accept naira because of the
exchange rate difference
Especially in the high-end market
Vacancy factor increasing but rents are sticky
Financial Derivatives Company Limited
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Vacancy Factor
Residential vacancy factor in Victoria Island increased to
32% in January
Commercial vacancy factor up to 17%
Residential vacancy factor in Lekki and Ikoyi increased to
35% and 11% respectively
Commercial vacancy factor at 41% and 3% in Lekki and Ikoyi
respectively
Ikoyi still predominantly residential though new commercial
developments are springing up
Financial Derivatives Company Limited
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Fluctuations in Vacancy Factor
Source: FDC Research
32%
17%
0%
5%
10%
15%
20%
25%
30%
35%
March'14 May'14 Jul'14 Sept'14 Jan'15
Victoria Island
11%
3% 0%
5%
10%
15%
20%
25%
30%
35%
40%
March'14 May'14 Jul'14 Sept'14 Jan'15
Ikoyi
35%
47%
0%5%
10%15%20%25%30%35%40%45%50%
March'14 May'14 Jul'14 Sept'14 Jan'15
Residential Vacancy Factor
Commercial Vacancy Factor
Lekki
Financial Derivatives Company Limited
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New Commercial Developments
Osapa Convenience Centre, Lekki
Shopping mall to be situated at Jakande roundabout along
Lekki-Epe expressway
Shoprite is the anchor tenant
Will also have a Grade A office complex inside the premises
Designed to take advantage of the high traffic volume along the
Expressway to meet the needs of commuters to and from
work
On the contrary, it is expected to generate more traffic on the
expressway
Financial Derivatives Company Limited
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New Commercial Developments
Kingsway Tower, Glover Road, Ikoyi
Commercial high-rise building
15 floors; 1000 sq. Metres
Metro Mall, Admiralty
15 rooms available
N100,000 – N120,000 per sq. Metre
39 rooms purpose built hotel on Ajose Adeogun
2600 sq. metres
Financial Derivatives Company Limited
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Construction activities expected to pick up after elections
Risk of political violence may delay investment into the
real estate sector
Further decline in oil revenues will also curtail government
spending on capital projects
The usual lease/rent will continue but at a slow pace
Elections not expected to affect pending property
developments due for completion in 2015
Eko Atlantic project to pick up in 2015
Abuja centenary city in the pipeline
Outlook
77
Financial Derivatives Company Limited
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Falling Naira, Increased Fares
79 ROE depreciated by 2.95%
From N186.5 in Dec’14 to N192 in Jan 27
Preferred
Destination
Eco Class
(Dec’14) N
Eco Class
(Jan’15) N
%
Change
Biz Class
(Dec’14 N)
Biz Class
(Jan’15) N
%
Change
London 447,720 524,160 17.07% 690,440 803,320 16.35%
New York 561,044 656,832 17.07% 705,036 825,408 17.07%
Atlanta 441,160 516,480 17.07% 941,524 1,102,272 17.07%
Dubai 213,120 182,040 -14.58% 528,080 618,240 17.07%
Johannesburg 301,760 353,280 17.07% 499,200 426,400 -14.58%
Financial Derivatives Company Limited
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Falling Naira, Increased Fares
80
Airlines profitability up due to lower oil prices
Ethiopian Airline made a profit of Br3.15bn ($155.47m)
in their 2014 financial year
Highest profit made in 69years of existence
More acquisitions and consolidations
Etihad acquired 49% stake in Alitalia
Stricter regulations and policies to be imposed on
operators
NCAA suspended the Air Operator’s Certificate (AOC) of
Discovery Airline
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81
Dipping Oil Prices, Increased Airlines’ Profitability
81 IATA announced a positive outlook for airline’s
profitability in report
Global net profit forecast for 2014 of $19.9bn set to rise
to $25bn in 2015
Lower oil prices and stronger worldwide GDP growth
are the main drivers
Average return airfares (excluding taxes and surcharges)
expected to fall by 5.1% and cargo rates are expected to
fall by 5.8%
IATA
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Dipping Oil Prices, Increased Airlines Profitability
82 On a per passenger basis, airlines will make a net profit
of $7.08 in 2015
Up on the $6.02 earned in 2014
Total passenger numbers expected to grow to 3.5bn,
revenues expected to grow to $623bn
Passenger traffic expected to grow by 7.0% in 2015
Above the 5.5% growth trend of the last two decades
Cost of transporting goods expected to fall by 5.8% in
2015.
