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Breakfast Report - 12 October 2020

Last week Thursday, President Muhammadu Buhari presented the proposed 2021 Appropriation Bill to the Joint National Assembly. Tagged the Budget of Economic Recovery and Resilience, the proposed budget was based on a benchmark oil price of $40, daily oil production of 1.86mbpd, an exchange rate of ₦379/$, an inflation rate of 11.95%, and a GDP growth of 3.0%. An aggregate expenditure of ₦13.08tn has been proposed, which is 21% above the revised 2020 budget of ₦10.81tn. 43% of the proposed expenditure has been earmarked for non-debt recurrent costs and 24% for debt service, while 29% of the proposed spending goes to capital expenditure. The budget is expected to be funded by a proposed revenue of ₦7.89tn. Oil and non-oil revenues were projected at ₦2.01tn and ₦1.49tn respectively, leaving a primary funding gap of ₦4.39tn which may be financed from other sources such as MDA independent revenues and recoveries. The proposed budget has revenue targets for MDAs, alongside their expenditure limits as the federal government seeks to encourage the generation of independent revenues. A spending plan of ₦13.08tn and a revenue proposal of ₦7.89tn results in a proposed fiscal deficit of ₦5.2tn proposed to be funded through new borrowings (₦4.28trn), privatization proceeds (₦205.15bn), bilateral and multilateral loans (₦709.69bn). The deficit represents 3.6% of the GDP, above the 3% threshold set in the Fiscal Responsibility Act.

Equity: Though profit taking drove the market south in the last three sessions last week, the market was able to post a positive w/w performance as the influx of funds at the beginning of the week. These funds were channeled to fundamentally attractive counters. With the bullish momentum cooling off gradually, we expect some level of corrections and stability in the coming week amidst continued profit taking activity.

Stock Watch: ETERNA ended the last trading session of the week as the best performing stock, increasing 10.00% to close at its intra-day maximum price of ₦3.63. Just like a number of other counters in recent times, the stock has also witnessed some positive investors' patronage, rising about 48.00% in the last two weeks while improving its YTD performance to +0.83%.

Fixed Income: The level of system liquidity should see fund managers extend their current buy-side activity across the market. In addition, oil prices remain stable, with crude prices edging lower on Friday, but steady at $41/bbl. We expect the market to trade in a positive manner on Monday, as fund managers seek to deploy idle funds, while oil prices should open higher amid a hurricane induced shutdown of oil production in the Gulf of Mexico.