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The Market Today - 01 February 2018

Recovering oil output to boost ECA                                                        

According to the Minister of Finance, Mrs. Kemi Adeosun, the stickiness of the balance of the Excess Crude Account (ECA) can be attributed to below-target oil production levels in recent times. We note that 2017 oil production averaged 1.9 mb/d, below the 2017 budget benchmark of 2.2 mb/d, which dampened the effect of higher-than-expected global oil prices during the period. The ECA is used to save excess oil revenues based on the approved budget benchmark price – a mechanism designed to protect government budgets against shortfalls due to volatile crude oil prices. With oil prices averaging above $65 in the first month of 2018 and oil production expected to be stronger this year, we anticipate healthier oil revenues and stronger accruals to the ECA.

ASI loses steam at midweek, slips 34bps                                                             

After three consecutive sessions of gains, the Nigerian equity market lost steam at midweek, dropping 34bps on the day. We highlight profit taking as a key driver of the negative closes across a handful of stocks, particularly banking names that have rallied over the course of the year. Whilst we expect this to continue, we foresee a mixed trading session today as investors hunt for bargains across stocks that have recorded relatively modest price movement ytd.                                                               

Stock Watch: GUINNESS recently reported its half-year earnings with bottom line of ₦2.1 billion printing 6% ahead of Vetiva expectations. The brewer currently trades at ₦113.00 and has returned 20% ytd.                                                               

Market continues bullish amidst PMA                                                  

Yesterday, the CBN offered and sold ₦253 billion at a T-bills Primary Market Auction at stop rates of 12.00% (91DTM), 13.65% (182DTM) and 13.70% (364DTM), with respective effective yields of 12.37%, 14.65% and 15.87%. Amidst the auction, trading in the T-bills secondary market remained markedly bullish, with yields declining 24bps on average. Trading in the bond market was similarly upbeat, with yields declining 3bps across benchmark securities. We expect buoyant system liquidity as well as lower PMA stop rates (relative to secondary market) to support further buying sentiment across the FI market. We however anticipate an aggressive mop up by the CBN today, capping the pace of yield moderations.