Breakfast Report - 13 November, 2017
The Week Ahead
Following the recent downgrade of Nigeria’s long term government bond ratings from B1 to B2 (stable outlook), Moody’s Ratings Agency has also downgraded the long-term local and foreign currency deposit and issuer ratings of a number of Nigerian banks. The primary reason given for the downgrade is the government’s weaker capacity to provide support to banks in case of stress and the banks’ substantial holdings of government securities. We note that last week, the International Monetary Fund advised the Central Bank of Nigeria to compel the banks to recapitalize to become stronger to support the economy. This development would likely increase the cost of borrowing for commercial banks that choose to tap into the Eurobond market in 2018 – following the trend observed in 2017. However, amidst an improving macroeconomic environment and cautious loan growth policy, asset quality in the Nigerian banking sector looks to be improving, which should aid in efforts to secure external finance.
The Nigerian Stock Market closed 19bps higher on Friday, up 49bps w/w. The Oil & Gas sector was the top gainer for the week (+83bps), closing 48bps higher on Friday on the back of gains in FO (+500bps).
Market sentiment was notably mixed throughout last week, with sideways trading observed across key sectors on the exchange. Given no fundamental news flow anticipated in this week, we expect varied sentiment to persist, with a slightly bullish tilt today.
Stock Watch: Advancing 370bps on Friday, CAVERTON gained 30% last week. The stock currently trades at a year-high of ₦1.68 and has returned 87% ytd. We note that the company released its 9M’17 results last month, reporting a ₦1.2 billion PAT (9M’16 LAT: ₦1.0 billion).
In line with recent trend of yield moderation across the yield curve, we expect yields to inch lower in this week. Whilst we expect the CBN to persist with its OMO mop ups, we expect the anticipated ₦133 billion OMO maturity scheduled for Thursday to support buying towards the end of the week
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