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Breakfast Report - 01 June, 2020

On Thursday, the Central Bank of Nigeria (CBN) cut its benchmark lending rate by 100bps to 12.50%. Other monetary policy tools were not changed i.e. both the cash reserve ratio (CRR) and the liquidity ratio were retained at 27.50% and 30.00% respectively. The lowering of the MPR is part of efforts by the CBN, to support ongoing fiscal policy measures aimed at stave off a recession, as the coronavirus pandemic persists. In the coming week, we expect the rate cut to stimulate buy-side activity in the fixed income market. Although the Federal Government is slated to tap the domestic market for ₦850 billion to finance its 2020 budget, the government’s need to borrow could mitigate the bullish run in the fixed income market. In the equities market, we expect the weak macroeconomic environment to continue to weigh on sentiment, as the bears hold sway.

Equity: The ASI closed the week positive due to price increases in a number of large-cap stocks which neutralized the effect of profit taking witnessed in the last two trading sessions. We expect a similar pattern this week as investors continue to take position in some counters while taking profit in others which had gained in recent times.

Stock Watch: BUACEMENT trailed CADBURY (+813bps), NEIMETH (+971bps) and MANSARD (+973bps) as one of the best performing stock for the day, gaining 769bps to close the week at ₦42.00. Since releasing its FY'19 result on the 19th of May 2020 where a final dividend of ₦1.75 was declared, the counter has been positively patronized, rising over 30.00% within the same period, while increasing its YTD return to +20.00%.

Fixed Income: We expect an increase in demand this week due to the rate cut by the MPC, as well as the outcome of the last OMO auction. However, we do expect investor sentiment to turn tepid over the course of the week, as market participants continue to monitor the nation’s foreign reserve position and the government’s borrowing plans for H2’20.