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Tag: RenCap

  • RenCap: multiple exchange rate stays despite who leads CBN

    The Central Bank of Nigeria (CBN) will retain its multiple exchange rate policy, whether the apex bank Governor, Godwin Emefiele’s tenure is renewed or a new Governor emerges, Renaissance Capital (RenCap), an investment and research firm, has said.

    RenCap’s Global Chief Economist, Charles Robertson, said that in the immediate term, ahead of the CBN governor’s term expiring on June 2, fixed income investors are probably assuming short-term currency stability.

    This, he said, is based on decent forex reserves figures over $40 billion, a current account in small surplus and high domestic interest rates.  “Our base case is that whoever the governor is, the currency will end-2019 at N395/$. We have no reason to believe that if there is a change of CBN governor, we will see an end to the multiple exchange rate regime,” he said.

    Robertson said to double Nigeria’s investment climate, the country needs to remove the implicit fuel subsidy which costs about 0.5 per cent of Gross Domestic Product, adding that such policy supports consumption and not investment.  He said that Morocco after 2012, Egypt since 2014 and even the Gulf countries are cutting fuel subsidies.

    Robertson said there is need to encourage foreign direct investment, which in 2018 fell to $2.2 billion according to United Nations Conference on Trade and Development (UNCTAD).

    He said that Ghana got $3 billion and that to match Ghana (per capita), Nigeria should be getting $24 billion a year.

    “A change of approach to MTN, the oil majors and others may be required. Boost domestic savings and bring down interest rates which will probably require a smaller budget deficit and higher taxes. Allow the currency to trade closer to fair value which we estimate today at N440/$, N470 by year-end and N670 by end-2023.   Note that in the immediate term, ahead of the CBN governor’s term expiring on 2 June, fixed income investors are probably assuming short-term currency stability, based on decent FX reserves figures (over $40 billion), a current account in small surplus and high domestic interest rates.”

    The good news is that President Muhammad Buhari has already declared his second term will be “tough” – so perhaps he will take his four million vote victory margin to push through difficult reforms. The cabinet should be in place soon after the new presidential term starts on  May 29  – unlike 2015 where it took six months. There should be less of a learning curve than we saw in 2015 to 2017″.

    “The precedent of 2015 to 2019 tells us equity investors will not assume rapid, deep reforms. Even if nationwide progress is hard to achieve, we may see localised success stories, such as in Lagos – which has the biggest adult population of any state in Nigeria, high adult literacy (over 80 per cent) and is now planning to get 3GW of electricity over the next few years (total nationwide distribution is around 4GW”.

  • RenCap announces new appointments to West Africa team

    Renaissance Capital (RenCap), an emerging and frontier markets investment bank, has appointed Adedapo Akinpelu as vice president, Investment Banking in Lagos.

    Akinpelu has over eight years’ experience, offering investment, equity capital-raising and mergers & acquisitions advisory services to businesses.

    Prior to joining RenCap, he worked with QG Investment Africa Management and was responsible for the origination and execution of private equity (direct) investments, covering healthcare & general industries investments across sub-Saharan Africa.

    He also worked at Standard Chartered Bank for over six years, where he focused on equity capital raising and mergers & acquisitions in the FMCG, agriculture, healthcare, telecoms, industrials and oil & gas space in Africa.

    He holds a degree in Accounting from the University of Lagos and has been a member of the Association of Chartered Certified Accountants (ACCA) since 2008 and a Chartered Financial Analyst (CFA) charter holder since 2011.

    He will be working in close collaboration with Renaissance Capital’s well-grounded investment banking team across the continent and wider EMEA.

    Temi Popoola, chief executive Officer, West Africa, said: “We are committed to ensuring we provide best-in-class advisory services to our existing clients and potential investors in Nigeria and across the continent. Adedapo’s extensive experience and track record makes him a perfect fit for this.”

    RenCap continues to cultivate top talents, with two recent additional hires to its West Africa team: Ayobami Oladosu in the Domestic Sales Trading Team, who joined from ARM Securities with over six years of financial markets experience, and Akinlolu Akinbola in the Domestic Trading Team, from FBN Securities with over nine years’ combined experience in the financial markets.

