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The Market Today - 25 October 2018

Diamond Bank announces resignation of chairman, directors                                         

Diamond Bank Plc released a statement on the Nigerian bourse in yesterday’s session announcing the resignation of four of its non-executive directors from the board of the company. The statement included that the directors had resigned for varied reasons and the company would update the market with further developments. Meanwhile, media reports from yesterday also claimed that the bank is looking to raise fresh capital and is in talks with new investors. We note that Diamond Bank has been grappling with huge impairment losses – NPL ratio at 12% as at H1’18 vs 5% threshold – as well as capital challenges (CAR of 16.6% as at H1’18) for the past few years. We recall that the bank announced the divestment of its UK subsidiary a few months ago in a bid to become a national bank, a move that effectively lowers the lender’s required capital adequacy ratio (15% for International Banks, 10% for National Banks).                                             

Industrials sell-off drives market into red territory                                             

"The ASI recorded a 237bps decline following steep losses in three of the four key sectors. Market activity remained negative throughout the session with market turnover falling below average once again (₦2.3 billion). Market breadth turned positive with 18 advances and 15 declines. Despite the negative performance, market sentiment has remained mixed noting the positive market breadth despite major negative closes across the sectors. Barring another significant Industrials drop, we expect sentiment to remain varied in the market.

Stock Watch: Supported by a 945bps gain in yesterday’s session, DIAMONDBNK has recorded a 16% gain in the last four sessions to settle at ₦1.39. The stock has lost 7% YTD but is still outperforming the banking sector (-12%).                                      

Bond auction drives mixed trading sentiment                                           

"The DMO conducted a bond auction yesterday, selling ₦88 billion (₦115 billion offered) across the 12.75% FEB 2023, 13.53% MAR 2025 and 13.98% SEB 2028 bonds at stop rates of 15.00%, 15.15% and 15.32% respectively. Whilst the 3-year and 5-year maturities were undersubscribed and closed in line with previous auction rates (although higher than secondary market levels), the 10-year bond was vastly oversubscribed with stop rates coming in higher than previous auction rates (and lower than current secondary market levels). Meanwhile, with system liquidity declining to c.₦120 billion, the Interbank Call rate advanced 167bps to 16.67%. Following lower allotment levels at the bond auction, we foresee increased demand in the secondary market as investors take positions in the secondary market.