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The Market Today - 01 August 2018

Nigeria’s debt profile rebalancing towards external debt                                                           

Nigeria is making strides towards achieving its 60:40 target for domestic: foreign debt mix, a fact highlighted by the Director-General of the Debt Management Office of Nigeria, Ms. Patience Oniha. DMO data for Q1’18 shows that the country currently has a 70:30 debt ratio, a significant change from the 84:16 in the corresponding period in 2016. The increased contribution of external debt is on the back of sizable Eurobond issuances in the last 18 months, including a $2.5 billion Eurobond sold earlier this year. The DMO is confident that Nigeria would be able to remain within its debt sustainability thresholds as interest rates on external debt are lower than domestic debt, and the country’s debt-GDP ratio remains below the internationally acceptable threshold as well as its peers. That said, we anticipate greater pressure on Nigeria’s borrowing costs ahead of the elections, as investors put some discount on Nigerian debt due to electoral uncertainty.                                                         

NSE ASI clinches positive close despite banking dip                                                       

The NSE ASI (+19bps) posted another day of gains with all but one key sector closing in the green. Market sentiment however dampened following bearish trading across large cap banking names. Despite another positive close and the release of positive earnings results, trading on select banking blue-chips turned notably negative. Following from this, we foresee a muted performance for the ASI with a slightly negative tilt as incoming releases continue to sway trading activity.                                                

Stock Watch: NESTLE released its H1’18 results recently showing an 11% y/y increase in revenue, in line with Vetiva estimate and 30% increase in PAT y/y, 16% higher than our estimate. The stock gained 952bps yesterday to settle at N1645.00, and has returned +2.83% ytd.                                                              

Tepid session across both spaces of F.I market                                                 

"In the absence of an OMO mop-up, system liquidity remained relatively healthy at N136 billion. Thus, the interbank call rate declined 84bps to 8.58%. Momentum in the T-bills space was however tepid with a mildly positive tilt as yields moderated stayed flat d/d. Specifically, whilst yields on the 65DTM (-40bps to 11.17%) and 247DTM (-29bps to 12.97%) bills dipped, yields on the 86DTM (+22bps to 11.37%) and 156DTM (+22bps to 12.64%) bills advanced. Trading in the bond market was likewise muted with yield direction mixed across the space. Notably, whilst yields on the 16.00% FGN JUN 2019 and 12.1493% FGN JUL 2034 bonds declined 22bps and 18bps to 12.64% and 14.09% respectively, yield on the 14.20% FGN MAR 2024 bond advanced 18bps to 13.87%. The CBN is conducting a T-bills PMA today, offering N216 billion across the 91DTM, 182DTM and 364DTM bills, at which rates are expected to come in below secondary market levels. Thus, we expect to see modest moderation in yields post-auction amidst adjustment to primary market levels. Meanwhile, we foresee another quiet session in the bonds space in the absence of any significant market catalysts.