    The firm has been recognised by the leading industry surveys, such as Institutional Investor’s 2018 All-EMEA Research Team survey and the Extel Survey 2018, in addition to the Global Finance magazine 2018 award, in which Renaissance Capital was named the Best Bank in Frontier Markets.

     

  • RenCap: FBN Holdings not affected by CBN’s dividend payout rule

    Renaissance Capital (RenCap), a global investment bank, yesterday said FBN Holdings Plc will not be affected by the new dividend payout rule released by the Central Bank of Nigeria (CBN).

    The firm said that lenders operating holding company structures will not be restricted by the policy in dividend payment.

    In a report titled: ‘Nigerian Banks: CBN includes Additional Provision for Dividend Pay-outs’ the firm said: “Restrictions only apply to the banking entity, and not the group as FBN Holdings for instance paid out N0.20 kobo per share (51 per cent dividend pay-out) in fiscal year 2016, despite a Non-Performing Loans (NPLs) ratio of 24.4 per cent. This was paid out of the other non-banking subsidiaries within the group”.

    “Dividends paid to the shareholders are from the subsidiaries of the holding company of which the commercial banking group (FBN) currently retains in its business to build stronger capital buffers to execute strategic initiatives,” The Nation further learnt.

    The RenCap report said the CBN ban on dividend payout is not a new development as it was originally implemented on October 8, 2014 in a circular which stipulated that a bank’s ability to pay dividend is based on NPLs ratio. Banks with NPL ratios above 10 per cent shall not be allowed to pay dividend.

    It said capital position where banks which do not meet the minimum capital adequacy ratio shall not be allowed to pay dividend and Credit Risk Ratings (CRR) which are not typically disclosed by the banks.

    The revised circular however, includes an additional provision that banks that have capital adequacy ratios (CAR) of at least three per cent above the minimum requirement, CRR of “Low” and NPL ratio of more than five per cent but less than 10 per cent, shall have a dividend pay-out ratio of not more than 75 per cent of profit after tax.

    “Based on our conversations with management, we think that a 75 per cent pay -out ratio is highly unlikely.

    We note that the highest dividend pay-out ratio for the banks in our coverage universe in 2017 is 50 per cent (GTBank and Zenith). We expect the banks to take a conservative stance on dividend pay-out in light of IFRS 9 capital requirements, which could reduce CAR by as much as 150 basis points in a worst case scenario,” the report said.

    It said Zenith Plc, United Bank for Africa (UBA) and Fidelity Bank offer attractive dividend yields of seven to eight per cent based on our 2017 fiscal year estimates while GT Bank and Access Bank stand closer to five to six per cent. “Dividends will be declared with the release of fiscal year 2017 numbers, which we expect in about two weeks,” it said.

     

  • RenCap picks UBA, Access Bank as top stocks for banking sector

    RenCap picks UBA, Access Bank as top stocks for banking sector

    United Bank for Africa (UBA) Plc and Access Bank Plc have the upside potential and valuation for the highest returns in the banking sector, Renaissance Capital (RenCap) has said.

    In an investment research report titled: “Nigerian Banks: Path to Recovery”, RenCap noted that improving macro indicators points to a recovery in the Nigerian banking sector, which made the investment firm to increase its target prices for most of the stocks in the sector on the back of lower risk-free rate assumption of 13.0 per cent as against previous estimate of 14.0 per cent.

    “We believe earnings resilience will also be demonstrated by net interest margin protection. We are less concerned about the declining yield environment at Access Bank, Stanbic IBTC Holdings and FCMB Group, as we expect that improvements in the cost of funds will be more than offset asset-yield pressure. Our top picks in the sector remain UBA and Access Bank on upside potential and valuations, but we also like FBN Holdings and Stanbic IBTC Holdings, as we believe both banks have scope to report lower cost of risk in 2018. We like GTBank given the quality of its earnings, but believe that current valuations are full,” the report, anchored by Olamipo Ogunsanya stated.

    The investment firm noted that things appear to be looking up for the Nigerian economy after a challenging few years pointing out that improving macro-economic condition and high crude oil prices may lead to improvement in assets quality of banks.

    “We believe capital buffers will rise as profits improve and note that the banks are increasingly more comfortable, using an exchange rate of N330/$ – an average of the official rate and Investors and Exporters (I&E) window rate as against previous N306/$– to value their foreign currency portfolios. We take this to mean potential revaluation gains in fourth quarter 2017, which we think could offset any negative asset quality surprises,” RenCap stated.

