Vanguard Markets, July 28, 2014 edition

Vanguard Markets | Monday, July 28 2014 | Issue 003

Looking beyond market size ! page 3

RESULTS FORECASTING

Inside

Investors groping in the dark the past week, In 27 companies announced half year results. A few like Transnational Corporation of Nigeria have been outstanding, while others such as Unilever have caused dismay among investors. For most others, results have been respectable: neither too hot, nor too cold.

Second quarter results are coming at a time of palpable uncertainty. Investors want to know if vaunted boost in liquidity due to forthcoming elections have started to trickle into corporate coffers.

Analysts, who should be the most informed group, can also have sharp differences in their outlook numbers. Take for example the forecasts for Guinness Nigeria’s 2014 earnings by analysts at 3 different firms.

The variance is even more when forecasts for other companies are compared. This often leads to a lot of panic trading in the run-up to the results release week.

Investors want to anchor their projections on authoritative statements of business outlook communicated as figures issued by corporate executives.

Basically, markets want a measure of predictability around earnings albeit couched with the appropriate caveats.

There are several benefits for companies that make a commitment to giving these forecasts. Fore companies that choose to do so, the forecasts satisfy investment community demands for information, maintain a channel of communication with investors, intensify management’s focus on meeting financial targets, mod-

GUINNESS NIGERIA FY 2014 ANALYST FORECASTS

EARNINGS RELEASE DATES IN PAST WEEK Company

Results Release Date

Honeywell Flour

July 25

Champion Breweries

July 25

UBA PLC

July 25

Union Bank Nigeria

July 25

DN Meyer

July 25

CSP

DLM

CHP

Income Statement (N’Mn)

2013

2014E

2014E

2014E

Revenue

131,414

106,429

104,800

114,199

Cost of Sales

-70,861

-54,279

56,592

51,155

Gross Profit

60,554

52,150

48,208

63,044

Distri. And Admin Expenses

-36,280

-28,417

30,916

-34,831

Foreign portfolio managers are discriminating against local companies in favour of multinationals in the way they punish and reward argues Jude Fejogwu.

EBIT/Operating profit

20,614

15,394

18,074

20,315

! Page 3

Cadbury Nigeria

July 25

Aluminium Extrusion

July 25

Chellarams

July 25

Sterling Bank

July 25

Abbey Building

July 25

Interest Expense/ Income

-3,605

-3,211

-3,997

-5,535

CCNN

July 25

Pre-tax earnings

17,009

12,182

14,467

14,941

FCMB

July 25

Taxation

-5,145

-2,436

-4,373

-4,082

Stanbic IBTC

July 25

Profit after tax

11,864

9,746

10,094

10,859

Portland Paints

July 25

EPS

6.47

6.7

7.21

Seplat

July 24

First Aluminium

July 23

Tripple Gee

July 23

Trans Nationwide Express

July 23

Zenith Bank

July 23

SCOA Nigeria

July 23

CAP

July 22

Linkage Assurance

July 22

McNichols

July 22

International Breweries

July 21

Oasis Insurance

July 21

Sovereign Trust Insurance

July 21

Transcorp

Source: CardinalStone Partners, Dunn Loren Merrifield, and Chapel Hill Partners

Investors want to anchor their projections on authoritative statements of business outlook communicated as figures issued by corporate executives

July 21 Source: Nigerian Stock Exchange

erate the volatility of the share price, build in better clarity into the valuation process, and increase liquidity in its shares.

In its Rule book (2013) the Securities and Exchange’s Rule B(40) requires all publicly quoted companies to release their earnings forecast to the public twenty days before the commencement of a quarter with a clear statement of the underly-

ing assumptions that form its bases. Importantly, the SEC requires companies to notify it as soon as it is known that the forecast will not be realized. In such cases, the onus is on the company to explain the reason for the non-realization.

The matter here is not about fancy predictions and unwarranted optimism as derisorily described by Warren Buffett.

Different strokes for different stocks

It is about giving investors an inkling of management’s ideas on what the immediate future holds. Forecasts are reputational savings booklets for executives to build credibility with the investment community.

Neither is it about ingenious earnings management that can corrode executive ethics through accounting acrobatics.

Investors simply want to get a tangible sense of the business outlook in the near-term.

A good clutch of companies on the NSE used to give forecasts until recently. This no longer seems to be the case.

Could it be that companies are reluctant to release guidance in

a strained economic situation?

This could well be.

The NSE and SEC should as a matter of importance insist that companies give the markets sufficient notice on the date and time when they will publish their results. This helps investors to plan around the news. It would also enable companies to decide if they want to crowd in or out when others are releasing their results. An orderly reporting calendar is a sine qua non for the NSE. Altogether, regulators and companies need to do more to iron out the uncertainties around the release of company results. ;

More than guesswork

What do purchasing managers think of the economy? Follow their expectations in the FBN Capital Purchasing Manager Index due out at the beginning of August.

! Page 7

Corporate governance in the DNA

Good governance is good business. If Nigerian companies aim to compete globally they must meet strict governance standards writes Soji Apampa

! Page 9

Fixed Income & Forex

FGN Bonds & TBills 100B

FGN Bonds Treasury Bills

12.0

75B

11.5

50B

11.0

25B

10.5

0B

1M 2M

NITTY

3M 6M

9M 12M

10.0 11/07

16/07

21/07

24/07

O/N 1M

NIBOR 15.0

3M 6M

17/07

22/07

25/07

162.5

14.0

162.3

13.0

162.1

12.0

161.9

11.0

161.7

10.0 14/07

Bid Ask

FX ($/N)

161.5 14/07

17/07

22/07

25/07

14/07

17/07

22/07

25/07 Source: FMDQ

2

INSIGHT

VM | Monday, July 28, 2014 | Issue 003

JAYWALKER

Strategy, not size, matters mainly because of their view that current consumption in their categories is a tiny fraction of developed market levels. The Singapore-based fund, which has significant holdings of Guinness Nigeria and Unilever Nigeria shares, calculates that in the ‘Eat, Drink, Wash’ category this ratio of

continent’s beer consumption, but has a capita consumption of only a sixth of South Africa’s.

At the time it took a foothold Nigerian Breweries and Guinness Nigeria had 69 per cent and 28 per cent market shares respectively.

The company has followed a smart strategy and executed

For all the challenges of the Nigerian market, if companies do not have a Nigeria strategy, they do not really have an Africa strategy - Mark Bowman, SABMiller CEO (2009)

Stacking crates of Hero beer at SABMiller depot, Onitsha, Anambra State

Obiora Onyeaso obiora.onyeaso@customsstreet.com

strategy sessions In and management meetings, the world’s biggest companies are pondering a Nigeria strategy. Those that do have one are busy fine-tuning theirs. Those that do not, are leaving no stone unturned in a frantic search for one. In fact, there is a budding consultancy market has appeared to proffer advice on the best ways to penetrate and

Purveyors of packaged consumer goods, white goods, cars, electronics, mobile phones, alcoholic drinks, and a bevy of other products are cracking their heads to find the secret formula. When they do they guard it jealously. Copycats are always lurking in the corner. In this part of the world there is no rest for the successful.

The reality is that the size of the Nigerian market is a different matter from the size of incomes that Nigerian consumers have to spend. Seni Adetu, chief executive officer of Guinness Nigeria noted during a recent interview that ‘there could be difference between what the macro economy says and what actually happens to the consumer from a spending stand point. What we do know is that private consumption declined last year versus the year before.’ There is also the issue around which

Hours worked to buy a 500ml beer 0

strategies will work and which companies can execute best.

This is a lesson that many companies will have to learn the hard way. Those few that can navigate what one executive at a multinational company has described as ‘the treacherous waters of commerce in Nigeria’ stand to reap big rewards.

In its June report, managers for Arisaig’s Africa Consumer Fund wrote that for consumer-focused multinationals in its portfolio the long-term story for Nigeria is as compelling as ever. This is

2

3

4

5

6

7

The Patient Brewer, and the Fattest Beer: SABMiller’s Experience

Source: SABMiller

AVERAGE ANNUAL GROWTH RATES (%) Analysis

GDP

Private Consumption

2010-2015

6.1

5.9

2016-2020

1.8

3.7

2012-2025

1.7

5.6

2026-2030

4.3

7.5

2010-2030

3.3

5.7

POPULATION IN THE 15-39 AGE GROUP

The spotlight on Nigerian consumers marks a tectonic shift in the traditional focus of foreign investment interest in the country conquer the wallets of Nigerians. It has become a case of no company left behind. The painful truth is that some companies will be left behind.

The spotlight on Nigerian consumers marks a tectonic shift in the traditional focus of foreign investment interest in the country. In the past, most of the attention was from energy companies jostling for its energy assets. The focus is no longer on the marshlands of the oil-rich Niger Delta region. It now looks hungrily on the country’s emergent middle class.

1

Tanzania Mozambique Uganda Kenya Ethiopia Zambia Ghana Nigeria Botswana South Africa United States

Analysis

Million

% of Total Population

2010

63.3

40.0

2020

80.5

41.6

2030

98.6

43.5

2040

112.3

43.3 Source: AT Kearney

Disposable Income per Nigerian Household since 1995 6000 5000 4000 3000 2000 1000 0

‘90

‘95

frontier to advanced markets ratio is about 1:7. Therefore, it concludes that the surface has barely been scratched.

For all this insight it is not a given that the brands of these multinationals will emerge tops in the competition. In straitened times, consumers want value, governments demand local production, and shareholders demand higher profits.

One company is excelling at the game of balancing these competing demands.

‘05

‘06

‘07

‘08

‘09

‘10

‘11

‘12

Comment Despite having the lowest income among its BRIC and MINT peers (Brazil, Russia, India, China, Mexico, Indonesia, and Turkey) in the 20-year period since 1995, the country’s disposable income growth rate has topped theirs.

