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Breakfast Report - 31 July, 2017

The Week Ahead                                            

The NSE ASI received a boost in the last two weeks of July – gaining 11% – as most H1’17 earnings came in better than expected. Continued economic recovery and improved foreign exchange liquidity helped to boost earnings significantly in all sectors. In the Oil & Gas sector, the reduction in Niger Delta disruption and the OPEC agreement proved to be catalysts for earnings in the sector, spurring a 4% rise in the index in July. Across Consumer Goods and Industrial Goods names, cost containment and price increases boosted earnings growth as the respective indices advanced 7% and 17% in July. Finally, the high-yield environment at the start of 2017 should support earnings across Tier 1 banks, despite a strong 2016 base. The Banking index rose 16% in July.                                             

With the roll out of numerous earnings releases swaying market sentiment, the NSE ASI dropped 102bps at the close of last week breaking a 16-session bull run – its longest since 2001.                                              

Following the release of a slew of H1’17 earnings at the end of last week, we expect further mixed trading at week open albeit amidst strong market activity – Friday’s turnover totaled ₦8.1 billion. Given market expectation of mostly positive earnings, we anticipate an overall bullish trading tilt this week.                                       

Stock Watch: Despite the better than expected earnings release, DANGCEM lost 387bps on Friday, mainly due to profit taking by investors after the stock reached a 3-year high of ₦245.00 last Wednesday. The stock now trades at ₦235.51 (Consensus TP: ₦207.00) and has returned 35.36% ytd.                                      

In the fixed income market, we expect tight liquidity to pressure buying sentiment in the T-bills market this week. Meanwhile, the CBN will offer ₦229.14 billion at the Primary Market Auction on Wednesday. With tepid trading evident in the bond space during the last week following the no change decision by the MPC, we expect this to continue this week.