12 Jan NIGERIA | Weekly Wrap-up | 12-Jan-2018 | Elixir Research
Weekly Wrap-up | Stocks touch 9-year high as debt market yields trade sideways; Naira appreciates against the Dollar
Debt market yields trade sideways as CBN tightens
- Banking system balance, which opened the week at ₦462.52 billion, contracted to ₦187.37 billion by Friday, signaling a sharp contraction in liquidity as the CBN sequestered ₦663.94 billion from the system via OMO sales whilst there was ₦309.06 billion inflow from matured OMOs. Also, the standing lending facility (SLF) dropped to ₦46.85 billion from ₦68.13 billion a week ago. Despite this, the overnight and OBB rates contracted by 9.42 and 9.33 percentage points to 9.58% and 9% respectively for the week following the net inflows of ₦66.73 billion on Thursday.
- The fixed income market was broadly mixed for week shaped by uncertainties around bond supply for the first quarter of the year by the DMO and liquidity levels. At the short-end, the average T-Bill yield rose by 17 basis points w/w to 14.68%, though there was some decent interest mid-week. The long-end was relatively quiet mid-week, though the average FGN bond yield dropped by 37 basis points to 13.51% w/w.
- In the week ahead, we expect the FGN bond market to remain quiet as market participants anticipate the release of the Q1’18 bond calendar by the DMO. However, the T-Bills space should remain active, influenced by CBN’s OMO auctions and general liquidity level.
Naira appreciates for the week
- At the I&E window, the Naira was up 0.25% w/w to ₦360.41/$ while it stayed flat at ₦363 to the Dollar at the parallel market. The CBN official window appreciated by 0.05% w/w to close at ₦305.80/$.
- A total of 1.49 billion Dollars was traded during the week at the I&E window, up from 606.49 million Dollars in the prior week.
- We expect the local currency to remain stable given CBN’s continued watch and increasing ammunition.
Nigerian stocks hit a 9-year high in the trading week
- The trading sentiment this week was super strong, fueled by crude price hitting c.$70/b, strong external reserves (+$40 billion), stable FX, positive corporate earnings and dividend outlook. The benchmark index on Thursday hit 43,041.54 points before moderating to 42,898.90 points on Friday, delivering a w/w gain of 10.21%. Year-to-date return stood at 12.17%. It is interesting to note that the transaction value in the week rose by 266.64% to ₦68.97 billion vs. ₦18.81 billion a week ago.
- With the bulls dominating activity, sector performance was positive across board. The banking sector was toast of the market, returning 12.88% for the week. There was massive interest in the Tier-2 banks given their relative underpricing with the likes of SKYEBANK (+37.70%), STERLNBANK (+35.46%) and DIAMONBNK (+34.39%) topping the chart. The Industrial index added 12.98% w/w, pushed by interest in CCNN (+33.40%), WAPCO (+13.80%), and DANGCEM (+12.95%). The oil & gas index gained 7.46% w/w, lifted by ETERNA (+34.15%) and CONOIL (+34.05%) and FO (+14.39%). This was followed by the insurance sector index with a 6.50% w/w rise. The consumer goods index leapt by 5.60%, following gains in HONYFLOUR (+39.68%), CHAMPION (+36.57%) and DANGFLOUR (+15.36%).
- The market performance this week outperformed consensus expectation, though the broad outlook was positive. We note the slight profit-taking at the end of the trading session on Friday and reaffirm our call (since on Wednesday) that the quick build-up in prices would attract profit-takers. In the week ahead, we expect trading to be mixed as the bears may likely resurface for control.
- Following the resolution passed by shareholders to support the takeover bid by Affelka (majority shareholder), the NSE today suspended the shares of Seven-Up Bottling Company Plc. the Company is to be delisted at the conclusion of the takeover bid.
- The Management of Vitafoam Nigeria Plc. disclosed that it has secured the approval of the Bank of Industry for a long term loan of ₦2 billion to augment working capital.