    The investment firm, however, cautioned that the political risks might moderate performance in 2018 as Nigeria enters into election season.

    “Despite a positive macro backdrop, we believe 2018 will be a recovery story at best; earnings growth will be challenged by the declining yield environment, volatility in foreign exchange-related gains, and limited scope for cost efficiencies. Tough economic decisions are likely to be delayed till after the 2019 general elections, but the political risks that come with a pre-election year render us cautious on the recovery ahead,” RenCap noted.

    The UBA‘s board had last week approved the audited report and accounts of the bank for the year ended December 31, 2017. The directors also approved payment of final dividend for the 2017 business year.

    The bank’s Group Company Secretary, Bili Odum, confirmed the approval of the audited report and proposal for dividend payment, noting that the approved audited report has been forwarded to the Central Bank of Nigeria (CBN) for approval.

    He said the actual final dividend recommendation and the audited report would be released to the investing public after the approval by the apex bank.

    Market sources said they expected the bank to increase its dividend payout, citing the improvement in the overall performance of the bank in 2017.

    UBA had earlier paid an interim dividend of 20 kobo per share, after the audit of its 2017 half-year results. It had declared a final dividend of 55 kobo per share, in addition to an interim dividend of 20 kobo for the 2016 business year.

    Key extracts of the interim report and accounts of UBA for the nine-month period ended September 30, 2017 showed that gross earnings rose by 26 per cent while pre and post tax profits grew by 33.2 per cent and 23 per cent respectively.

    UBA’s gross earnings rose to N333.9 billion in third quarter 2017 as against N265.5 billion reported in corresponding period of 2016. Group’s operating income stood at N236.9 billion in 2017 compared with N183.3 billion recorded in the corresponding period of 2016, representing a 29.3 percent growth.  Profit before tax jumped to N78.3 billion in 2017 as against N58.8 billion recorded in the similar period of 2016. Profit after tax grew from N49.5 billion in 2016 to N60.9 billion in 2017.

    The balance sheet showed that while the group closed the third quarter with total assets of N3.77 trillion, a year-to-date growth of 7.6 per cent, the bank prudently grew net loans to N1.6 trillion, a 6.0 per cent year-to-date growth in the loan book. Group’s shareholders’ fund grew by 13.3 per cent to N507.6 billion in 2017 while the annualised return on average equity stood at 18 per cent.

    Access Bank in December 2017 launched a new five-year plan that aimed at making the bank Nigeria’s foremost in the next five years.

    The new plan is the latest in a series of transformative strategies that have resulted in sustained growth. From 2013 to November 2017, Access Bank has increased its total assets at a CAGR of 18 per cent and delivered shareholder returns of 90 per cent. The bank has also grown its customer base from 90,000 in 2002 to over 8.0 million in 2017 and in the same period opened 351 new branches.

    The new five-year strategy is expected to accelerate this growth story to position Access Bank as the leading Nigerian bank by 2022.

  • $5.5b loan: Debt service cost to rise above 62%, says RenCap

    $5.5b loan: Debt service cost to rise above 62%, says RenCap

    The Federal Government’s plan to borrow $5.5 billion through Eurobonds will raise the country’s debt service to revenue cost beyond 62 per cent, Sub-Saharan Africa Economist at Renaissance Capital (RenCap) Yvonne Mhango has predicted.

    The investment and research firm analyst said the debt service/revenue stood at 29 per cent in 2014 fiscal year, even as plans to raise additional fund in the near term imply debt service costs will rise further, albeit at a slower rate.

    In a report released to investors yesterday, titled: Nigeria: Fiscal operations in Seven-month – Capital Expenditure-Light and Debt Service-heavy, she said capital releases for the 2016 budget continued into the first quarter of this year, while public debt has increased by seven percentage points of Gross Domestic Product (GDP) since 2014.

    On the debt service/revenue, she said: “Nigeria’s debt service/revenue has risen sharply in recent years to 62 per cent as at June 2017, against 29 per cent level in 2014. This largely reflects the Federal Government’s low revenue/GDP target of four per cent this year. The Federal Government plans a $5.5 billion Eurobond issuance before year-end, 2017 as part of its efforts to lower local interest rates, by reducing domestic debt/total public debt to 60 per cent, against the over 70 per cent today”.