Source: Stanbic IBTC

During a SA-Nigeria Chamber of Commerce event in 2009, Mark Bowman, chief executive of SABMiller Africa told his audience that its two main competitors in Nige-

well on it. It aims to reduce the price of beer for lower-income consumers, while at the same time attracting more drinkers to its premium green bottle brands. Bowman has publicly stated that his goal is to bring the price down to less than two hours of work for the average lower-income worker.

This is not to say that SABMiller is ignoring the premium sector. It keeps a keen eye trained on that too, ready to capitalize on new opportunities thrown up by rises in disposable income.

Elsewhere, SABMiller does not hide the fact that it actively engages with governments to offer cheaper beer. By negotiating lower tax rates the company can sell cheaper beer to more customers. In the process, it earns more money and can pays higher taxes on these volumes.

There could be difference between what the macro economy says and what actually happens to the consumer from a spending stand point - Seni Adetu, managing director, Guinness Nigeria ria, Guinness and Heineken, make nearly as much in Nigeria as it was making in 24 other African countries, excluding SA. He went on to state that for all the challenges of the Nigerian market, if companies do not have a Nigeria strategy, they do not really have an Africa strategy.

All that has changed. The company, which operates in 15 African countries with partnerships in 21 more, made its entry into Nigeria in the same year with the purchase of a majority stake in Pabod Breweries, Rivers State. It wasted little time in adding International Breweries Plc, Ilesha to its portfolio. In a deft move, SABMiller has positioned Hero, one of its brands as a value beer, selling it by as much as 40 per cent cheaper than its competitors.

The company took on giants when entering Nigeria, which accounted for 15 per cent of the

Bowman explained that ‘we negotiate with governments to try and persuade them to drop the excise regime for a product that’s made with local grains, which most governments are quite supportive of. The idea here then is to try and create a win-win proposition, where we have a strong group of farmers contracted to producing grains for us of whatever form. The government gets a new source of revenue … And of course we win in that. We’re able to open up this category and potentially bring consumers in earlier into the beer category than they otherwise would.’

In January, the company announced that it plans to invest up to $110 million to triple capacity to 2.1 million hectolitres per annum.

For SABMiller, life is good.

That is, until the next company comes to steal your lunch.

Or shall we say drink? ;

INVESTMENT

VM | Monday, July 28, 2014 | Issue 003

3

PERFORMANCE

Thaddeus Research queries MNC-bias among foreign portfolio managers on NSE ude Fejogwu, principal analyst at Thaddeus Africa Research, an equity research and investment advisory firm, has criticised the excessive weighting of multinational companies in the stock portfolios of frontier markets-focused funds. In an email sent out last week, he gave evidence to support his claims that excluding the banking sector, these fund managers demonstrate a clear bias for multinational companies in their equities selection on the Nigerian Stock Exchange.

The discriminatory practice does not end there. The analyst showed that multinational stock prices are not penalized at all or only penalized in little quanta for earnings disappointments and strategic missteps. In contrast, local companies in comparable situations are punished when their earnings fall short. These practices have adverse selection implications. Due to massive positions of the foreign portfolio managers in the MNC stocks they have ‘driven up the prices of these stocks to expensive levels.’ When presented the data, these managers defend themselves with the claim that MNC stocks, being tried, tested, and true (interpretation: familiar) offer a better guarantee of capital appreciation.

The fallacy of this circular argument is what Thaddeus takes an issue with. In his missive, Fejogwu dismisses the self-fulfilling prophesy inherent in the foreign fund managers’ excuses. According to him, ‘their repetitive and persistent actions over time have led to overly generous

J

and sincerely undeserving stock price increases in these multinational stocks across African stock markets; this further strengthens their desire to continue investing in more multinational companies.’

The push up in the prices of

these MNC stocks have taken a life of their own, unfettered from the reality of their quarterly and annual performances. ‘Despite these price surges that rarely reverse at a pace anywhere close to how they rose and disappointing results in recent years, the

MNCS VERSUS LOCALS COMPS Multinational

P/E

YTD

Year-on-Year Change in Net Income

IBL (SABMiller)

46.1

2.79%

-9.50%

Nestlé Foods

33.4

-6.25%

0.10%

NB (Heineken)

31.1

5.47%

16%

Guinness

24.9

-16.31%

-22%

Unilever Nigeria

39.5

-6.80%

-47%

Cadbury

38.7

-18.21%

-29%

Lafarge Cement WAPCO

12.6

3.48%

34%

Cement Co Northern Nigeria

10.7

2.47%

87%

Dangote Sugar

10.3

-20.94%

7%

8.7

-11.22%

-4%

Local Company

Vitafoam

Source: Thaddeus Investment Advisors & Research

CORONATION AFRICAN FRONTIER FUND PERFORMANCE (GROSS OF FEES) Fund

FTSE/JSE Africa Top30*

Outperform

Since Launch (cumulative)

162.35%

35.93%

126.42%

Since Launch (p.a.)

18.26%

5.48%

12.78%

Latest 5 years (p.a.)

17.68%

5.33%

12.35%

Latest 3 years (p.a.)

17.19%

5.34%

11.85%

Latest 1 year (p.a.)

31.01%

5.24%

25.77%

Year to date

10.69%

2.62%

8.08%

2013

27.37%

5.27%

22.10%

2012

31.30%

5.42%

25.88%

2011

-14.63%

5.34%

-19.98%

*excl. South Africa

stocks are continually in high demand by portfolio managers,’ he observed.

This has perverse implications on local companies listed on the bourse. When compared with their MNC peers, they are not adequately rewarded when they perform well. Worse, they are overpenalized when they falter.

There is no reason why ‘the local stocks get punished more when they disappoint and get rewarded miserly or not at all when they perform creditably.’

He provides facts to back his position.

The lacklustre performance of Unilever Nigeria is a case in point. In spite of this, their stock price performance does not reflect the reality of submerged net income performance. Its share price has declined only 7 per cent, although its net income dropped sharply by 47 per cent. Thaddeus’ valuation estimated that the company’s shares should be trading below N33.22. Instead,

the stock’s 52-week low is N43.32. This is a 30 per cent premium over what it should fairly be worth. This is all because of its pedigree as a multinational. If life is unfair, should markets be too?

Fejogwu blames the MNChugging of most foreign fund managers of sloth. If it is not broke, why fix it? If an investment pattern has consistently made money in the past, why change it now? He mentions the case of Coronation Funds, the Cape Town based manager that has $40 billion in assets under management.

It has $200 million invested in Nigeria alone, Peter Leger, the manager of its Africa Frontiers Portfolio has delivered benchmark thumping returns.

Coronation may also be the closest that the NSE has to a major activist investor. It stood up to GSK Consumer (2,617,002 units held, 0.27% stake, $7 million estimated value) last year when the company tried to railroad investors to approve a $98

Historical Trading Split between Foreign and Domestic Investors on the NSE 4000 Foreign Investor (N’ Billion) Domestic Investor (N’ Billion)

3000

2000

1000

0

2007

2008

2009

2010

2011

2012

2013

Source: Nigerian Stock Exchange

Source: Coronation African Frontiers Portfolio

million (321 million shares) increase in the parent company’s stake. In the aftermath of the announcement by Lafarge, the cement company, that it planned to merge its Nigerian and South African businesses, Coronation, which claims to have $10 million invested across its Africa funds in the company, went public with its disapproval.

It questioned why Lafarge would value the ‘slow growing’ South African business at a price earnings multiple of 20.9, while the faster growing Nigerian business was valued at 12.5 times earnings.

Looked at from this angle, foreign fund managers may be seen as vice squads that follow MNCs to frontier markets like Nigeria’s to ensure that they comply with the same high standards that their parent companies meet in advanced markets. Their insistence on sound corporate governance in MNC’s frontier market subsidiaries, and the ability to bring pressure to bear on parent companies, whose shares other funds under their firms may also hold, should not be dismissed lightly.

Be that as it may, Fejogwu’s findings revert to a long-standing debate on the role of these fund managers. Are they paid to take risk and generate alpha or simply coast their benchmarks and preserve capital? If the former, then there is no reason why they should show a bias against local Nigerian champions. If the latter, then regulators like the Nigerian Stock Exchange must have a rethink about the beneficial effect of prioritising foreign investors over local ones. ;

SPOTLIGHT

Danladi Verheijen, Co-Founder, Verod Capital Management a piece he penned in April for the InIn ternational Business Times, Danladi Verheijen betrayed his enthusiasm for the economy’s outlook. Nigeria’s future continues to be bright for Nigerians as the creation of wealth escalates to new heights, and the local economy continues to prosper as foreign investment in the country grows.

He threw an open invitation to investors to jump in right away because ‘this is just the beginning of one of the most exciting growth stories in the world today.’

The former Citibank vice-

Danladi Verheijen, managing director, Verod Capital Management

president, who holds an engineering degree from Stanford University and an MBA from Harvard, has been quietly building one

of Nigeria’s most successful private equity firms. He co-founded the firm with a friend, Eric Idiahi, in 2008.

Some of its past investments include HFP Engineering, a real estate development, construction and civil engineering company, GZI Industries, an aluminium beverage can maker, and Rotoptrint, a maker of flexible plastic packaging for the fast moving consumer goods sector. The firm’s investments across 9 companies in its portfolio have returned six times their original financial commitment.

In January 2013, Verod

exited its investment in GZI Industries through a sale to Standard Chartered and Ashmore, a specialist emerging markets investment manager. Peter Baird, head of PE at Standard Chartered gave a ringing endorsement.

‘Verod did an amazing job at developing GZI into a worldclass business by the time we entered. I would probably invest in any Standard Chartered client that Verheijen works with.’

More recently, in May, the company announced that it is constructing what will be the largest fish farm in Africa in Epe, Lagos. When complet-

ed, it will have 10,000-tonne per annum or 30 tonnes per day capacity.

He is both modest and proud about the work he is doing. ‘Some of the work that I do would be no big deal in the United States but in Nigeria, these projects are transformative. In the States, people do what I do to increase the profit for a company by a half of a percent, that’s the goal. My goal is to change lives.’