53.5m tonnes of cargo is expected to be flown in 2015
Total cargo revenues are expected to rise to $63bn
IATA
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Political Update
A contest of character vs. record
The PDP is trying to redefine the election as a Buhari
referendum
Throwing the kitchen sink at the APC
APC was clever to make the electoral choice one between
Jonathan and Change
The PDP want it to be a Christian vs. Muslim race
Now a dictator vs. liberal or reformer against command
economy
Presidential
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2015 looks Different
The younger voters want the older man
The older voters are leaning towards the younger
candidate
The youths are not voting for Buhari
But against the PDP
The PDP strategy was based on the fundamental
assumption
That the APC would implode at the convention in December
The PDP is believed to have sponsored dissidents to
splinter the APC
Failure of the APC to implode left the PDP with no plan
B
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2015 looks different
The momentum of the APC and their rally turnout was a
wake up call
The PDP is now in overdrive
Using kites of fear, religion, postponement, interim
government
Election will hold on February 14 with 3 possible
outcomes
A landslide for the PDP
A narrow win for the APC
A dual result by both parties and an Ivory Coast scenario
The exchange rate devaluation has hurt the PDP amongst
Ibos
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2015 looks Different
One in three are traders and are very exchange rate
sensitive
The PDP favourable rating in the South East is down from
90% to 65%
Fear of N250/$ is making South East a potential
battleground
A win on February 14 could lead to a bandwagon effect
on February 28
It could scramble or consolidate the political map of
Nigeria for all times
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Outlook for February
J.P Morgan forecast for oil
Q1: $42pb
Q2: $43pb
Average 2015: $49pb
Long term recovery in 2019
Naira to trade at N195/$ at the interbank
N205/$ – N210/$ at the parallel market
NOPs will be increased to 1%
Stock market will remain flat to down through February
Commodity prices will slip
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Outlook for February
Inflation will inch up to 9%
Banks will announce capital raising plans
No matter the election outcome
There will be a complete change of guards at Abuja
The policy direction, pace and enforcement will be more
defensive
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Corporate Humour
92
Mario Cuomo -
Goals are dreams with deadlines.
- Diana Hunt
92
You campaign in poetry and you govern in
prose.
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Corporate Humour
93
The past is a source of knowledge and the
future is a source of hope. Love of the past
implies faith in the future.
Hindsight is like foresight without a future.
A leader takes people where they want to go. A
great leader takes people where they don’t
necessarily want to go, but ought to be.
- Anonymous
Anonymous -
- Rosalynn Carter
93
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Corporate Humour
94
The only time to eat diet food is while you are
waiting for the steak to cook.
We are all mortal until the first kiss and the
second glass of wine.
- Julia Child
Eduardo Galeano -
94
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Corporate Humour
95
Learn to say no to the good so you can say yes
to the best.
You know you are getting old when candles
cost more than the cake.
Genius is immediate but talent takes time.
- John Maxwell
Bob Hope -
- Janet Flanner
95
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Corporate Humour
96
Success is a lousy teacher. It seduces people
into thinking they cant lose.
Temper is the one thing you can’t get rid of by
losing it.
- Bill Gates
Anonymous -
96
Financial Derivatives Company Limited
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Corporate Humour
97
I like to leave a message before the beep.
To write a love letter you begin without
knowing what we intend to say and end
without knowing what we have said.
The difference between a dream and a goal is a
plan.
- Steve Wright
Anonymous -
- Anonymous
97
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98
Corporate Humour
98
A problem well stated is a problem half solved.
What is gone and what is past, should be past
grief.
- Charles Franklin
William Shakespeare -
98
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Corporate Humour
99
Obstacles are those frightful things you see
when you take your eyes off the goal.
In order to succeed your desire for success
should be greater than your fear of failure.
- Henry Ford
Bill Cosby -
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