    Mhango said budget performance in the first seven months of this year and debt developments showed there were no capital releases for the 2017 budget, because it was passed late. She said the Federal Government’s 2017 budget of N7.4 trillion was 6.2 per cent of GDP, and was signed by the executive, after being passed by the Senate in May.

    Of this, N3.1 trillion (2.5 per cent of GDP) was spent in seven months. “Expenditure in seven month was 30 per cent below the (pro-rata) target and was entirely made up of recurrent spending. There were no capital releases from the budget because of its late approval.” she said.

    Mhango said revenue came in on target, at N2.6 trillion (2.1 per cent of GDP) because of a one-off refund from the Paris Club. “When this is stripped out, there was a 20 per cent shortfall in revenue. Below-target spending – due to delayed capital releases – explains the small budget deficit for seven month of 0.8 per cent of GDP, by our estimate, as against the 1.5 per cent (pro-rata) target,” she said.

    She disclosed that the federation account revenue was one-third below target, and that three-quarters of the FGN’s planned revenue for this year is expected to come from the Federation Account, of which two-thirds will stem from oil revenue.

  • RenCap: economic stability returning to Nigeria

    RenCap: economic stability returning to Nigeria

    A financial management firm, Renaissance Capital, has said Nigeria’s economy is gradually returning to stability.

    The firm, which met with corporates across the banks, consumer and building materials space during its Eighth Annual  Pan-Africa 1:1 Investor conference in Lagos between May 10 and 11, said return of stability to the economy was the common theme.

    In the summary of the report released at the weekend, it explained that banks have started seeing ‘green shoots’.

    Renaissance Capital said banks believe the economy is past the worst of what one described as “the most severe downturn in 25 years”.

    One of the big themes was the  improvement in foreign exchange (FX) liquidity, which allowed for the unwinding of some outstanding obligations.

    The report reads: “Trade facilities and velocity increased as a result, according to one bank. During the height of the FX shortages, trade cycles lengthened to 12 months, from a typical four-to-six months. The trade cycle is now contracting. Banks are cautiously optimistic about the Investors and Exporters (I&E) FX window. One bank thinks it is a tacit devaluation and precursor to a more liberal FX policy. Another sees the FX rate settling at N370-400/$1. Banks see little incentive to lend with Treasury yields in the 20s. Non-performing loans (NPLs) tend to lag the economy, according to one bank. It estimates that there is 18 months to go of high NPLs and downside surprises. Retail transactions that fell, when households cut spending, have yet to pick up.

    “That said, banks believe things are getting better. In the short term, they see opportunities in manufacturing, agriculture and infrastructure. They are steering clear of the oil & gas, and haulage sectors. One bank thinks the nascent recovery is led by an improvement in the oil sector, and fears that if it is not sustained by structural reform, it will be fragile. The banks’ biggest concern is regulatory changes.”

    The firm, however, said consumers will remain under stress for a while, adding that consumer companies think the fundamentals of the micro-economy – consumers and businesses – have not changed. It said the consumers are still very stressed, unemployment high and inflation elevated. It added that consumers have reduced the frequency of purchases, found substitutes and traded down.

    According to the report: “One consumer company shared with us the example of a middle-income mother buying smaller sachets of a product, when she can afford a larger pack. Her argument was that in these challenging times, she can control consumption more easily in her household with sachets. Lower income mobile subscribers are reacting to high inflation by dropping from two subscriber identity module (SIM) cards to one, according to a telecoms company.

    “Tight FX liquidity led to some companies delaying capex. Some consumer companies cannot pass on the cost of FX to the end consumer. Even those with a relatively larger share of locally sourced raw materials told us that its pricing is still impacted by FX. The companies see stability returning. That said, the consensus was that consumers are likely to remain under stress for a while,” the firm said in the report.