Quite unusual for a PE firm, Verod does not raise funds. Instead, it raises money on a deal-by-deal basis. This is counter-intuitive

considering that PE firms around the world have been advocating for long-term capital, and complaining about the stresses of constantly raising money anew for each opportunity.

The Verod co-founder who cites his mother, the first female professor of Physics in Africa, as his inspiration attended Hillcrest School, a private Christian high school in Jos. He says that he retains the ethics of his religious faith in business.. The financier was named a Young Global Leader by the World Economic Forum in March 2014. ;

4

MARKET DATA

VM | Monday, July 28, 2014 | Issue 003

MARKET SNAPSHOT 3-MONTH PRICE TREND OF BELLWETHER STOCKS

ACCESS

9.72 0.08

7.22

PE 6.19

11.14 0.12 1.25%

1YtD

3M

1.29 15.30%

-0.08 -0.82%

1W

21/07

May

June

CONOIL -2.42 -3.95%

3M

12.15 25.99%

-3.42 -5.49%

1W

21/07

May

June

FBNH -1.08 -6.63%

3M

2.03 15.39%

-0.68 -4.28%

1W

21/07

May

June

GLAXOSMITH 58.50 1YtD

July

-4.29 -6.13%

3M

PE 23.01 -0.40 -0.61%

1W

21/07

May

June

JBERGER 0.94 1.49%

3M

2.87 4.70%

1.32 2.11%

1W

21/07

May

June

NB

189.00 12.99 7.87%

3M

29.60 19.95%

2.39 1.36%

1W

21/07

May

June

PZ 3M

0.80 2.17%

1W

21/07

May

June

UBA

-2.20 -5.53%

-1.25 -13.66%

3M

1.00 14.49%

1W

PE 7.06

0.14 14.14%

-0.16 -1.99%

-0.02 -1.74%

1W

21/07

May

June

FCMB 1YtD

July

0.36 9.38%

3M

0.65 18.31%

-0.06 -1.41%

1W

21/07

May

June

GUARANTY 3.25 11.71%

3M

3.70 13.55%

1.05 3.51%

1W

21/07

May

June

MANSARD 0.05 2.00%

3M

0.16 6.69%

-0.13 -4.85%

1W

21/07

May

June

NESTLE

1250.01 -77.00 -6.51%

3M

23.91 2.21%

-19.30 -1.72%

21/07

May

June

TOTAL

195.50 3.15 1.82%

3M

13.45 8.25%

-10.94 -5.84%

21/07

May

June

UNILEVER -5.37 -10.13%

3M

-0.42 -0.87%

1W

FIDELITYBK 1.85 1YtD

-5.14 -9.74%

-8.06 -3.36%

1W

July

-0.72 -26.67%

3M

PE 2.91 0.04 2.06%

1W

21/07

June

GUINNESS

266.70 -38.86 -16.47%

3M

7.15 3.76%

-0.90 -0.45%

21/07

May

June

MOBIL

178.84 45.41 39.15%

3M

36.41 29.13%

-0.81 -0.50%

1W

21/07

May

June

OANDO -1.26 -4.71%

3M

9.49 59.39%

0.48 1.92%

1W

21/07

May

June

UACN 3M

15.88 34.43%

-0.06 -0.10%

1W

21/07

May

June

WAPCO

136.73 3.90 3.39%

3M

6.75 6.02%

0.56 9.12%

-0.11 -0.09%

0.40 6.35%

1W

21/07

June

FLOURMILL 63.91 1YtD

July

-16.00 -17.78%

3M

PE 21.89 -1.30 -1.73%

1W

21/07

June

HONYFLOUR 2.56 1YtD

July

0.41 10.65%

3M

PE 12.50 -0.04 -0.93%

1W

21/07

May

June

MRS 7.18 13.88%

3M

9.76 19.86%

2.55 4.53%

1W

21/07

May

June

OKOMUOIL -11.77 -26.25%

3M

-2.94 -8.17%

1W

21/07

May

June

3M

-2.27 -11.43%

1W

21/07

June

ZENITHBANK 19.23 1YtD

July

3M

0.12 0.69%

25/07

M T W T

F

25.23 0.01 PE 7.29

27.40 0.23 0.92%

3.30 24.26%

3M

June

FO

259.94 123.13 132.58%

74.45 52.60%

3M

June

21/07

July

25/07

M T W T

F

21/07

May

June

July

25/07

M T W T

F

21/07

May

June

July

2.90 12.99%

25/07

M T W T

F

1W

21/07

May

-21.90 -9.21%

1W

July

INTBREW

0.65 2.50%

3M

-2.33 -8.04%

1W

21/07

May

June

July

NASCON

-0.73 -6.45%

3M

-0.13 -1.21%

1W

21/07

May

June

July

PRESCO

F

PE 4.54

49.00 -0.99 -2.54%

25/07

M T W T

38.01 0.01

32.00 1YtD

F

PE 10.09

15.10 -4.26 -28.69%

25/07

M T W T

10.59 0.13

10.15 1YtD

F

PE 44.51

31.50 -1.67 -5.90%

25/07

M T W T

26.65 2.33

17.98 1YtD

F

PE 46.63

21/07

May

-4.99 -11.60%

3M

0.01 0.03%

1W

21/07

May

June

July

25/07

M T W T

F

0.01 0.04%

1. 52-week low price 2. Year low price 3. Current price 4. Year high price 5. 52-week high price 6. Current price 7. 5-day price change 8. PE ratio 9. 1-year price change 10. 3-months price change 11. 1-week price change 12. Daily price movement over 3 months.

13. 30-day moving average 14. Daily price movement over last week

1 2 TICKER

4

3

19.23 1YtD

5

25.23 0.018

June

July

25/07

M T W T

F

PE 7.29

27.406 0.23 0.92%

3M

2.90 12.99%

7 0.01

1W

0.04%

10

12

June

25/07

M T W T

216.00 21.90

9

May

0.02 0.12%

1W

July

35.00

F

PE 7.94

21.31

May

0.51 3.11%

21/07

25/07

M T W T

17.60 0.12

11.95 2.22 14.46%

-0.02 -0.06%

PE 4.61

18.52

May

1YtD

F

LEGEND

UAC-PROP 1YtD

July

1YtD

25/07

16.90 0.02

12.40

F

PE 14.41

48.05

2.35 19.88%

M T W T

25/07

M T W T

33.06 0.02

32.15 1YtD

July

July

ETI

F

PE 59.61

70.00

June

25/07

M T W T

58.90 2.55

32.53 1YtD

July

PE 12.65

1W

21/07

F

4.26 0.04 0.26 6.50%

5.32 60.11%

3M

25/07

M T W T

4.50

2.18 18.18%

May

F

74.00 1.30 6.18 9.11%

1YtD

14.17

25/07

M T W T

92.00

May

F

PE 14.68

1W

PE 4.05

25/07

M T W T

118.90 0.11

87.50 1YtD

July

3M

May

F

PE 29.13

67.85 6.01 10.73%

-0.80 -10.67%

14.17 2.35

8.00

F

6.70 0.40 8.20

CCNN

25/07

M T W T

25/07

M T W T

62.00 0.06

42.58 1YtD

July

1YtD

F

PE 22.85

36.89

5.86

July

25/07

M T W T

25.47 0.48

9.32 1YtD

July

June

DIAMONDBNK

F

PE 15.46

0.48 1.21%

1W

25/07

M T W T

161.41 0.81

102.00 1YtD

July

-1.98 -4.72%

21/07

F

PE 25.02

1W

3M

25/07

M T W T

197.15 0.90

162.00 1YtD

July

-7.98 -16.63%

May

F

1.98 0.04 0.03 1.54%

1YtD

PE 24.49

51.66

25/07

M T W T

3.08

May

F

PE 35.76

65.00

June

25/07

M T W T

47.63 5.14

42.50 1YtD

July

4.16 1.83%

PE 19.67

21/07

May

F

PE 13.67

1W

3M

40.00 0.48

35.96

F

231.99 8.06

25/07

M T W T

176.45 10.94

146.26 1YtD

July

15.83 7.32%

CAP

25/07

M T W T

250.02

1YtD

F

PE 38.86

1W

DANGCEM

July

25/07

M T W T

1105.00 19.30

916.00 1YtD

July

June

185.00

F

PE 16.68

2.73

-1.47 -2.04%

1W

25/07

M T W T

2.55 0.13

1.95 1YtD

July

-5.46 -7.18%

PE 47.29

21/07

F

PE 9.49

31.80

3M

25/07

M T W T

31.00 1.05

22.67 1YtD

July

-26.64 -27.42%

May

F

PE 4.78

4.90

1YtD

110.00

25/07

M T W T

4.20 -0.06

3.01

F

PE 4.65

9.60

3M

70.54 1.47

67.80

F

1.13 0.02

25/07

M T W T

7.90 0.16

6.65 1YtD

July

-0.07 -5.83%

CADBURY

25/07

M T W T

1.33

1YtD

F

PE 29.10

45.98 0.60 1.63%

July

25/07

M T W T

37.60 2.20

30.08 1YtD

July

0.93

F

PE 33.99

-2.79 -8.45%

1W

25/07

M T W T

178.00 2.39

140.00 1YtD

July

June

CONTINSURE

F

PE 9.35

76.45

13.73 83.21%

25/07

M T W T

64.01 1.32

59.18 1YtD

July

3M

21/07

F

65.71 0.40 -4.29 -6.13%

PE 37.84

25/07

M T W T

74.97

8.35 38.16%

May

F

PE 7.05

17.49

30.23 2.79 34.17

25/07

M T W T

15.22 0.68

11.50 1YtD

July

1YtD

F

PE 18.68

79.80

13.87

25/07

M T W T

58.90 3.42

25.92 1YtD

July

ASHAKACEM

11 14

13 May

21/07

June

July

25/07

M T W T

F

MARKET DATA

VM | Monday, July 28, 2014 | Issue 003

5

MARKET SNAPSHOT +150% SLIPPING +140%

LEADING 12

+130% +120%

The relative size of each individual stock’s bubble chart is determined by its market capitalization.

