EUR 3.48 For Business Accounts Only

MSCI decision: Lace up for another bull run?

• Just In! Index provider, MSCI Inc. announced that it will retain Nigeria in its benchmark frontier-index and precluded Nigeria from a review for potential reclassification to Standalone status in line with our earlier view. According to MSCI, the Investors’ & Exporters’ Window (IEW) improved currency market conditions for investors and paved way for its decision to remove Nigeria from the review list for potential reclassification to standalone status. We recall that the proposition to reconsider Nigeria’s status in the index first emerged in April 2016 when CBN’s restriction on FX sales created a clog in the process of foreign capital repatriation—violating a critical provision for countries in the Frontier index.
• MSCI beams further light on naira equities. In our view, MSCI’s latest decision is positive for naira equities with the implied impact likely to consolidate gains from higher FPI inflows. Precisely, considering that approx. $1 billion worth of funds currently track the MSCI frontier index (based on our estimate) with Nigeria’s weighting at 7.9%, the decision implies ~ $79 million (~N29 billion) is no longer in danger of leaving Nigeria’s equity market. For context, the implied sum under consideration (N29 billion) is 65% greater than the average monthly net FPI flow to Nigeria’s equity market from January through August. In addition to this, the sum also approximates 53% of mean monthly net FPI inflows since the introduction of the IEW.  By the materiality of the current decision therefore, we expect naira equities to positively respond to the decision in coming periods. That said, we believe other investors would continue to look to fundamentals for direction and therefore restate that the trajectory of crude oil price, domestic macro, FX liquidity, fiscal policies, and pension reforms will remain crucial to equity market performance. Furthermore, with alternative yield-paying investment outlets such as treasuries set to become relatively unattractive in line with our expectation for yield downtrend, we expect investors to pay greater attention to equities.

• See our ratings on the selected Nigerian stocks in the MSCI frontier index.

  	Price (N)	P/E (x)	Fwd. P.E (x)	FY 17 EPS (N)	FVE (N)	Rating
  NB*	155	37.99	30.6	5.99	168.8	BUY
  GUARANTY	41.70	8.67	7.85	5.67	44.50	NEUTRAL
  ZENITHBA	25.65	5.07	5.50	4.95	27.26	NEUTRAL
  NESTLE	1200	39.47	24.6	48.73	879.93	SELL
  DANGCEM	219	15.2	12.2	15.1	203.32	SELL
  UBA	9.34	4.1	4.27	2.40	10.25	OVERWEIGHT
  ACCESS	9.87	3.98	3.17	3.18	10.09	NEUTRAL
  FBNH*	6.15	10.01	4.32	1.21	5.23	SELL
  SEPLAT*	490	N/A	11.24**	17.8	518.74	NEUTRAL
  GUINNESS	101	79.06	25.61	3.94	59	SELL
  WAPCO	52	5.1	9.7	1.90	48.45	SELL
  UNILEVER	44	26.41	25.66	1.71	28.48	SELL
  PZ	23	17.7	22.14	1.04	22.16	SELL
  FO*	40.3	10.18	9.8	5.95	49.2	BUY

            * Under revision;           ** 2018 forecast            

  • See attached for full report