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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