For indices, the relative size of each bubble chart is the total value of the capitalization modified values of each constituent stock.

Pink bubbles represent individual stocks, and grey bubbles represent indexes.

+110% +100% +90% YEAR-TO-DATE RETURN

+80%

# TICKER

WTD

YTD

1 DANGCEM

-3.36

7.32

2 NB

1.36

7.87

3 GUARANTY

3.51 11.71

4 NESTLE

-1.72 -6.51

5 ZENITHBANK

0.04

6 FBNH

-4.28 -6.63

7 WAPCO

-0.09

0.92

3.39

8 GUINNESS

-0.45 -16.47

+70%

9 STANBIC

6.56 30.21

+60%

10 ETI

0.12

11 UBA

-1.99 -13.66

12 FO

-9.21 132.58

13 OANDO

1.92

-4.71

14 ACCESS

-0.82

1.25

15 TRANSCORP

-7.08 26.96

16 UNILEVER

-9.74 -10.13

17 FLOURMILL

-1.73 -17.78

18 UBN

-0.96 -3.75

19 PZ

-5.53

20 CADBURY

-2.04 -27.42

21 UACN

-0.10 10.73

22 DANGSUGAR

0.00 -18.58

23 DIAMONDBNK

6.35 -10.67

24 INTBREW

-8.04 -5.90

25 JBERGER

2.11

1.49

26 FCMB

-1.41

9.38

27 ASHAKACEM

-8.45 38.16

28 7UP

0.45 47.70

29 GLAXOSMITH

-0.61 -6.13

30 TOTAL

-5.84

31 MOBIL

-0.50 39.15

32 FIDELITYBK

2.06 -26.67

33 STERLNBANK

-4.64 -9.60

34 SKYEBANK

-5.88 -29.05

35 CONOIL

-5.49 -3.95

36 PRESCO

0.03

37 OKOMUOIL

-0.06 -26.25

38 CAP

1.21 -16.63

39 NEIMETH

2.54 10.00

40 MAYBAKER

-2.86 -33.33

+50%

28

+40%

31

27

+30%

9

15

+20% +10% 30 19 35

0% -10%

24

16

33

11

-10%

3

25 13 23 38

22 37

20

34

-40% LAGGING -15%

8

17

39

2

14 7 10 36 5 18 29

4

6

-20% -30%

21

26

1

32

40

-5%

0%

IMPROVING +10%

+5%

WEEK-TO-DATE RETURN

Indices

YtD, %

WtD, %

-1.41%

ASI -0.57% -0.80%

NSEBNK NSEINS

-1.12% -1.02%

1.37%

-2.71%

-0.52%

-4.18%

-3.28%

33.49%

-1.41%

NSELOTUSISLM -0.42%

-1.74%

-1.92% -0.40%

6.57%

-5%

-3%

0%

3%

5%

7%

Mo

Tu

S&P 500

We

Th

Fr

1,978.34

1,990 1,985 1,980 1,975 1,970 Fr

NSEOILGAS -3.01%

NSEINDUSTR

Fr

-1.37%

NSECNSMRGDS -0.40%

42,285.82

43.00 43.80 42.60 42.40 42.20

2.31%

NSE30 -0.16% 0.69% 0.90%

NSEASI

DtD, %

Mo

Tu

FTSE 100

We

Th

Fr

6,791.55

6,825 6,800 6,775 6,750 6,725 Fr

Mo

Tu

We

Th

Fr

GLOBAL INTEREST RATES & INFLATION TARGETS Central Last Date % Inflation Rate Bank Change Change Target China 6.00% 05.07.2012 -0.31 4.00% Japan 0-0.10% 05.10.2010 -0.20 2.00% UK 0.50% 05.03.2009 -0.50 2.00% USA 0-0.25% 16.12.2008 -0.75 2.00% Eurozone 0.15% 05.06.2014 -0.10 <2.00% Brazil 11.00% 02.04.201 +0.25 4.5% +/-2.0% Canada 1.00% 20.07.2010 +0.25 2.0% +/-1.0% Egypt 8.25% 05.12.2013 -0.50 India 8.00% 28.01.2014 +0.25 Indonesia 7.50% 12.11.2013 +0.25 4.5% +/-1.0% Malaysia 3.25% 10.06.2014 +0.25 Mexico 3.00% 06.06.2014 -0.50 3.00% +/-1.0% Morocco 3.00% 28.03.2012 -0.25 Nigeria 12.00% 10.10.2011 +2.75 6.00% - 9.00% Qatar 4.50% 10.08.2011 -0.50 Russia 7.50% 25.04.2014 +0.50 5%* Thailand 2.00% 12.03.2014 -0.25 0.5% - 3.0% Turkey 8.75% 24.06.2014 -0.75 5.00% * +/- 1.5 pct point uncertainty band

MARKET SNAPSHOT Traded Stocks

Declined Stocks

Unchanged Stocks

All Shares Index Value

1.63

1.82

-2.54

TRADING BREAKDOWN

BY SECTOR

Date

Deals

Turnover Volume

Sector

%

1

21.07.2014

5,862

535,076,684

4,374,954,616.87

113 \ 125

22 \ 27

39 \ 29

52 \ 69

42,930.60

Financial Services

22.07.2014

6,323

430,136,315

4,019,168,972.53

113 \ 114

25 \ 33

30 \ 27

58 \ 54

42,971.56

56 \ 73

2

Conglomerates

23.07.2014

4,766

273,484,128

3,076,614,373.12

112 \ 120

29 \ 22

36 \ 26

47 \ 72

43,030.27

17 \ 8

3

Oil & Gas

24.07.2014

187

2,607,903

13,731,313.39

51 \ 114

5 \ 27

1 \ 25

45 \ 62

42,918.52

8\8

4

Others

5

25.07.2014

7,048

536,869,982

26,618,591,033.33

116 \ 117

23 \ 34

40 \ 21

53 \ 62

42,891.82

19 \ 11

Turnover Value

Advanced Stocks

3.11

FGN Bond Index

The \ arrow signifies week-on-week change in value. This week’s value is shown on the left of the \ sign, and last week’s value on the right.

2930

INDEX PERFORMANCE Index

Week Opening

Week Close

Change

WtD

MtD

QtD

YtD

All Shares Index

42,784.30

42,285.82

-606

-1.41

-0.46

-0.46

2.31

2

NSE 30 Index

1,944.33

1,933.21

-15.53

-0.8

0.07

0.07

1.37

3

NSE Banking Index

436.56

441.72

3.01

0.69

2.04

2.04

-1.37

1

4

NSE Insurance Index

148.35

148.73

-1.68

-1.12

1.29

1.29

-2.71

5

NSE Consumer Goods Index

1,060.41

1,054.31

-5.47

-0.52

-0.37

-0.37

-4.18

6

NSE Oil/Gas Index

470.24

453.72

-15.37

-3.28

-3.1

-3.1

33.49

7

NSE Lotus Islamic Index

2,848.70

2,813.19

-40.19

-1.41

-2.14

-2.14

-1.74

8

NSE Industrial Index

2,770.47

2,714.02

-53.09

-1.92

1.77

1.77

6.57

Market Value YTD Return

12.9

2925

12.8

2920

12.7

2915

12.6

12.5 2910 21/07 23/06 25/07

6

MARKETS DATA

VM | Monday, July 28, 2014 | Issue 003

MARKET SNAPSHOT CURRENCY CROSS RATES Currency codes/ names

United Kingdom Pound

Euro

Japanese Yen

Swiss Franc

US Dollar

CFA Franc BCEAO

CFA Franc BEAC

Chinese Yuan Renminbi

Ghanaian New Cedi

Hong Kong Dollar

Nigerian Naira

Saudi Riyal

South African Rand

US Dollar

Utd. Arab Emir.

Dirham

GBP

1

0.7915

0.005784

0.6514

0.5878

0.001207

0.001207

0.09547

0.174

0.07584

0.003662

0.1567

0.05591

0.5878

0.1601

EUR

1.2637

1

0.007309

0.8231

0.7427

0.001524

0.001524

0.1206

0.2199

0.09584

0.004627

0.1981

0.07065

0.7427

0.2022

JPY

172.913

136.845

1

112.633

101.632

0.2086

0.2086

16.5074

30.0842

13.1133

0.6331

27.1012

9.6677

101.632

27.6755

CHF

1.5354

1.2151

0.00888

1

0.9024

0.001853

0.001853

0.1466

0.2671

0.1164

0.005622

0.2406

0.08585

0.9024

0.2457

USD

1.7014

1.3465

0.009841

1.1083

1

0.002053

0.002053

0.1624

0.296

0.129

0.00623

0.2667

0.09512

1

0.2723

XOF

828.778

655.957

4.7934

539.853

487.104

1

1

79.117

144.189

62.8498

3.0344

129.891

46.3356

487.104

132.644

XAF

828.778

655.957

4.7934

539.853

487.104

1

1

79.117

144.189

62.8498

3.0344

129.891

46.3356

487.104

132.644

CNY

10.4833

8.2965

0.06063

6.8287

6.1615

0.01265

0.01265

1

1.8239

0.795

0.03838

1.643

0.5861

6.1615

1.6778

GHS

5.8181

4.6044

0.03365

3.7898

3.4195

0.00702

0.00702

0.5554

1

0.4412

0.0213

0.9118

0.3253

3.4195

0.9312

HKD

13.1872

10.4374

0.07627

8.59

7.7506

0.01591

0.01591

1.2589

2.2943

1

0.04828

2.0668

0.7373

7.7506

2.1106

NGN

278.565

220.456

1.6111

181.453

163.723

0.3361

0.3361

26.5924

48.464

21.1248

1

43.6584

15.5741

163.723

44.5836

SAR

6.3818

5.0505

0.03691

4.157

3.7508

0.0077

0.0077

0.6092

1.1103

0.484

0.02337

1

0.3568

3.7508

1.0214

ZAR

17.902

14.169

0.1035

11.6611

10.5217

0.0216

0.0216

1.709

3.1145

1.3576

0.06555

2.8057

1

10.5217

2.8652

USD

1.7014

1.3465

0.009841

1.1083

1

0.002053

0.002053

0.1624

0.296

0.129

0.00623

0.2667

0.09512

1

0.2723

AED

6.2508

4.9469

0.03615

4.0717

3.6738

0.007542

0.007542

0.5967

1.0875

0.474

0.02289

0.9797

0.3495

3.6738

1

INTERNATIONAL STOCK INDICES

CLU4 Crude Oil F. PERFORMANCE (%)

