Breakfast Report - 11 September, 2017
The Week Ahead
The Managing Director of the Transmission Company of Nigeria (TCN), the operator of the national power grid, said the company has secured about $1 billion from multilateral donors to expand and rehabilitate its facilities. We note that the operating capacity of the grid has been relatively stagnant over the years due to persistent lack of major investments. Also, ineffective maintenance and poor system management have further impacted the efficiency of the grid, resulting in occasional system collapse. Whilst we highlight that the installed capacity of the grid (estimated at 7,200MW) exceeds the current power generation (H1:17 Peak: 4,079MW), we note that this remains significantly below the country’s demand and below the 12,522MW nameplate capacity of the GENCOs. As such, we see this funding quite key in improving the operations and efficiency of the grid in the medium to long term. However, for a more encompassing improvement in the Nigeria power sector, we believe the rest of the value chain (particularly the power distribution) will also require sizeable investments.
Despite trading in the positive territory for most of the week, the Nigerian bourse pulled back at week close, shedding 44bps to lower w/w gains to 126bps.
Despite the positive w/w performance, we point to negative market breadth and dampened sentiment at last week’s close as indicators of underlying cautious trading. We expect the market to open this week mixed albeit with a bearish tilt given notable pressure on large cap stocks.
Stock Watch: GUINNESS surged 28% this past week following the release of better than expected FY’17 results (PAT: ₦1.9 billion vs. ₦1.0 billion LAT consensus estimate) and ₦0.64 dividend per share announcement (Consensus expectation: ₦0.50). The stock currently trades at ₦96.33, above consensus target price of ₦72.97, and has returned 16% Ytd.
Amidst sustained OMO auctions from the CBN, we expect mixed trading sentiment to dominate the T-bills market today. However, we foresee more cautious trading towards the mid-week amidst the anticipated ₦174.15 billion T-bills primary market auction slated for Wednesday. That said, we believe improvement in system liquidity (c.₦160 billion OMO maturity) by Thursday will eventually support demand in the fixed income market at the latter part of the week. The bond market is however expected to remain mixed, with interest still skewed towards the shorter dated bonds.
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