Nigeria Capital Market: Week Ended 10th April, 2015

Investors to Re-price Financial Assets… as 2015 Polls Close Out
After the historic Presidential and National Assembly elections conducted a fortnight ago, Nigerians are gearing up for the Gubernatorial and State parliamentary elections scheduled to hold tomorrow, 11th April 2015. The Gubernatorial elections will be held in 29 states while the Parliamentary elections will hold in all the 36 states. In contrast to the public apprehension that preceded the March 28th elections, the generally peaceful conducts of the Presidential election and the attendant acceptance of the outcome by major political parties has significantly doused political tensions and lifted investors’ confidence. The Nigerian equity market rallied 12.2% in two days after President Jonathan conceded defeat, while yields were pressured downwards in the fixed income market as investors hunted for bargains.

In a show of confidence, Moody’s Credit Ratings Agency admitted that the peaceful conduct of the March 28^th elections was positive, but retained Nigeria’s credit rating at Ba3 Stable, three levels below investment grade, as it noted the apparent fiscal challenges and weakened macro fundamentals. Although there still exists the possibility of minor issues in the Gubernatorial and State Assembly elections in some flashpoints in South-South, North-Central and North-East states, we generally expect a successful outcome.

As the curtain however finally draws on the cyclical election phase, we expect investors to further re-price risks in the Nigerian economy and financial markets, discounting for political risks. Consequently, we expect a bullish capital market next week, similar to the one witnessed after the presidential election. Nonetheless, the continuous decline in the level of external reserves (US$29.6bn), low oil prices and fiscal challenges remain a drawback on investor sentiments.

Nigerian Stock Market Weekly Summary and Outlook
Occasioned by the success of the presidential polls, the equities market posted a mouth-watering 16.9% W-o-W return in the previous week. However, momentum in the Nigerian Bourse eased this week as the NSE ASI declined 2.2% W-o-W on the back of profit taking activities across sectors. Hence, Market capitalization shrank by N232.5bn even as YtD return berthed at 0.8% after undulation between negative and positive return during the week. Activity level measured by volume and value traded for the week was mixed as volume trade rose 33.4% W-o-W whilst value traded dipped 31.1% W-o-W. DIAMOND BANK, STANDARD INSURANCE   and FCMB recorded the highest activity by volume traded whilst DIAMOND BANK, ZENITH and GUARANTY posted the most value traded.
FBN Holdings submitted its FY: 2014 result during the week, with a Top-line growth of 21.3%, Net interest income and Non-interest income growth of 66.1% and 6.0%. However, PBT rose marginally by 1.7% while PAT advanced 17.3% given a 51.5% reduction in income tax expense. Other Corporate Scorecards submitted during the week are TRANSCORP, UNITYBANK and UNILEVER.

All sector indices save Consumer Goods (+1.0%), reported losses amidst short term profit taking during the week. The Banking Index depreciated the most due to W-o-W losses in GUARANTY (12.1%) and ZENITH (6.1%). The Oil & Gas (6.1%), Insurance (2.0%) and Industrial Goods (1.9%) all trailed in that order.

Market breadth (Advancer/Decliner ratio) moderated W-o-W to 0.47x as 25 stocks appreciated in prices against 53 laggards. COSTAIN (+34.5%), NEIMETH (+19.2%) and LEARNAFRICA (+18.9%) championed the price winners’ tables whilst WEMA BANK (-14.4%), INTERNATIONAL BREWERIES (-14.08%) and SEPLAT (-12.5%) topped the losers’ table.

We expect the momentum in the equities market to strengthen in the coming week on the anticipation that events in the polity will stabilize further on the assumption of a peaceful Gubernatorial election over the weekend.

Money Market Review and Outlook
The money market liquidity level opened the week higher on Tuesday (after Easter Monday holiday) relative to last week, as opening balance of banks and discount houses rose to N220.0bn on Tuesday while Net Standing Lending Facility (SLF) accessed from the CBN by the Deposit Money Banks (DMBs) reduced to zero. Liquidity remained robust all week with opening balances averaging N197.0bn between Tuesday and Thursday, relative to last week’s average of N172.1bn.
Nevertheless, money market and interbank rates trended higher this week due to the scheduled bi-weekly Credit Reserve Requirement (CRR) debiting on Thursday and Treasury Bills Primary Market Auction (PMA). The Open Buy Back (OBB), Overnight (O/N) and NIBOR (average) rates rose successively from 12.7%, 13.2% and 14.7% on Tuesday to close at 27.2%, 28.7% and 19.3% respectively on Friday when the PMA auction was held and CRR debiting conducted. N183.7bn T-bills instrument matured into the system on Thursday 9^th of April but a commensurate amount was reissued by the CBN via the 91 days (N20.2bn), 182 days (N43.5bn) and 1 year (N120.0bn) instruments. The 91 days, 182 days and 1 year T-bills were issued at equivalent yields of 10.5%, 14.1% and 14.2%.
With no T-bills maturity expected next week and a DMO auction of N70.0bn bonds, we expect liquidity to tighten next week hence pressure rates higher.

Foreign Exchange Market Review and Outlook
The demand for the greenback witnessed a significant decline as speculators who were hoarding the naira ahead of unforeseen post-elections unrest resolved to further loosen their grasp and trade Dollars for Naira. The Naira at the interbank market closed at N199.13/US$1.00, having depreciated on Thursday by 1 kobo to close at N199.12/US$1.00, signalling minute variance W-o-W compared to that of the parallel market where a dollar was exchanged below N200.00/US$1.00 after the Easter Holiday till date.

This week, external reserves declined by over US$177.0m bringing YtD loss to 14.1% as it closed at US$29.6bn. In a move to defend the value of the Naira, the apex bank announced that business owners carrying out transactions in foreign currency are liable to face jail time. Also, the Bank took a stance to deny bad and chronic debtors access to foreign exchange. Speculators continue to trade their Dollars for Naira in anticipation that the rates would decline further after the Gubernatorial elections this weekend. We anticipate that the local currency would remain stable in the near term despite the lower crude oil price. 

Bond Market Review and Outlook
Following the moderation in the yield environment last week post-presidential election result announcement, a subtle surge in yields across instruments characterized trading during the week. In the four trading sessions of the week, while further moderation occurred on Tuesday as average yield settled at 13.9% (compared to the previous week’s close of 14.1%), systematic rise in yields branded the remaining trading days of the week.

Instruments across tenors particularly towards the short end of the bond yield curve experienced profit taking as prices generally declined. At the medium and long end of the curve however, there were mixed bags of profit taking and bargain hunting. Average yield for the week settled at 14.8%.

The yield curve displayed clear cut case of inversion with intersections at the short and long end of the curve. Investors are still more comfortable taking positions towards the shorter end of the yield curve as the macroeconomic outlook of the country remains susceptible to uncertainties around oil prices. Clearly, the yield environment went higher by an average of 0.7% over previous week. As the country prepares for yet another defining elections tomorrow, we believe the outcome will further shape investors’ decision in the coming week.

Source: Afrinvest (West Africa) Limited Research Team.