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Breakfast Report - 17 February, 2020

Earlier in the week the management of the CBN exempted six companies from the milk & dairy products importation ban that was implemented in 2019. The exempted companies are at various stages of a backward integration plan in the sector, being championed by the central bank to boost local production and manage domestic FX demand. Before the ban took effect, the country spent between $1.2 billion and $1.5 billion annually importing milk and dairy products to meet the gap (c.60%) in local production. This is largely since the Nigerian milk production system is mainly subsistence-oriented and marred by low productivity. Hence, the need to compel established businesses in the sector to invest in the sector’s backward integration, to reduce the reliance on milk & dairy products imports in the long-term. We note that although backward integration is capital intensive, the benefits that can be realized are far-reaching. Greater use of local content and more extensive backward linkages can have positive effects on Nigeria’s economic landscape by promoting the development of local industries, building local capacity and technologies, boosting employment and minimizing capital flight. The exemption of these six companies from the ban can also tame the short-term impact of the shock to dairy supply, and support moderation in the retail price of milk.

Equity: A bearish trend persisted in the equities market on Friday as all sub-sectors closing the day in the red. With last week filled with a mix of cherry picking and profit taking, we envisage a cautious trading strategy this week in anticipation of other earnings reports.

Stock Watch: At the top of the gainers list for last week Friday was CAVERTON which gained 960bps to close at ₦2.74. The positive d/d performance was due to bargain hunting in the counter which was sold down to ₦2.50 in Thursday’s session.

Fixed Income: We expect the current buy-side sentiment in the NTB space to persist at the start of this week, owing to the level of system liquidity as well as the yield moderations witnessed in the market today. Meanwhile, we foresee a quiet session in the bond space, as investors continue to monitor the impact of the coronavirus on oil prices.