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Breakfast Report - October 21, 2019

The Week Ahead

The Minister of Finance, in a statement following the World Bank/International Monetary Fund meeting last Thursday stated that the government is considering levying excise duties on carbonated drinks produced in Nigeria. This, like the hike in VAT rates, is an attempt to expand the Federal Government’s revenue streams, driving higher costs that producers are likely to pass on to consumers. That said, the eventual implementation of the proposed excise duties could weigh on the demand for carbonated drinks, likely affecting the already unsteady economic growth. This could be worsened by the increasing health-consciousness in the country which, coupled with the price hike, may weaken the consumption of such goods. However, going by the similar occurrence in the Brewery space, where we saw producers take on significant costs to remain competitive in the market, we may see decreased margins in the soft drinks space in the near term alongside aggressive cost-cutting measures.

Equity: Investor sentiment continues to be negatively affected by the unimpressive macro-economic environment. However, we believe current price levels offer good entry point for mid/long term investors.

Stock Watch: CUSTODIAN closed the week as one of the best performing stocks, gaining 973bps to close at ₦6.20. The insurance stock continues to be defensive in the volatile market, printing a YTD return of +9.73%.

Fixed Income: We expect further demand for the longer-dated papers to drive activity in the T-bills space at the start of the week, whilst we foresee another positive, albeit subdued session in the bond market, as investors remain focused on shorter-dated securities.