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Breakfast Report - 21 September, 2020

According to the National Bureau of Statistics (NBS), Nigeria's headline inflation in August rose to a 29-month high of 13.22%. This is due to recent pricing reforms in the energy sector and the FX market. Both food and core inflation contributed to the inflationary pressure, as both were at two-year highs printing at 16.0% and 10.52% respectively. All sub-indexes of the consumer price index (CPI) rose at a faster pace in August as the hike in the ex-depot price of PMS trickled into the prices of not only food items but also the cost of services. Across the core segment, prices in the health sector rose the fastest (12.09%), for the fourth consecutive month, due to a surge in medical imports required to respond to the pandemic. Transport prices followed closely (11.21%), due to social distancing measures and higher fuel costs. In the past 12 months, Nigeria has recorded a consistent rise in inflation, despite the attempt of the CBN to rein inflation by a 500bps hike in the Cash Reserve Ratio (CRR) in January. We expect a continuous build-up in inflation in the coming months as it has been reported that floods have washed away c.25% of Nigeria’s rice harvest. Being a major staple, the loss of the rice harvest will be significant on pricing, with the land borders still sealed. In addition, the recent directive by the Presidency to disallow official access to FX for food imports could result in demand-pull food inflation and keep the headline inflation elevated. In September, we expect headline inflation to quicken to 13.67%, following the recent upward review in electricity tariffs and full deregulation of the downstream sector.

Equity: The Nigerian equities market saw a week of mixed trading sentiment, with barging hunting activities in two sessions and profit-taking in others. With the market breadth returning to the positive territory today (3.33x), coupled with the improvement seen in the Crude oil market, we expect the ASI to start the week on a positive note, barring any external shocks capable of depressing investors' sentiment.

Stock Watch: Following the 588bps drop in its market price on Thursday, DANGSUGAR recovered in Friday's session, rising 714bps to close at ₦12.00. Similarly, as against most of its trades which occurred at lower bands on Friday, the counter was positively patronized in the session, with most of its 5.92mn units traded today going at an average price of ₦11.98.