LAST CHANGE

Region/ Country

Index

EUROPE

Stoxx Europe 600

344.33

1.47

0.43

4.90

0.14

Stoxx Europe 50

3050.27

12.48

0.41

4.5

12.20

Euro Zone

Euro Stoxx

325.08

2.91

0.9

3.4

16.70

Euro

Euro Stoxx 50

3220.07

26.94

0.84

3.6

17.00

Close

Net % Change change

YtD

52wk

Austria

ATX

2372.87

-3.73

0.16

-6.8

1.90

Belgium

Bel-20

3195.53

18.53

0.58

9.3

19.90

Czech Republic

PX

952.73

1.45

0.15

-3.7

5.30

Denmark

OMX Copenhagen

671.65

-1.26

-0.19

18.7

34.80

Finland

OMX Helsinki

7757.39

59.04

0.77

5.7

25.10

France

CAC-40

4410.65

34.33

0.78

2.7

11.30

Germany

DAX

9794.06

40.5

0.42

2.5

16.90

Hungary

BUX

17952.63

-51.88

-0.29

-3.3

-3.10

Ireland

ISEQ

4740.77

-1.72

-0.04

4.4

15.20

Italy

FTSE MIB

21255.6

424.34

2.04

12.1

29.30

Netherlands

AEX

409.98

1.45

0.35

2

10.20

Norway

All-Shares

699.29

-0.56

-0.08

16

28.80

Poland

WIG

51613.47

72.66

0.14

0.6

10.20

Portugal

PSI 20

6467.83

90.4

1.42

-1.4

12.70

Russia

RTSI

1266.72

-5.3

0.42

-12.2

-6.40

Spain

IBEX 35

10860.7

201.6

1.89

9.5

32.6

NGQ4

101.97

103.5 103.0 102.5 102.0 101.5

CCU4

Natural Gas F. 3.781

3.900 3.850 3.800 3.750 3.700 Su

Mo

Unit Contract Size 52 wk Range 1-Year Return Currency

Tu

We

Th

Su

Fr

1 Barrel 1,000 Barrels 91.24 - 112.24 -3.34% USD

US Cocoa F.

3.781

3,220 3,185 3,150 3,115 3,080 Mo

Tu

Unit Contract Size 52 wk Range 1-Year Return Currency

We

Th

Fr

1 Mmbtu 10,000 MMBtu 3.129 - 6.493 3.76% USD

Fr

Mo

Tu

Unit Contract Size 52 wk Range 1-Year Return Currency

We

Th

Fr

1 Metric Ton 10 Metric Tons 2265.00 - 3232.00 36.24% USD

COMMODITIES Commodity

Exchange

1-DAY CHANGE Last price

Net Change

% change

Year High

Year Low

Corn (cents/bu.)

CBOT

369.25

-1.5

-0.40%

517

364.25

Soybeans (cents/bu.)

CBOT

1085.75

9.25

0.86%

1,279.25

1,055.00

Wheat (cents/bu.)

CBOT

529

-1.75

-0.33

751.5

520.25

Live cattle (cents/lb.)

CME

158.15

0.15

0.09

159.85

130.9

Cocoa ($/ton)

ICE-US

3,202

17

0.53

3,234

2,650

Coffee (cents/lb.)

ICE-US

178.35

1.75

0.99

220.6

116.7

Sugar (cents/lb.)

ICE-US

17.06

0.1

0.59

18.91

15.72

Cotton (cents/lb.)

ICE-US

66.23

-1.85

-2.72

84.74

65.66

Rapeseed (euro/ton)

LIFFE

327.75

-1.5

-0.46

386

301

Cocoa (pounds/ton)

LIFFE

1,944

6

0.31

1,952

1,651

Robusta coffee ($/ton)

LIFFE

2,034

41

2.06

2,216

1,568

Sweden

OMX Stockholm

454.54

2.11

0.47

7.3

17.6

Switzerland

SMI

8637.01

31.91

0.37

5.3

9.8

Copper ($/lb.)

COMEX

3.263

0.056

1.75

3.3855

2.878

Gold ($/troy oz.)

COMEX

1294

-12.5

-0.96

1,390.80

1,207.00

Turkey

BIST 100

83824.65

970

1.17

23.6

13.3

U.K.

FTSE 100

6821.46

23.31

0.34

1.1

3

ASIA-PACIFIC

DJ Asia-Pacific TSM

1532.23

-1.59

-0.1

5.8

10.1

Australia

SPX/ASX 200

5587.8

11.1

0.2

4.4

11

China

Shanghai Composite

2105.06

26.57

1.28

-0.5

4.2

Hong Kong

Hang Seng

24141.5

169.63

0.71

3.6

10.2

India

S&P BSE Sensex

26271.85

124.52

0.48

24.1

32.7

Japan

Nikkei Stock Average

15284.42

-44.14

-0.29

-6.2

Silver ($/troy oz.)

COMEX

20.41

-0.585

-2.79

22.16

18.65

Aluminum ($/ton)*

LME

2,030.50

-8.5

-0.42

2,039.00

1,686.50

Tin ($/ton)*

LME

22,200.00

40

0.18

23,770.00

21,410.00

Copper ($/ton)*

LME

7,070.50

5.5

0.08

7,422.00

6,430.00

Lead ($/ton)*

LME

2,210.50

-15.5

-0.7

2,242.00

2,033.00

Zinc ($/ton)*

LME

2,366.00

-4

-0.17

2,370.00

1,948.00

Nickel ($/ton)*

LME

19,065

65

0.34

21,100

13,425

Crude oil ($/bbl.)

NYMEX

101.94

-1.18

-1.14

106.64

88.93

Heating oil ($/gal.)

NYMEX

2.8798

-0.0059

-0.2

3.0848

2.8405

5

RBOB gasoline ($/gal.)

NYMEX

2.8199

-0.0189

-0.67

3.0732

2.6607

NYMEX

3.843

0.067

1.77

4.885

3.759

Singapore

Straits Times

3353.89

13.19

0.39

5.9

3.7

Natural gas ($/mmBtu)

South Korea

Kospi

2026.62

-1.7

-0.08

0.8

6.1

Brent crude ($/bbl.)

ICE-EU

107.12

-0.91

-0.84

115.09

102.75

Gas oil ($/ton)

ICE-EU

888.5

-2

-0.22

949.25

874

AMERICAS

DJ Americas

501.88

0.75

0.15

7.8

17.5

Brazil

Bovespa

57895.64

475.68

0.83

12.4

19.7

Mexico

IPC

44405.21

206.2

0.47

3.9

8.7

Exchange Legend: CBOT: Chicago Board of Trade; CME: Chicago Mercantile Exchange; ICE-US: ICE Futures, U.S.MDEX: Bursa Malaysia, Derivatives Berhad; LIFFE: London International Financial Futures Exchange; COMEX: Commodity Exchange; LME: London Metals Exchange; NYMEX: New York Mercantile Exchange; ICE-EU: ICE Futures Europe *Data as of July 23, 2014

COMMENTARIAT

VM | Monday, July 28, 2014 | Issue 003

7

RESEARCH

CORPORATES

Like Christmas, everyone looks forward to earnings season with excitement, and like it, most people feel underwhelmed at the end of the day. According to Ayodeji Ebo, head of research at Afrinvest, ‘the second quarter earnings scorecards have been mixed overall with a few impressive performances.’

Investment Banking Outlook

The end of cheap money for Zenith Bank?

A few months ago, an executive director at a second-tier bank quipped that the days of ‘advantageous funding by the golden three is coming to an end.’ Those three are First Bank, GT Bank, and Zenith Bank. It looks like his prophesy is coming true. Analysts at Chapel Hill Denham write that while ‘a low funding cost has historically been a major strength of Zenith, its first half results were challenged by high funding cost.’

The bank’s funding costs has risen from 3.8 per cent in H1 2013 to 4.2 per cent in the latest reporting period.

Add to this a ‘moderate op-

Peter Amangbo, CEO, Zenith Bank

erating income growth’ and ‘concerns about the interest spread on the back of costly time deposits and borrowed funds.’ Its net interest spread was 5.6 per cent set against 6.6 per cent in the first half of 2013. The analysts rate Zenith Bank’s asset quality an A, describing it as ‘enviable, despite robust loan growth.’

While gross loans grew by 29.1 per cent, impairment charges fell by 18.3 per cent to N2.9 billion from N3.6 billion in the same period last year. They place a HOLD recommendation on the bank’s stock, and set a target price of N25.17 on it.

its second quarter sales revenues, which is up 5.1 per cent on first quarter figures.

One number to watch is the company’s rising cost of sales. The company in which Holland-based Heineken N.V. owns a 54.09 per cent

Primus inter pares

stake recorded a 5.8 per cent rise in cost of sales to N71.35 billion. One consolation is its efficiency drive is showing results. Operating expenses at the Iganmu-based company increased by only 1.1 per cent.

The crystal ball One week from now, FBN Capital will publish its monthly Purchasing Manager Index (PMI). The index, which is released at the beginning of each month, is an eagerly watched indicator of business and consumer confidence. The survey in-

dicates companies’ views on core variables in their business. Matched with the company results being released it should give investors a good idea of what to expect in the third quarter.

