Weekly Market Wrap

July 17, 2017/InvestmentOne Research

Trade ideas for the week

  • We remain positive on both quality Banking and cement stocks on continued elevated interest rate regime and potential for increased government capex spending..
  • While recent rally have seen valuation a bit stretched, we still see value on quality names highlighted in our top picks below given sustained buying interest by investors..
  • We expect Consumer names earnings to see support from price hike and recent reforms in the FX market.
  • In the near term, we expect ASI performance to see support from investors’ expectation of positive Q2 2017 earnings scorecards.
  • This, in addition to sustained buying interest on account recent reforms in the FX market as well as new PFA guideline which required increased investment allocation to equity bodes well for equities performance .
  • We however highlight that NSEASI’s return in Q3 may be slightly positive given the limited upside potential in most tickers on account of recent rally.

§  Hence, we advise investors to stick to quality names and maintain a medium to long term investment horizon.

Our Picks

  • Dangcem, GTB, Zenith,UBA, Access,NB and Nestle

The week in review

§  ASI  gained +2.47%  w/w  due to investors’ positioning for Q2 2017 scorecards

  • Bond yields inched up marginally w/was limited system liquidity constrained activities.
  • Naira ended the week at N368 to the USD at the parallel market 

The week ahead

  • NBS to publish Weekly Selected Oil Sector Data on Friday 21th July 2017.
  • Inflow of c.N97bn OMO maturity expected on Thursday 13th July

Thoughts for the week: Potential Inclusion of Nigeria in OPEC output cut and Its Fiscal Implication

§  In a bid to rein on supply glut to support Brent crude price, the OPEC committee on output cut compliance plans to include Nigeria and Libya in output cut deal.

§  This move, if implemented, could see the country’s oil export capped at 1.8mbpd, c.20% lower the budget output assumption of 2.2mbpd.

§  While oil price at current level exceeds the budget benchmark of $44.5pb, the expected cap in the country’s oil export would be a negative for government revenue, budget implementation and FX inflows into the country. This is moreso if there is no significantly improvement in oil price post the inclusion of the two nations in output cut deal.

§  Hence, we may see increased government borrowings to make up for the revenue shortfall, with negative consequence for debt-service-to-revenue ratio which rose to 59% in 2016 according to World Bank estimate.

§  Furthermore, a reduction in oil exports and FX inflows would be a negative for CBN’s FX policy regime as it would negatively impact reserve accretion and the apex bank’s ability to sustain its FX intervention sales.