  • RenCap names sub-Saharan Africa consumer research team

    RenCap names sub-Saharan Africa consumer research team

    Renaissance Capital (RenCap) has announced the appointment of Adedayo Ayeni to its sub-Saharan Africa research team.
    Ayeni joined the firm to oversee its industrial and consumer coverage in the sub-Saharan Africa universe, working in close collaboration with the already strong Renaissance Capital analyst team across the continent.
    He reports to Michael Harris, Head of Research, and Temi Popoola, Chief Executive Officer for Nigeria. Ayeni has over seven years’ experience of analysis across the Sub-Saharan Africa consumer sector, and has been ranked by Bloomberg among the top analysts covering leading regional companies.
    Prior to joining RenCap, he spent over a year at Banco Português de Investmento (BPI) Capital Africa in Cape Town as an Equity Research Analyst, where he covered regional cement producers and the broader consumer sector.
    Previously, he was at CSL Securities for over four years, where he was instrumental in building up the consumer franchise, as well as initiating the company’s coverage of the palm oil industry. Before this, Mr. Ayeni was Senior Economic Research Analyst at Financial Derivatives, an economic research and consultancy company based in Lagos. He holds a degree in Economics from Babcock University and an MBA from the Lagos Business School.
    Temi Popoola, Chief Executive Officer for Nigeria, commented: “We are very pleased that Adedayo has joined our Sub-Saharan Africa team. His extensive experience and insight into the regional consumer and industrial sectors will ensure that our analysis remains at the forefront of Sub-Saharan Africa research. This appointment illustrates Renaissance Capital’s ongoing commitment to enhancing its Sub-Saharan Africa client offering.”

  • Rencap, CSL Stockbrokers place 100% return on UBA

    Leading investment pundits at Renaissance Capital and CSL Stockbrokers have described United Bank for Africa (UBA) Plc as a very attractive stock with potential to generate returns of more than 100 per cent within a 12-month period.

    Renaissance Capital and CSL Stockbrokers placed their “buy” sticker on UBA, underlining the attractiveness of the stock in spite of the general downtrend at the stock market. Renaissance Capital indicated that UBA could reach a price of N9.40 per share while CSL Stockbrokers, a member of FCMB Group, stated that UBA could trade at N7.21 per share. On the average, analysts’ consensus placed target price of N8.50 per share for UBA for the 2016 business year. UBA’s share price opened today at N4.60 per share.

    The investment case for UBA followed its strong financial performance in the first quarter of 2016 as well as its improved transparency and disclosure, which are now seen as benchmarks for Nigerian banks. Reflecting investors’ conviction in the strong fundamentals of the bank and the appetite for the stock, the share price had already gained 39 per cent so far in 2016 to rank as one of the best performing stocks on the Nigerian Stock Exchange (NSE).

    At N4.60 per share today, analysts hold that UBA still trades at significant discount to the intrinsic consensus valuation of the bank. UBA has maintained an average return on equity of over 20 per cent in the past three years, bucking the challenging economic environment and dwarfing peer performance track.

    The bank paid interim dividend of 20 kobo and final dividend of 40 kobo, bringing total dividend for the 2015 business year to 60 kobo.

    Market analysts at the weekend said they expected the first half report of the bank to be audited in line with UBA Group’s governance culture of auditing results twice in a year. UBA is audited by PricewaterhouseCoopers, one of the four global audit firms.

    Key extracts of the audited report and accounts of UBA for the year ended December 31, 2015 showed that gross earnings rose by 10 per cent while profit after tax grew by 25 per cent. On the back of the improved earnings, the bank paid a final dividend of 40 kobo per share, bringing the total dividend payout per share to 60 kobo or N21.77 billion.

    UBA Group’s gross earnings closed 2015 at N314.83 billion as against N286.62 billion recorded in 2014. Profit before tax rose from N56.20 billion to N68.45 billion. Profit after tax also increased from N47.91 billion to N59.65 billion. Earnings per share thus improved from N1.53 in 2014 to N1.79 in 2015.

    UBA’s investment outlook has also been strengthened by Fitch International, one of the foremost global rating agencies, and Augusto & Co, a leading Nigerian rating agency, which scored the bank high on its fundamentals.

  • Naira to exchange for N390/$ by December, says RenCap

    Naira to exchange for N390/$ by December, says RenCap

    •Capital flow expectations dampened

    The woes of the naira will worsen in the coming months, with the local currency expected to exchange for N390 to dollar by year-end, report by Renaissance Capital (RenCap), an international investment and research firm, has said.

