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Breakfast Report - 2 May, 2017

According to the Office of the Accountant-General of the Federation, the Federal Government (FG) earned ₦201 billion in January 2017, well short of a prorated ₦412 billion monthly estimate as part of the ₦4.7 trillion revenue proposed in the still-to-be-passed 2017 Budget. This revenue shortfall at the start of the year increases the chances that further borrowing will be required to execute the proposed ₦7.2 trillion budget. However, we highlight that a similar delay to passing the 2016 Budget hampered borrowing efforts, with the $1.5 billion Eurobond sale only completed in Q1’17. Nonetheless, we expect an improvement in FG revenues considering the rebound in oil production and favorable oil prices so far in recent months. This is vital as the strength of Nigeria’s economic recovery this year hinges on the efficacy of fiscal policy.     

According to Central Bank of Nigeria (CBN) Purchasing Managers’ Index (PMI), April Manufacturing PMI hit 51.1 (March: 47.7). We recall that the last time a positive Manufacturing PMI (reading over 50.0) was recorded was in December 2016, largely attributed to seasonal effects. Non-Manufacturing PMI printed at 49.5 (previous: 47.1). We note that the improving PMI numbers indicate a positive turnaround in business sentiment and the economy may be on the path of economic recovery.

Following a slew of better-than-expected earnings, the Nigerian equity market surged to its best weekly performance so far this year with the NSE ASI notching 229bps w/w. Spearheading the market rally, the Banking sector soared 611bps as investors cheered a flurry of impressive earnings announcement, particularly from Tier 1 names. Whilst the Industrial Goods (+480bps w/w) and Oil & Gas (+248bps w/w) sectors also recorded firm gains, the Consumer goods sector traded marginally lower amidst market reaction to mixed earnings releases.

We anticipate increased market activity this week amidst continued investor reaction to earnings releases. Also, with most of the earnings announcements coming in better-than-expected, we expect the NSE ASI to open the new trading week in the green.

Stock Watch: DANGCEM released its Q1’17 result last Friday. PAT came in at ₦71 billion, marking a 34% y/y rise. Whilst the line item also beat market consensus by 36%, the stock however lost 68bps to close at ₦159.00, weighed down by heavy losses prior to the announcement.

For the Fixed Income market, we anticipate more buying at the start of the coming week as market activity remains buoyed by the liquidity injection at last week’s close.