Purchasing managers have three response choices to the

On July 23, Toyin Sanni, managing director of UBA Capital, an investment bank, was a guest on CNBC Africa to discuss the outlook for investment banking in the second half of 2014. When asked by CNBC’s Esther Ugbodaga to name the defining transaction of the first half she did not hesitate to mention Seplat. The company raised $500 million in April in a dual Lagos-London listing.

She opined that there would be interest in that kind of issuance going forward.’ Her interviewer did not follow up

questionnaire: better, unchanged or worse than the previous month. Under the adopted methodology, 50 indicates a neutral reading.

Higher scores suggest that the manufacturing economy is expanding.

In the past week the Nigerian Stock Exchange has released a raft of new and draft rules for both dealing members and quoted companies.

One of these, a Premium Board, deserves all the attention it can receive. The idea is to create an aspirational listing category for companies that meet stringent corporate governance, capitalisation and liquidity standards. Requirements for eligibility include a minimum score of 70 per cent on the NSE and the Convention for Business

Integrity’s Corporate Governance Rating System (CGRS), have a consistent market capitalization that is equal to or in excess of $1 billion prior to admission to the Premium Board, and have a minimum free float of 20% or value of shares floated is equal to or above US$1 Billion and the number of shares representing its issued share capital is equal to or above 10 billion unit. This would effectively create a new and visible set of NSE champions that would become its show-

60

March 2014 April 2014 May 2014 June 2014

50

40

30

Output

Workforce

New Orders

Delivery Times

Stock of Purchases Source: FBN Capital

case companies. It would also give investors the assurance of liquidity in addition to other benefits. However, three concerns are that these issuers may suck up all the liquidity in the market when they do offerings, it may lead to a discount for companies not on the Premium Board, and inversely, it could cause an undeserved premium, no pun intended, for those on it.

This good initiative must not be allowed to turn into a case of the rich getting richer and the poor getting poorer.

Flash Crash on the NSE

FBN Capital Manufacturing PMI readings (50 = neutral) 70

for the market, and a welcome development.’

She was asked about the extent of contribution by Nigerian investment banks to infrastructure development.

Right off the bat she responded that they have ‘supported infrastructure development tremendously.’ She listed UBA Capital’s role in arranging financing for the power sector privatization, and state governments as two areas where the firm’s efforts touch the lives of average Nigerian citizens. She did admit that there is still ‘a lot of room for investment banks to do more.’

In parting, the managing director said she was bullish about power, construction, real estate, and agribusiness.

Each of these sectors, in her opinion, hold attractive opportunities if companies and investors can navigate the challenges with the guidance of the right investment bank.

REGULATION

The shine, shine bobo maintains lustre Analysts at Dunn Loren Merrifield write that Nigerian Breweries fell short of the investment bank’s quarterly sales forecast of N75.47 billion by 3.9 per cent. The drinks company reported figures of N72.52 billion in

Toyin Sanni, managing director, UBA Capital

on this to allow her expatiate on exactly what kind of issuance she meant. Would the characterization be based on size, sector, dual listing, pedigree of sponsors, or assets?

She did say that the market response was ‘very encouraging’.

She was cautious about investor appetite for new listings and thought it early to call an end to the drought of new issues. There are still concerns about the depth of liquidity on the NSE, and whether investors can soak up several issues at this time, she said. She was not convinced that investor apathy, especially among the general public has been overcome, although institutional investors are more enlightened.

Sanni was optimistic about the bill to compel companies to list on the NSE. This would create a queue of listings that would boost the market. She said the law would be ‘good

Less than a year after it was rolled out, X-GEN, the trading platform of the Nigerian Stock Exchange failed on Thursday, July 24. This was due to ‘network challenges’ according to Nwando Ajene, The Exchange’s head of corporate communications. At its launch, the platform, which cost the $10 million was billed as ‘potentially the fastest in Africa.’

By afternoon the problem

was fixed but the damage had been done.

Stockbrokers have complained about the lost income and opportunities the crash caused investors. Average daily trading on the NSE ranges from N3 billion to N3.5 billion. This being the peak of the earnings season, a few have whispered that the crash may have been due to sabotage. A new dimension to conspiracy speculation

about possible causes was introduced by Sunny Nwosu, national coordinator of the Independent Shareholders Association of Nigeria (ISAN), who was reported to have threatened that ‘investors would seek redress if the non-trading was as a result of power tussle by NSE management.’

Ade Ewuosho, the NSE’s head of market operations, explained that trading was extended from 2:30 p.m. to 3:15 p.m. to enable brokers make up for the lost time. The market needed no prodding.

On Friday, investors traded a total of 453.1 million units of stocks worth N8.7 billion.

The inconvenient truth is that complex technology being complex technology would occasionally suffer outages of this kind. It is in the nature of the beast. The NSE deserves commendation for fixing the problem in record time.

8

RESULTS REVIEW

VM | Monday, July 28, 2014 | Issue 003

EARNINGS GLANCE TRANSNATIONAL CORPORATION OF NIGERIA PLC 6M:2014 Result - Financial Highlights (NGN Billion) Statement of Y-o-Y 6M2014 6M2013 FY2013 Comprehensive Income Growth Gross Revenue 21.2 7.7 175.3% 18.8 Cost of Sales (6.2) (1.7) 264.7% (4.4) Gross profit 15.0 6.0 150.0% 14.3 Other Operating 0.9 2.6 -65.4% 5.1 Income OPEX (7.8) (5.0) 56.0% (9.2) PBT 8.0 3.6 122.2% 9.0 Taxation (1.1) (1.1) 0.0% (2.0) PAT 6.9 2.5 176.0% 6.9 Per share data TRANSCORP Current Price 5.70 Trailing EPS 0.29 Book Value Per Share 2.4 Price multiples/Ratios Shares 38.7 Outstanding(bn) Trailing P/E 19.5x P/BV 2.4x RoAE (Annualised) 12.7% RoAA (Annualised) 7.3% Gross Profit Margin 70.8% NET Margin 32.5% OPEX Margin 36.8% Cost of Sales Margin 29.2% Leverage 2.1 Statement of 6M2014 FY2013 Growth Financial Position Inventories 1.6 1.4 14.3% Trade and Other 24.2 8.4 188.1% Receivables Cash and Cash 4.2 9.2 -54.3% equivalents Total Assets 158.2 149.5 5.8% Total Equity 91.7 86.7 5.8% Total Borrowings 43.2 43.1 0.2% Total Liabilities 66.5 62.8 5.9%

CEMENT COMPANY OF NORTHERN NIGERIA PLC 6M:2014 Result - Financial Highlights (NGN Billion) Statement of Y-o-Y 6M2014 6M2013 FY2013 Comprehensive Income Growth Gross Revenue 9.4 8.8 6.6% 15.8 Cost of Sales (5.7) (5.7) -0.6% (10.8) Gross profit 3.7 3.1 20.1% 5.0 Other Operating 0.0 0.6 -95.0% 0.7 Income OPEX (1.4) (2.4) -43.2% (3.6) PBT 2.3 1.2 90.8% 2.0 Taxation 0.7 0.4 90.8% (0.6) PAT 1.6 0.8 90.9% 1.4 Per share data CCNN Current Price 13.27 Trailing EPS 1.71 Book Value Per Share 7.8 Price multiples/Ratios Shares 1.3 Outstanding(bn) Trailing P/E 7.8x P/BV 1.7x RoAE (Annualised) 22.9% RoAA (Annualised) 13.2% Gross Profit Margin 39.2% NET Margin 16.9% OPEX Margin 14.7% Cost of Sales Margin 60.8% Leverage 9.3 Statement of 6M2014 FY2013 Growth Financial Position Inventories 6.5 6.0 7.5% Trade and Other 0.9 0.8 16.7% Receivables Cash and Cash 2.5 1.1 124.8% equivalents Total Assets 17.6 15.1 17.1% Total Equity 9.8 9.1 7.8% Total Borrowings 1.0 0.9 23.4% Total Liabilities 7.9 6.0 31.4%

SEPLAT PLC 6M:2014 Result - Financial Highlights (NGN Billion) Statement of Y-o-Y 6M2014 6M2013 FY2013 Comprehensive Income Growth Gross Revenue 60.3 65.1 -7.4% 137.1 Cost of Sales (21.9) (26.3) -16.7% (51.5) Gross profit 38.4 38.8 -1.0% 85.6 Other Operating 2.1 0.2 950.0% 0.4 Income OPEX (16.4) (6.4) 156.3% (14.7) PBT 24.2 32.7 -26.0% 71.2 Taxation (14.4) -100.0% (14.4) PAT 24.2 47.1 -71.8% 85.7 Per share data SEPLAT Current Price 675.05 Trailing EPS 113.50 Book Value Per Share 373.6 Price multiples/Ratios Shares 0.6 Outstanding(bn) Trailing P/E 5.9x P/BV 1.8x RoAE (Annualised) 44.9% RoAA (Annualised) 24.1% Gross Profit Margin 63.7% NET Margin 40.1% OPEX Margin 27.2% Cost of Sales Margin 36.3% Leverage 2.1 Statement of 6M2014 FY2013 Growth Financial Position Inventories 10.0 3.7 170.3% 6.7 Trade and Other 60.0 81.9 -26.7% 63.9 Receivables Cash and Cash 90.1 4.5 1902.2% 26.4 equivalents Total Assets 351.4 169.3 107.6% 202.6 Total Equity 206.7 73.0 183.0% 111.5 Total Borrowings 97.6 46.5 109.8% 48.4 Total Liabilities 144.7 96.3 50.3% 91.1