    The Central Bank of Nigeria (CBN) yesterday sold $7 million at N283 to the dollar on the interbank currency market, a trader at a major commercial bank disclosed.

    Traders said the local units of ExxonMobil, Chevron, Eni and Addax sold a combined $37.2 million through commercial banks to petrol importers while the interbank market traded a total of $60 million volume, with the naira quoted at 283 to the dollar.

    But RenCap’s Sub-Saharan Africa (SSA) Economist Yvonne Mhango, said the liberalisation of forex markets on by the CBN led to positive sentiment in the equities market, with banks up by nine per cent since the plan was announced on June 15 .

    However, she said sentiment risks being dampened by concerns around Brexit and the implications for the naira, as capital inflows may not materialise as rapidly as the CBN may have expected. “We have used a N285/$ exchange rate in updating our models, but the risk is to the downside, and we see N390/$ by end of this year,” she said in a report titled: ‘Nigerian banks: Life after ‘40’, released yesterday.

    For the banks, RenCap said it expects real loan growth to be minimal, but given that 46 per cent of sector loans were in forex in banks’ 2015 accounts, it estimates nominal credit growth post depreciation could end the year at 23 per cent on average.

    According to RenCap, the more than 40 per cent naira depreciation and the liberalisation of forex markets; and the rise in interest rates could improve sector earnings in the near term, global risk sentiment will be key to price performance and capital inflows.

    “We have updated our forecasts and our top picks are now Guaranty Trust Bank (on fundamentals) and United Bank for Africa on upside potential. We maintain our buy ratings on Zenith and Access, and upgrade FBN Holdings and FCMB to hold from sell,” RenCap said.

  • RenCap lowers Nigeria’s GDP to 3.4%

    Renaissance Capital (RenCap), an investment and research firm, said Nigeria’s Gross Domestic Product (GDP) this year  could fall to 3.4 per cent against the targeted  4.5 per cent.

    RenCap’s Sub-Saharan Africa Economist, Yvonne Mhango, said in a report titled: “Nigeria GDP: How low could growth go”, said that the most common way of measuring GDP is the production approach, which shows the industry composition of growth.

    She said the expenditure approach is less common, because of problems with availability, timing, valuation and coverage of expenditure source data.

    “The business registry is an important source of expenditure data as a large amount of retailing and consumer services output goes to household consumption, and a high share of building output goes to fixed investment. In Nigeria, a high share of businesses is in the informal sector and so is not covered by the business register,” it said.

    She said Nigeria’s rebased GDP, measured via expenditure is only available over a short period, implying limited history to forecast from.

    “However, when we consider the impact of lower oil and activity-stalling elections on expenditure, we think there is significant downside risk to our 2015 growth projection of 4.5 per cent. In particular, we see household consumption – which accounts for 70 per cent of GDP – slowing sharply in 2015, mainly due to negative real wage growth,” she said.

    Mhango said the proposed cut in the 2015 budget oil price to N53/ per barrel against N77.5/per barrel in 2014, means government consumption, which accounts for eight per cent of GDP, could be slashed by one-third.

    “We believe this implies a wage-freeze (at best) for government workers. That, coupled with rising inflation, signals that negative real wage growth could deepen. In addition to a fall in demand for imported consumer goods owing to naira weakness, the consumer may also be hit by a VAT hike to 10 per cent against five per cent,” she said.

    Continuing, she said: “The 2015 budget presented to the National Assembly in December, proposed slashing capex by two-thirds to N387 billion (0.4 per cent of GDP). The recent cut in the proposed budget oil price suggests capex could fall further. This implies a decline in business for government-dependent contractors. Moreover, some corporates have announced that they are slashing their 2015 capex plans; Flour Mills, for one, plans to halve its capex. All this indicates a fall in fixed investment (15 per cent of GDP), which is negative for real GDP growth”.

    She said a slowdown in net exports is likely to be tempered by a weaker-naira induced decline in imports. “This should mitigate the fall in exports. Given the headwinds expenditure is likely to face in the short term, we think GDP growth could turn out softer than our initial projections. We thus downwardly revise our real GDP growth forecasts to 3.4 per cent and four per cent in 2015 and 2016, respectively, from 4.5 per cent and five per cent previously,” she said.