16 Mar NIGERIA | Weekly Wrap-up | 16-Mar-2018 | Elixir Research
Posted at 17:01h in Weekly Wrap-up
Weekly Wrap-up | Equities sold-off as big banks release 2017FY results; CBN mops ₦533 billion
Global crude outlook positive as Nigerian inflation rate moderates
- The International Energy Agency (IEA) raised its oil demand growth outlook by 0.1 mb/d to 1.5 mb/d despite concerns over oil consumers substituting away from oil. However, the agency expects oil supply to rise at a faster pace, driven by non-OPEC production ramp championed by the U.S. Also, it noted that global crude inventories may rise marginally in H1’18 as non-OPEC producers ride out the price wave driven by the ongoing uncertainty the Middle East and strong global economy expectations.
- Nigeria’s inflation data for February printed at 14.3% y/y, lower than consensus estimate of 14.5% and January level of 15.1% y/y. On month-on-month basis, inflation was somewhat flat at 0.8% from January. The decline in inflation was reflected in the Core Index – 12.1% y/y to 11.7% y/y, and the Food Index – 18.9% y/y to 17.6% y/y. We expect inflation rate to moderate further downward in the months ahead, spurred by 2017 base effects, FX stability, and stable energy pricing.
- Meanwhile, the Debt Management Office (DMO) is overseeing a debt restructuring which will lead to the reduction of FGN’s debt service cost, lower interest rates in the domestic market, and improve availability of credit to the private sector. It plans to reduce high interest-bearing domestic debt to 60% of total debt (of ₦21.7 trillion) from the current level of 73%.
Lower PMA rates push yields downward as CBN mops ₦533 billion
- This week, ₦453.30 billion hit the system via a combination of matured T-Bills (₦191 billion) and OMO (₦262 billion) repayments. However, the CBN was quick to mop-up ₦532.86 billion worth of OMOs (previous week: ₦460.64 billion). In reaction to the net liquidity outflow in the week, the overnight and OBB rates expanded by 3.75 and 3.33 percentage points to end at 12.92% and 11.83% respectively.
- Notwithstanding, the banking system liquidity rose to ₦395.08 billion by Friday from ₦111.35 billion on Monday, while the Standing Lending window (SLF) added ₦4.14 billion to ₦31.44 billion.
- On Wednesday, the CBN conducted a primary market auction, offering ₦90.72 billion (while ₦191 billion maturity) and sold ₦95.72 billion across the 91DTM, 182DTM and 364DTM bills at stop rates of 11.75%, 13.00% and 13.19% respectively (effective yields: 12.10%, 13.90% and 15.19%).
- Trading at the secondary market was shaped by the released of the Q2’18 T-bills issue calendar by the CBN. The calendar showed that 50% of maturing T-bills will not be rolled over, implying that ₦482 billion will be rolled over out of the ₦964 billion scheduled for maturity in the quarter. Hence, reduced supply combined with lower stop rates at the PMA spurred buying which saw the average T-Bill yield trimming by 22 basis points to 14.83%. Also, the bond market finished the week with a 25 basis points contraction in yield to average 13.59%.
- We expect yields to continue trending downward as market adjusts to lower supply while the tentative date for an MPC meeting ahead of the Senate confirmation of the committee members is positive for the sanity of the market. We note that the DMO is conducting a primary market bond auction next week, offering ₦70 billion (February Offer: ₦100 billion) across the 5-yr, 7-yr and 10-yr tenors.
Naira falls at Investor & Exporter Window
- The CBN sold $210 million to the different segments of the market this week.
- The Naira weakened at both the investor & exporter window (I & E window) and the parallel market by 0.07% w/w and 0.28% to close at ₦360.57/$ and ₦363/$ respectively. The local currency however, appreciated at the official window by 0.03% to settle at ₦305.75/$.
- In terms of activity, a total of $1.42 billion was traded during the week on the I&E window, higher than $592.76 million traded in the prior week. The outlook for the Naira remains positive given the recent stability in crude oil and the external reserve accretion to $46 billion.
Equities sold-off as big banks release FY results
- Traders, this week sold-off stocks in an attempt to book profit and raise yields despite impressive 2017 full year results from the big banks. The benchmark index contracted 2.85% w/w to end at 41,935.90 points with the year-to-date return shrinking to 9.66%.
- Excluding the positive close from the insurance index (0.25% w/w), sector performance was negative. The banking index lost 8.35% w/w (-2.33% d/d), depressed by FIDELITYBK (22.48% w/w), UNITYBNK (-21.51% w/w), and DIAMONDBNK (-15.04% w/w). The oil & gas index slipped by -1.64% w/w (-0.58% d/d), depressed by the sell-off in JAPAULOIL (-30.93% w/w), ETERNA (-6.10% w/w), and CONOIL (-5.11% w/w). The consumer goods was down 1.59% w/w (-0.68% d/d), following the sell down in NASCON (-15.48% w/w), and UNILEVER (-14.55% w/w). The industrial index plunged 0.24% w/w (+0.26% d/d), pushed lower by CCNN (-4.95% w/w) and DANGCEM (-0.38% w/w). The insurance index added +0.25% w/w (-1.14% d/d), following the interest in NEM (+11.57% w/w) and MANSARD (+3.80% w/w).
- Whilst we expect market to remain volatile over the medium-term, we anticipate a moderation in the sell sentiment in the week ahead.
- Zenith Bank Plc’s 2017FY result showed impressive performance. The bank proposed a final dividend of ₦2.45 kobo per share, which translates into a yield of 9% at current market price. This makes a total dividend of ₦2.70 kobo for 2017FY. Key highlight from the result include: Gross Earnings rose by 47% y/y to ₦745.19 billion. Net interest income (NII) grew by 7% to ₦257.99 billion, impacted a 23% y/y jump in interest income to ₦474.62 billion and a faster 50% y/y rise in interest expense to ₦216.64 billion. Impairment loss was up 204% y/y to ₦98.23 billion. PBT and PAT grew by 30% y/y and 37% y/y to ₦203.46 billion and ₦177.93 billion. Despite the ₦98 billion provisioning, the bank’s CAR rose to 24% (2016FY: 22%) after earnings capitalization. Furthermore, management estimates that following CBN’s guidance and 2017 numbers, the implementation of IFRS 9 would decreased shareholder’s equity by ₦34.79 billion and Tier 1 capital by 200bps as at 1 January 2018. Closure date for dividend payment is scheduled for April 4 – 9, 2018, qualification date April 3, 2018; April 13, 2018 and April 13 for the AGM.
- Guaranty Trust Bank Plc’s 2017FY result came-off strong. The bank proposed a final dividend of ₦2.40 kobo per share which translate into a yield of c.5% current price. This makes a total dividend of ₦2.70 kobo for 2017FY. Result highlight include: Gross Earnings rose by 1.1% y/y to ₦419.2 billion, PBT and PAT grew by 21% y/y and 29% y/y to ₦200.4 billion and ₦170.5 billion. According to management, the spike in NPL ratio was mainly driven by the classification of a single obligor in the telecoms sector, which could be 9Mobile. Excluding this exposure estimated at ₦47 billion, NPL ratio would have been 4.60% as at Q4’17.
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