ZENITH BANK PLC 6M:2014 Result - Financial Highlights (NGN Billion) Statement of Y-o-Y 6M2014 6M2013 FY2013 Comprehensive Income Growth Gross Earnings 184.0 171.0 7.6% 351.4 Interest Income 140.0 128.0 9.4% 260.1 Interest Expense (49.0) (37.0) 32.4% (70.8) Net Interest income 91.0 91.0 0.0% 189.3 Impairment charge for (3.0) (4.0) -25.0% (11.0) credit losses Net Fees and 26.0 24.0 8.3% 52.5 Commission Income Other Operating 19.2 10.6 81.1% 22.7 Income OPEX (75.1) (70.4) 6.7% (147.2) PBT 57.9 54.1 7.0% 110.6 Taxation (10.4) (8.7) 19.5% (15.3) PAT 47.4 45.4 4.4% 95.3 Per share data ZENITHBANK Current Price 25.00 Trailing EPS 3.10 Book Value Per Share 15.7 Price multiples/Ratios Shares outstanding(bn) 31.4 Trailing P/E 8.1x P/BV 1.6x RoAE (Annualised) 19.4% RoAA (Annualised) 3.1% Net Interest Margin 8.6% (Annualised) Cost of Funds 3.6% (Annualised) Cost to Income 56.4% Loan to Deposit Ratio 60.1% Net Margin 25.8% Statement of 6M2014 FY2013 Growth Financial Position Cash and Bank Balances 556.4 603.9 -7.9% Total Loans and 1,386.0 1,251.4 10.8% advances Investment Securities 295.6 303.1 -2.5% Total Assets 3,203.8 3,143.0 1.9% Total Equity 492.4 509.3 -3.3% Total Deposits 2,305.0 2,276.7 1.2% Borrowings 142.1 60.2 136.0% Total Liabilities 2,711.4 2,633.9 2.9%

STANBIC IBTC HOLDINGS PLC 6M:2014 Result - Financial Highlights (NGN Billion) Statement of Y-o-Y 6M2014 6M2013 FY2013 Comprehensive Income Growth Gross Earnings 61.5 54.5 12.8% 111.2 Interest Income 34.0 30.3 12.2% 62.6 Interest Expense (11.0) (12.4) -11.1% (25.6) Net Interest income 23.0 17.9 28.4% 37.0 Credit impairment (1.4) (2.4) 59.6% (2.7) charges Non-Interest 27.3 24.1 13.3% 48.2 Income Other Operating 0.2 0.3 -34.8% 0.4 Income OPEX (29.2) (26.5) 10.2% (57.9) PBT 19.6 13.1 49.6% 24.6 Taxation (3.7) (2.9) 27.1% (3.8) PAT 15.9 10.2 55.9% 20.8 Per share data STANBIC Corporate Actions Current Price 27.50 Proposed Dividend N1.10 Trailing EPS 2.65 Book Value Per Share 11.2 Dividend Yield 4.0% Price multiples/Ratios Shares outstanding(bn) 10.0 Trailing P/E 10.4x P/BV 2.4x RoAE (Annualised) 25.3% RoAA (Annualised) 3.2% Net Interest Margin 5.4% (Annualised) Cost of Funds 4.7% (Annualised) Cost to Income 57.9% Loan to Deposit Ratio 63.3% Net Margin 25.9% Statement of 6M2014 FY2013 Growth Financial Position Cash and Bank Balances 167.3 120.3 39.1% Total Loans and 351.0 383.9 -8.6% advances Investment Securities 330.6 206.2 60.3% Total Assets 906.8 763.0 18.8% Total Equity 112.3 97.6 15.1% Total Deposits 554.4 468.0 18.5% Borrowings 63.6 48.8 30.3% Total Liabilities 794.5 665.4 19.4%

STERLING BANK PLC 6M:2014 Result - Financial Highlights (NGN Billion) Statement of Y-o-Y 6M2014 6M2013 FY2013 Comprehensive Income Growth Gross Earnings 48.7 41.9 16.2% 91.6 Interest Income 37.4 31.1 20.3% 70.0 Interest Expense (16.2) (15.9) 1.9% (34.1) Net Interest income 21.3 15.2 40.1% 35.8 Credit impairment 2.4 1.1 218.2% (8.3) charges Non-Interest na na na Income Other Operating 11.3 10.8 4.6% 21.7 Income OPEX (23.8) (18.5) 28.6% (39.9) PBT 6.3 6.2 1.6% 9.3 Taxation (0.8) (0.3) 166.7% (1.0) PAT 5.5 5.9 -6.8% 8.3 Per share data STERLNBANK Gross Earnings 48.7 Interest Income 37.4 Interest Expense (16.2) Price multiples/Ratios Shares outstanding(bn) 21.6 Trailing P/E 6.3x P/BV 0.8x RoAE (Annualised) 12.4% RoAA (Annualised) 1.1% Net Interest Margin 6.1% (Annualised) Cost of Funds (An6.1% nualised) Cost to Income 73.0% Loan to Deposit Ratio 57.8% Net Margin 11.3% Statement of 6M2014 FY2013 Growth Financial Position Cash and Bank Balances 183.4 193.1 -5.0% Total Loans and 321.8 321.7 0.0% advances Investment Securities 192.4 167.0 15.2% Total Assets 731.1 707.8 3.3% Total Equity 63.8 63.5 0.5% Total Deposits 556.3 570.5 -2.5% Borrowings 60.2 43.4 38.7% Total Liabilities 667.4 644.3 3.6%

VM | Monday, July 28, 2014 | Issue 003

BUSINESS

GOVERNANCE

9 COMPLIANCE

The Corporate Governance Compliance Imperative moves to centre stage

Soji Apampa is the co-founder of The Convention on Business Integrity, which sponsors the Corporate Governance Rating System in partnership with the Nigerian Stock Exchange.

Soji.apampa@cbinigeria.com

orporate governance is at the heart of how businesses are run. According to the Organization for Economic Coop-

C

flows has rendered ethical relativism, the doctrine that morality exists in relation to culture or society, an unsound basis for setting corporate governance standards.

Nigerian companies must decide if they want corporate governance standards that lie in the eye of the beholder or those that lie in the eye of any beholder?

There are a good number of reasons why Nigerian companies need to upgrade the basis of their corporate governance standards to match good international practice.

First, because of the high cost of capital in Nigeria, companies that seek to compete on a larger scale are seeking capital from foreign capital markets or through the participation of international investors in local mar-

Market, must comply with stricter admission and disclosure standards. Seplat, the oil company, which went public in May has successfully done so. Companies with aspirations to list there are also required to comply with the UK Corporate Governance Code or explain why they do not.

Failure to do so invites various sanctions. Therefore, to compete globally and attract the quantity and quality of capital they require to operate at that level of market access, Nigerian companies need to adopt more stringent standards of corporate governance than the domestic environment necessitates. Good corporate governance practices demonstrates to global investors that their investments will be safe and managed in their best interest.

just opened its 1oth Nigerian store in Ibadan, to associate with suppliers that do not have clear reporting and good management practices. Suppliers that pose reputational risks to their brands and ethics are unwelcome. In an age when the Internet and social media rule, the reverberations from one critical tweet or negative online review in Lagos or Lusaka can be felt in London.

Furthermore, organizations need to practice good corporate governance to guard against other risks that threaten the going concern of the organization. Such risks include the liability or asset damage that may occur if managers enter into transactions that are self-serving and destroy the value of shareholders’ equity. In extreme

Next question please. Alhaji Aliko Dangote beckons for questions at the 8th AGM of Dangote Sugar Company Plc.

erative Development (OECD), ‘corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders’. Corporate governance, broadly speaking, includes board efficiency, transparency, reporting requirements, investor communications and sustainability.

Corporate governance standards in an organization are typically based on macro factors at play in the country where it operates. These include the country’s legal and financial system, ownership structures, and cultural, economic and political realities. In Nigeria, where corruption is rife and endemic, corporate governance practices are usually lax.

However, current economic realities like the globalization of capital

Businesses in Nigeria have to move beyond mouthing the buzzword of corporate governance to adopting sound corporate governance practices. It makes good business sense to do so. kets. Given the mainstreaming of corporate governance issues, financial markets all over the world have instituted either mandatory or recommended codes to guide the conduct of publicly quoted companies.

Till date, there are 7 Nigerian companies listed on the London Stock Exchange.

Although some are on the Alternative Investment Market (AIM), the LSE’s growth market, which has fewer guidelines, those companies who wish to be listed on the Main

It is not only the big companies that can benefit from adopting good and internationally acceptable corporate governance practices.

Small- and medium-sized enterprises (SMEs) stand to benefit as well. For example, it can win them entry to the value chain of multinational companies or even big local companies that demand similar standards from their business partners. For example, it will constitute a reputational risk for a big international brand like Shoprite, which

cases, it could lead to a loss of trust from customers that may lead to product boycotts and in the case of a bank, a run. Setting high governance standards is a business sustainability necessity because even codified global corporate standards usually constitute the minimum acceptable standard and may be insufficient.

In sum, good corporate governance is germane to the going concern of an organization because it determines the strategic direction of the firm in terms of the mission and values, culture, risk management and processes.

Businesses in Nigeria have to move beyond mouthing the buzzword of corporate governance to adopting sound corporate governance practices. It makes good business sense to do so. ;

Central banks are clamping down on financial institutions that abet money laundering.

one of her last acts as the acting governor of the Central Bank of Nigeria, Dr. Sarah Alade directed all banks and discount houses in the country to ensure that no chief compliance officer is below the grade of general manager. The apex bank also insisted that the officer who heads the function reports to the institution’s board with dotted lines in the org chart to the chief executive. On July 21, the Nigerian Stock Exchange also issued its Rules Governing Compliance Officers at Dealing Firms. It asked stock broking firms to ‘sufficiently empower Compliance Officers and prescribe ways of ensuring that they are adequately protected to effectively carry out their duties.’

These point to a recognition that the role of compliance chief requires both technical credibility, and importantly, managerial seasoning that only experience, and seniority within organization can confer. There is no use appointing novices who lack the organizational clout to command the CEO’s attention.

A general description of the responsibilities of compliance departments would fall into three categories namely the identification and analysis of rules guiding the financial institution’s operations, the design and implementation of adequate controls to ensure compliance with extant rules, and finally, oversight functions as regards the effectiveness of controls-in-place. The main focus of the compliance function is to ensure that banks, discount houses, issuing houses and stock broking firms do not serve as conduits for ill-gotten funds, and monies intended for anti-social purposes.

