Equity Index recovers all of last week's loss and some more
Oando Plc under investigation by the SEC over accounting practices
The equity market has rebounded this week following the 2% loss last week as traders appear to be positioning ahead of H1 dividend declaration especially by the tier-1 banks. The benchmark index gained in all trading sessions and was up 2.45% for the week to 33,261.66 points. Year-to-date the index is up 23.77%.
Sector performance for the week has been bullish. As mentioned previously, there has been particular interest in banking stocks ahead of earnings and this pushed the index up 6.10% for the week. The industrial index jumped 2.94% for the week, the oil and gas index rallied by 2.31%, the insurance index gained 0.88% while the consumer goods index added 0.71%.
According to Channels TV citing reliable sources, Oando Plc is under investigation by the Securities and Exchange Commission (SEC) which has conducted several weeks of investigation and written a formal letter to the Board and Management of the company in relation to observed malpractices in its financial statements. The investigation was kicked-off following a petition filed by some offshore investors in relation to shareholding structure following the $1.65 billion acquisition of oil asset from Conoco-Philips in 2014—the stock plunged by 9.58% on Friday following the report.
Eterna Oil Plc shareholders at its 24th Annual General Meeting approved the board’s proposal for the payment of a 30 Kobo per share dividend for FY-2016 which amounts to ₦391 million.
United Capital Plc (UCAP) today released its H1-2017 financial statement which showed a drop in profit after tax driven by the base effect of one-off gains from the disposal of assets in 2016. Gross earnings rose 6.30% y/y to ₦3.88 billion, net interest margin was down 56.52% y/y to ₦300 million while net operating income fell by 6% y/y to ₦3.21 billion. OPEX jumped 40% y/y to ₦1.50 billion while profit-after-tax plunged by 44% y/y to ₦2 billion—the stock fell by 7.29% on the day of the release.
We expect the market to continue to trade within the 32,000-33,500-points range as traders await the Q2 earnings season which should help the market re-position following the FX-fueled rally that kicked-off in April. The outlook for Q2 earnings is positive and traders appear to be buying ahead of dividend declaration.
The medium-term sustainability of the rally will depend on oil prices which increasingly looks set for another down leg. This risk should moderate any gains linked to the Q2 earnings season.
Fixed Income | Average FGN debt yields stuck in tight range
FG raises ₦106 billion via bonds, to issue ₦2.70 trillion worth of special 10-yr bonds
The banking system yesterday opened the week with a balance of ₦78.39 billion, down from ₦189.85 billion last week. By Thursday the opening balance stood at ₦103 billion although there was an OMO maturity worth ₦90 billion on Thursday.
On Monday the CBN sold ₦3.30 billion worth of 199-day OMO bills at a yield of 17.90% and ₦16.12 billion worth of 360-day OMO bills at a yield of 22.70%. The CBN followed with ₦16.45 billion worth of sales on Tuesday, ₦24.64 billion worth of sales on Wednesday, ₦34.32 billion worth of sales of Thursday and ₦25.76 billion worth of sales on Friday.
The incessant OMO sales alongside FX sales saw banks’ borrowing at the CBN window rise to an intra-week high of ₦236.28 billion on Tuesday before dropping down to ₦176.84 billion on Thursday. That said, the average inter-bank repo rate dropped 479bps week-on-week to 11.55% off the back of the OMO maturity on Thursday.
Yield activity in the FGN debt market was rather flat especially in the bond market where average yield has remained in a tight range (16.70%-16.90%) for a while now. For the week, the average bond yield inched down by 1bp to 16.81% while the average T-Bill yield added 16bps to 20.13%.
The DMO on Wednesday raised ₦106 billion via the issuance of 5-yr (₦3.90 billion), 10-yr (₦47.01 billion) and 20-yr (₦55.05 billion) bonds. Total subscription came in at ₦129 billion, 96% of the amount on offer (₦135 billion) and there was a preference for 10 and 20-yr bonds which were oversubscribed. The stop rates were 16.24% for the 5-yr, 16.25% for the 10-yr and 16.25% for the 20-yr.
The result of the recent FGN Savings Bond auction showed ₦160.70 million worth of July 2019 notes were allotted at a stop rate of 13.38% while ₦239.80 million worth of June 2020 notes were allotted at a stop rate of 14.38%.
Next Wednesday the CBN is set to auction ₦36.78 billion worth of 91-day bills, ₦39.17 billion worth of 182-day bills and ₦129 billion worth of 364-day bills.
According to the Finance Minister (on Wednesday) Nigeria plans to issue a 10-year promissory note to offset ₦2.70 trillion worth of debt owed to Government contractors and employees.
Currency | Naira gains across markets
CBN sells $267.80 million to the market to support the Naira
The Naira was up 0.03% week-on-week against the US Dollar at the inter-bank market and closed at ₦305.90/$. The CBN sold $142.50 million on Monday as the CBN continues to support the Naira. $100 million was sold to wholesale dealers, $23 million was sold to SMEs while $19.50 million was sold to retail users.
The Naira gained 0.60% against the US Dollar at the I & E window to ₦362.83/$ and was up 0.81% against the US Dollar at the parallel market to ₦367/$. The CBN sold $125.30 million this week to BDCs and this continues to support the Naira especially at the parallel market.
The recovery in Nigeria’s crude production, higher oil prices and more aggressive market reform efforts are beginning to show positive results. $3.83 billion has been traded since the I & E window was opened on April 24. $407 million was traded last week, up from $354.80 million the previous week.