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Breakfast Report - 24 February, 2020

Last week Thursday, the IMF revised its growth forecast for Nigeria from 2.5% to 2.0%. The Fund highlighted the decline in oil prices due to the outbreak of the coronavirus, as a primary driver of the revision in the growth rate. At the time when the outbreak was first reported, Brent crude prices were at $64.65/bbl. Since then, prices have contracted 7.90% as investors continue to evaluate the impact of the outbreak on oil demand from China as well as its domestic demand. With regards to Nigeria, the country remains exposed to a downturn in oil prices, and we expect the recent decline in oil prices to weigh on government’s oil receipts, straining fiscal spend in the short term. We expect to see the impact of the downturn in oil prices in Q2’20, given that oil transactions are usually based on three-month forwards. Furthermore, the downturn in oil price will add pressure to the country’s balance of payments, as the nation could borrow more in order to plug the deficit as a result of the lower foreign-exchange receipts from crude sales.

Equity: It was another bearish week at the equities market. Although the index was set for a positive performance on Friday, it was dragged by a late sell down in the consumer goods sector. This week, we expect bargain hunting activity in some dividend paying stocks as investors seek to take advantage of high dividend yield environment.

Stock Watch: JAIZBANK led the other 13 gainers on Friday, advancing 952bps to ₦0.69. The counter has enjoyed positive investor patronage in the last 5 months, trading at a 102.94% premium to its 52-week low price of ₦0.34.

Fixed Income: This week, with lower levels of system liquidity, we expect the market to return to status-quo, with investors favouring the bond and OMO markets while cherry-picking on bills in the NTB space.