It is naïve to think that the grade of general manager by itself would give CCOs the legitimacy and authority to sway corporate behaviour. It is vital that in the upper echelons of these financial institutions

In

Source: thesecuritiesedge.com

the compliance, risk management, and control functions receive sufficient resources to perform their jobs without let or hindrance, and that their authority is enshrined in the corporate structure.

According to Donna Boehme of Compliance Strategists, ‘just throwing the CCO out there with a badge and a title is not enough to make a programme work. The business will not simply ‘get in line’ just because the CCO asks it to do so. Boards and senior management need to take further action to empower their CCOs and programmes, and part of that is realising that the business ‘owns’ compliance, not the CCO.’ This is true. Of equal importance as the officer’s grade is the budget at his disposal and the staffing of the department.

In Europe, for example, Andy Haldane, head of financial stability at the Bank of England, has estimated that banks in the EU area will need to go on a hiring spree to the tune of 70,000 new jobs to meet the demands of Basel III. Generals need foot soldiers to prosecute wars.

Weak compliance can be ruinously expensive. In the US, JP Morgan has been fined $20 billion in the past year alone for various infractions, and only last month, Credit Suisse was penalized with $2.5 billion for straying from the law in the tax shelters it set up for its wealthy clients. BNP Paribas SA, the French bank has been fined $8.9 billion for breaking U.S. trade sanctions on Cuba, Iran, and Sudan. These are not mere slaps on the wrist.

Therefore, it comes as little surprise the importance that the Nigerian central bank and NSE are attaching to compliance, and those charged with discharging roles in that function. It does remain to be seen whether these institutions will follow both the letter and the spirit of the law in the altitude and latitude given CCOs. ;

10

ARENA

VM | Monday, July 28, 2014 | Issue 003

ART AS AN ALTERNATIVE INVESTMENT

The growing market for African photography

Oliver Enwonwu is the director of leading Lagos gallery, Omenka and president of the Society of Nigerian Artists. oliver@omenkamagazine.com

is no longer news that photography has become an acceptable and collectable genre of the visual arts, thus overcoming the skepticisms that it is created by mechanical means and easily replicated, underscoring issues of exclusivity. African photographers continue to be at the center of global attention with

It

their works featuring prominently at notable international fairs and in exhibitions at major museums.

Recently on view at leading London-based auction house, Bonhams, is The Nigerian Centenary Photography exhibition, dedicated to celebrated Nigerian photographer, ‘Okhai Ojeikere who passed on early this year. Indeed, several international auction houses feature prominently, modern and contemporary African photography through the work of early pioneers like Malick Sidibe’, Seydou Keita and Ojeikere, as well as mid-career artists and emerging names such as Raphael Leonce Agbodjelou, Mario Macilau, Gideon Mendel, Sammy Baloji, Samuel Fosso, George Osodi, Uche James-Iroha, Ade Adekola and Francois-Xavier Gbré. In October 2012, prestigious British auction house, Christies, in its Paris auction themed Rendez-vous Interieurs con-

temporains included a work

by Sidibé from Mali, Le deux amis (1971) which was sold for €3,250 from a starting estimate of € 2,500.

This article sheds light on this growing interest in photography as a collectable medium with particular focus on Africa. Many experts advise that now may be a good time to collect photography from the continent as the success of the market may be attributable to its affordability and undervaluation.

The Auction Room is an online auction house based in London. An analysis of its October auctions of contemporary African art reveals that the majority of lots entered were sold approximately 20% above their initial estimates. This includes notable photographs like; A Woman Recovers Building Materials from Her Shack That Had Been Burnt Down the Previous Day (1986)

by South African artist, Gideon

Mendel with a pre-sales estimate of £2,000 that was sold for £2,350; Hercule Africain (1970) by Sidibé with a presales estimate of £2,000 and sold for £2,233; and A Young Girl with Toy (2011) by Mario Macilau from Mozambique, estimated at £1,000 and sold for £1,310. This continued success of African photography on the international market has led to the establishment of the world’s first African Contemporary Photography Auction by the auction house.

Arguably, photography’s first inclusion on the Nigerian secondary market was at the Arthouse Contemporary sale in Lagos of May 9, 2011, where the single work sold, Argungun by George Osodi fetched the sum of N605, 000 ($ 3,781.25). The November 21 sale, the same year also featured photography with 3 works offered. Again, a single work, Beating Room by Adolphus Opara was sold for N396,000 ($ 2,475).

A Young Girl with Toy (2011) by Mario Macilau from Mozambique

With a 100 per cent success sales rate, the May 2012 sale is perhaps Arthouse’s most successful inclusion of photography till date. The 6 works offered realized a total sum of N3,740,000($23,375) with the top-selling photograph on the evening, Adekola Adeleke’s The Charge, sold for N2,200,000 ($13,750), establishing a record for the artist. Yetunde Babaeko also set a personal record at N220,000 ($1,375), with The Pretty Stranger Who Killed the King I, selling above a pre-sale estimate of N150,000N180,000 ($ 937.5 -1,125).

The November 2012 auction

by Arthouse Contemporary recorded a dip in sales from photography as only N2, 123,

000 ($13,268.75) was achieved with a 50 per cent success rate as only 4 of the 8 works offered sold. The highest sold photograph was George Osodi’s Eyo at N1,320,00 ($8,250) which established an individual best.

However, the auction house’s sale of May 13, 2013 recorded another 100% sale. The 3 contemporary photographs offered, collectively achieved N3,366,000 ($21,037.50, including premium) against a presales estimate of N2,280,0002,920,000 ($1,425-1,8250).

Hopefully, these early successes recorded for photography will boost confidence in collectors to accept the medium’s potential investment value. ;

HIGH TABLE

Tastes like success

Ify Oji is a lawyer, writer and food lover. She is the creator of the GidiTang.com (synonym: Lagos Flavour) blog on food and drink in Lagos. teamlogiclimited@gmail.com

size of the Nigerian market and its economic potential is palpable. One index of rising affluence is the domestic consumption of Scotch whisky.

According the Scotch Whisky Association, exports to Nigeria increased by 43% in 2013. This demand is attributed to a growing and sophisticated middle class. Last year, sales of Scotch whisky generated almost $6 billion dollars in revenue from

The

imports. These figures sparked my curiosity about Scotch and other types of whiskies piques.

I have always associated Scotch whisky with success. An investment banker friend used to recount stories of deal closings celebrated by drinking rare bottles of Scotch. But until recently, my knowledge was limited to the odd bottle of Johnnie Walker in the cupboard of most Nigerian homes. I was familiar with brands like Dewars, Glenmorangie and Glenlivet that have made efforts to increase their visibility in Nigeria. I have since learnt that there are many varieties of Scotch. For as many varieties are there are of Scotch whiskies there are different tastes and preferences by drinkers. My journey to unlock the mysteries of Scotch’s appeal is an adventurous one.

For starters, I will demystify the terms. We have all heard of whisky, Bourbon, and Scotch.

An American friend, who is a whisky enthusiast helped me draw the distinctions. I enlisted him as my first tutor. He explained that whisky is the collective term for Bourbon,

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Scotch, Canadian rye, and Irish whiskey. It is an alcoholic beverage distilled from fermented grain mash that has been aged in wooden casks. Each type of whisky differs in its production. Bourbon, for example, is distilled from corn mash and largely associated with the US state of Kentucky. A famous but reluctant brand of bourbon is Jack Daniels. I deduce its reluctance because the BrownForman Corporation, owners of the label, refuse to market it as bourbon. Instead, they maintain that it is ‘Tennessee Whisky’. Here is an interesting fact.

Jack Daniels is manufactured in Lynchburg, Moore County, Tennessee. This is one of the few ‘dry counties’ in the United States, a relic model of the Prohibition era. Most towns in the US are ‘wet’ due to the Twenty First Amendment repeal in the country’s Constitution. Therefore, even though the county manufactures a healthy proportion of the Bourbon consumed in the US, drinkers cannot buy Jack Daniels in the county where it is produced. My tutor finds this irony hard to contain

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and bursts into extended fits of laughter at the retelling. I conclude that his whisky consumption aids in the longevity of his laughter.

After learning about Bourbon, I move on to Scotches, the reason I am writing this article. As mentioned earlier I have never really been a spirits drinker. To fill the void of knowledge I surround myself with the most passionate people on the subject to get a better insight.

None are more passionate than the Scots. An invitation to the Lagos Caledonian Society’s Chieftain’s Ball gives me the opportunity to investigate further. Here I find my second tutor. A little background of the Caledonian Society Balls is in order. The Society holds three balls each year. These are considered the cornerstone of the expatriate social scene in Lagos. The Chieftain’s Ball is the least attended because it falls during the summer vacation when most families are away on holiday. This works in my favour because my tutor while waiting for guests

Macallan makes some of the most storied single malt Scotch whiskies Source: Rockstarcocktails.com

to turn up spends a disproportionate amount of time teaching me about Scotch. He takes pride in explaining that Scotch is more regulated than champagne. It turns out that he is correct evidenced by the Scotch Whisky Regulations 2009. My tutor explains that Scotch whiskies are mostly made from malted barley. He pours a ‘wee dram’ of whisky puts in a few drops of water to “unlock the flavor” and further explains the difference between single malt scotch whisky and blended grain scotch whisky, offering me a single malt scotch to sample. Actually, I sample three: Glenlivet (18-year old), followed by a sip of Bowmore (12-year old), and

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topped off by a sip of Glenmorangie (12-year old). The key distinctions between the three are negligible to my developing palate. The clearer distinction is between the single malt and blended grain Scotch whisky which is less intense and probably more commercial.

At the end of his tutelage, he and his wife begin another session and teach us different Scottish reels (group dances).

Nearly all invited guests participate in this. After the Gay Gordons, a popular Highland dance, I summarize that reeling and scotch are not necessarily the best combination and retire early eager to write this article.

This water of life literally took the life out of me. ;

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