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Breakfast Report - 3 July, 2017

The Week Ahead

In Q2’17, the market turned in its best quarterly performance (30%) since Q2’09, driven by better-than-expected Q1’17 company performances and an improving macro environment. Furthermore, PenCom revised investment guidelines for Pension Fund Administrators, triggering greater participation of Pension funds in variable income instruments. The improved macro environment was further buoyed by the introduction of the Investors’ & Exporters Foreign exchange (I&E FX) window which improved liquidity and allows market-determined exchange rates in that segment. The introduction of the I&E FX window turned out to be a game changer, further boosting buying sentiment as the ASI rallied to over a year-high. Despite a few negative blips, sentiment remained largely positive with the market gaining 15% and 12% in May and June respectively to end the first half of the year with a 23% return. Notably, turnover on the exchange also improved significantly, with the ASI recording an average daily value traded of ₦4 billion in Q2’17 (Q1’17: ₦2 billion). With improved FX liquidity and the recent signing of the budget boding well for the sustenance of the economic recovery, we believe that the equity market (which is still considered to be undervalued vs peers) could record further gains in H2’17. We note that this outlook could be dampened by significant shocks in the global oil market as supply glut persists despite the production cut agreement between OPEC and other non-OPEC members.

The Nigerian equity market ended the shortened trading week in the red (-46bps) as investors locked in gains from earlier in the week. Despite this, the ASI returned 310bps last week, with all key sectors closing the week in the green.

Despite the profit-taking observed on Friday, we expect the market to open this week in the green as buying sentiment still persists, evidenced by the strong gains recorded in the first two sessions of the week. However, waning volume and value traded suggests a drop in activity which could dampen gains.

Stock Watch: 7UP lost 500bps on Friday following the release of its FY’17 results – revenue up 26%. However, the company made a loss of ₦10.8 billion. 7UP currently trades at ₦86.45, returning 32.58% ytd.

In the fixed income market, we expect the improvement in system liquidity to continue to spur demand in the fixed income market in the coming week. Also, with the CBN signaling its intention to reduce T-bills rates (with the lower rates seen in recent OMO auctions), we see further room for increased buying activity in the T-bills market particularly.