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Breakfast Report - 25 December 2021

Between 2010 and 2020, Nigeria’s fiscal deficit has risen five times over. This is reflective of the government’s expansionary fiscal stance as the revenue targets were consistently missed and the government consistently exceeded its spending limits. However, 2020 was a peculiar year as falling oil prices - no thanks to COVID-19 - led to a prompt review of the 2020 budget, and the benchmark oil price was reduced by 50% to $28 per barrel during the heat of the oil price crash. This enabled the government to outperform its oil revenue target as oil prices averaged $40 in 2020, despite OPEC limits on production. Going into the new fiscal year, the Federal Government is betting on improved oil prices and increased condensates production to boost revenue generation despite OPEC production limits. Thus, the 2021 budget has been signed into law alongside the Finance Act. Despite a planned a deficit of ₦5.6 trillion, we may see continuous surge in government spending in a bid to jumpstart the economy from a recession. Thus, the country’s fiscal deficit-to-GDP may rise beyond the 3% limit stipulated by the law for the third consecutive year. Between 2010 and 2020, Nigeria’s fiscal deficit has risen five times over. This is reflective of the government’s expansionary fiscal stance as the revenue targets were consistently missed and the government consistently exceeded its spending limits. However, 2020 was a peculiar year as falling oil prices - no thanks to COVID-19 - led to a prompt review of the 2020 budget, and the benchmark oil price was reduced by 50% to $28 per barrel during the heat of the oil price crash. This enabled the government to outperform its oil revenue target as oil prices averaged $40 in 2020, despite OPEC limits on production. Going into the new fiscal year, the Federal Government is betting on improved oil prices and increased condensates production to boost revenue generation despite OPEC production limits. Thus, the 2021 budget has been signed into law alongside the Finance Act. Despite a planned a deficit of ₦5.6 trillion, we may see continuous surge in government spending in a bid to jumpstart the economy from a recession. Thus, the country’s fiscal deficit-to-GDP may rise beyond the 3% limit stipulated by the law for the third consecutive year.

Equity: With a number of mid/large cap stocks closing the previous week deep in the green, the domestic bourse recorded a bearish performance during the week, owning to profit-taking actions by investors. However, given that most fundamentally sound counters remain below their target prices, coupled with the unattractive yields in the Fixed Income market, we expect the market to return to the positive region this week.

Stock Watch: NCR topped the gainers table for the day, recording a gain of 986bps to close at ₦3.12. Just like some other small cap stocks, the counter has had a remarkable performance in the year, up 59.18% YTD, while trading 6.00% below its 52 week high price of ₦3.31.

Fixed Income: We expect the market to trade in a mixed manner to start the week, as investors continue to react to the latest auction results and system liquidity levels.