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Breakfast Report - 28 June, 2017

Nigeria’s state-owned refineries received a total of 4.3 million barrels of crude oil in April 2017 (144,000 per day; Q1’17 average: 120,000 per day), the highest in over two and a half years. This comes on the back of stronger refinery capacity utilization in the country for the first four months of 2017, driven by Federal Ministry of Petroleum efforts to improve the performance of the refineries. Capacity utilization averaged 26% from January to April, above 14% and 5% in 2016 and 2015 respectively but still below the Ministry’s 60% target for this year. Despite producing c.2 million barrels of crude oil a day, Nigeria imports most of its petroleum product needs, leaving domestic petroleum prices vulnerable to fluctuations in exchange rates and global oil prices. To address this, the Ministry has outlined a 2019/2020 self-sufficiency target for petroleum products. Continued improvement in refinery performance will be key to attaining this, supported by the impending Dangote refinery (ETA: 2019; Capacity: 650,000 barrels a day).

Following the June Bond Auction, the Federal Government (FG) has now raised ₦850 billion through domestic bonds in H1’17. This compares to the ₦1.25 trillion target for domestic financing of the 2017 Budget. On the external financing front, a $300 million (₦92 billion) diaspora bond is the most notable contribution to 2017 Budget financing. With oil prices on a recent downtrend, we highlight the importance of focused borrowing efforts to ensure effective implementation for the budget.

The Nigerian equity market declined 499bps last week, its first weekly decline since the week ended May 19. Despite trading lower for most of Monday and Tuesday sessions, the ASI closed higher on both days, lifted by late-session rallies in market heavyweight, DANGCEM. However, the bears were not to be put off as profit taking went into full-swing with selloffs occurring across key sectors and stocks for the rest of the week.

Given the sustained negative market sentiment at the end of last week – indicated by the widely negative market breadth on Friday and through the week – we expect bearish trading to extend into this week.

Stock Watch: Whereas the rally in larger Pharmaceutical names looks to have cooled, NEIMETH recorded a 51% rise in the past six sessions. The stock now trades at a 2017-high of ₦0.98, returning 26% ytd.

In the fixed income market, barring any aggressive mop ups by the CBN, we foresee increased demand in the T-bills market, spurred by the FAAC injection and the anticipated ₦236 billion OMO maturity on Thursday, though the bond space should remain mixed.