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Breakfast Report - November 12, 2019

Last week, President Buhari signed a bill into law changing the legislation on agreements related to offshore oil production. The new bill alters the 1993 Deep Offshore and Inland Basin Production Sharing Contract Act by adding two new revenue streams for the government. The first is a flat 10% royalty on all projects over 200 meters deep and the other is a 7.5% royalty on frontier and inland basins. The new revenue streams are expected to add an estimated ₦4.57 trillion to government revenue over the next two years. According to the government, the changes to production sharing contracts (PSCs) ensure that the government is generating revenue from the first day of production, rather than waiting long periods to generate revenue through taxation and profit sharing from oil production. Oil majors and other interest groups have raised concerns over these changes to the PSCs, as it would affect the level of investment in offshore oil projects going forward. The nature of the new terms could dampen Nigeria’s attractiveness as an offshore oil investment destination; however, the consequences of the new law remain unclear.

Equity: With sentiment around banking stocks remaining strong last week, we foresee further investor interest in select names at the start of this week. However, this positive sentiment may not filter into the rest of the market, as other key sectors continue to underperform.

Stock Watch: Tier-I banking stocks dominated market gainers for the week as ACCESS (+952bps), FBNH (+741bps), GUARANTY (+593bps), UBA (+394bps) and ZENITH (+88bps) experienced renewed buying interest.

Fixed Income: As market participants in the T-bills space continue to react to the OMO directive by the CBN, we expect the market to trade in a negative fashion at the start of next week. Meanwhile, in the bond space we expect a mixed session at the start of the week, as demand appears to be waning in the space.