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The Market Today - 15 August 2018

H1’18 debt data comes in line with FG strategy                                                

Nigeria’s total debt reduced from ₦22.7 trillion at the end of Q1’18 to ₦22.4 trillion at the end of H1’18, according to data from the Debt Management Office (DMO). This decline was driven by a moderation in total Federal government domestic debt from ₦12.6 trillion to ₦12.2 trillion in the same period as external debt rose marginally. We note that this is in line with the government’s overall strategy of shifting away from domestic borrowing, and H1’18 figures indicate success on this front—the proportion of external debt has risen to 30% in H1’18, albeit still lower than the target of 40%. The decline in Nigeria’s debt is also a welcome development considering slight concerns over debt sustainability, but the primary issue continues to be the country’s debt servicing costs, which we conservatively estimate at 30% for Q1’18. Given the reasonable size of Nigeria’s debt (c.20% of GDP), efforts to maintain debt sustainability must focus on attaining lower interest rates and crucially, expanding the government’s revenue base – particularly non-oil revenue.                                                   

Bourse weakens further, downturn in blue-chips persists                                                          

The NSE ASI closed down once again, sliding 35bps on the back of losses in three of the four key sectors. Notably, in spite of the extended slide (eight consecutive sessions), market sentiment shows little signs of improvement as market indicators remain negative.  Whilst we note a slight uptick in trading towards session close, we anticipate an extended downtrend as market activity and sentiment remain tepid.                    

Stock Watch: SEPLAT recently announced the signing of an MoU with NNPC to deliver 3.4 billion scf of gas per day, a significant development in the company’s natural gas ventures. The stock currently trades at ₦650.00, below its year-high of ₦785.00, albeit up 3.8% ytd.                                                             

Sentiment turns mixed across bills and bonds                                                  

The Interbank call rate declined 137bps to 10.38% amid healthy system liquidity (₦191 billion) and in the absence of a liquidity mop-up by the CBN.  Trading in the T-bills space turned mixed yesterday as T-bill yields closed flat on average. Notably, yields trended in opposite directions as though yield on the 79DTM bill (+52bps to 11.99%) advanced, yield on the 23DTM bill (-40bps to 10.41%) declined. Sentiment in the bond space was likewise mixed albeit with a bearish tilt. Healthy demand was observed on the short-dated bonds, with yield on the 15.54% FGN FEB 2020 bond moderating 14bps to 13.72%, but sell pressure dominated the long-end as yields on the 13.98% FGN FEB 2028 and 12.1493% FGN JUL 2034 bonds rose 20bps and 26bps to settle at 14.68% and 14.72% respectively. We expect trading to persist mixed today amid the August Bond PMA; the DMO will be offering ₦90 billion across the 5-yr, 7-yr and 10-yr bonds.