FREE

Breakfast Report - 14 April, 2020

Following the meeting with the G20 and the International Energy Agency (IEA) this week, major oil producers have agreed to a 9.7 million b/d oil supply cut amidst the covid-19 pandemic. Although global demand for oil has been severely impacted by the lockdown implemented in many countries, this decrease in supply may still see prices soar to $39bbl levels in Q2. This is quite a positive for Nigeria given that this price would exceed the revised budget benchmark crude price, which was set at $30/bbl. Combined with an expectation of relatively stable production at 2 mb/d in the second quarter and barring any prolonged shut-in at major export routes, we expect revenue in excess of $9/bbl. Whilst we expect the bulk of the excess funds generated to be directed towards the fight against the pandemic, we expect to see some of it directed towards the implementation of some capital expenditure. On the other hand, with the rise in crude prices, comes a corresponding rise in the price of PMS. Given that the pump price had been reduced to ₦125/l by the government with the intention to fluctuate this price in line with Brent prices, this may mean a slight squeeze to retail PMS margins.

Equity: With the OPEC members and some other Oil producing countries meeting today to discuss the possibility of Crude Oil output cut, to cushion the effect of the Covid-19 on global Crude Oil demand, we expect the market to trade inline with the outcome of the meeting when we return from the Easter break next week. However, we believe that the current price level of most fundamentally sound stocks remain attractive for mid/long term investors, even though the impact of the Coronavirus pandemic pose a threat to any significant upside movement in the short term.

Stock Watch: The Bulls dominated another trading session as buyers continued to take position in a number of fundamentally sound stocks that had been significantly pressured in the last four weeks, as DANGSUGAR (+9.74%), UBA (+9.73%), OANDO (+9.09%), NESTLE (+852bps), WAPCO (+720bps), FBNH (+682bps), STANBIC (+612bps), ETI (568bps), ZENITHBANK (566bps), GUARANTY (+301bps), ACCESS (+231bps) and SEPLAT (+100bps) all closed in the green.

Fixed Income: We expect demand for OMO notes to further drive down yields at the start of next week, while we foresee a quiet trading session in the NTB space. Meanwhile, we expect to see renewed interest in the bond space as oil prices rise and investors seek to invest incoming maturities.