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The Market Today - 02 August 2018

Stocks suffer largest loss in six weeks amid high turnover                                                          

The Nigerian equity market dipped 1.09% yesterday, the largest drop since the 21st of June, and snapped a three-session gaining streak. We highlight that the two most capitalized stocks—DANGCEM and NB—which account for nearly half of total market capitalization came under notable pressure yesterday. The market dip comes amid earnings releases which have largely come in line with expectation and accompanied by stronger market turnover (average wtd turnover: ₦4.2 billion vs. previous: ₦3.3 billion). We note that the Tier 1 banks (save for FBNH) are yet to release results (due to the audit), and we expect these banks to post stronger numbers, which should further support market activity. Going forward, we expect macroeconomic dynamics and the political picture to continue to steer market activity, and thus anticipate a return between -5% and 5% for 2018 (Ytd: -4.26%).                 

Mounting pressure on large caps drags market                                                

The bourse reversed into negative territory as blue-chips across key sectors posted losses, pulling the ASI to a -109bps close. With large cap stocks under rising pressure and a sustained negative market breadth, we foresee another negative session today.                                                              

Stock Watch: UACN released its H1’18 results yesterday showing a 22% y/y decline in revenue and 14% y/y rise in PAT, although the bottom line came in 8% below our estimate. The stock remained at ₦13.20 yesterday, and has declined 22% ytd.                                                           

Mild yield moderation on T-bills amid Primary Market Auction                                               

The CBN conducted a T-bills PMA yesterday, offering and seling ₦216 billion across the 91DTM, 182DTM and 364DTM bills at respective stop rates of 10.00%, 10.40% and 11.30% (Previous: 10.00%, 10.50% and 11.49%). Despite this, the interbank call rate declined to 2.92% (previous: 8.58%).  Amid the T-bills PMA, Trading in the T-bills space was mixed albeit with a positive bias as yields declined 7bps on average. Specifically, yields on the 43DTM (-41bps to 11.47%) and 99DTM (-34bps to 11.01%) bills moderated. Likewise, sentiment in the bond market was varied with demand weighted towards the short-mid dated tenors. Overall, yields on benchmark bonds shed 2bps on average. In particular, whilst yield on the 15.54% FGN FEB 2020 bond declined 20bps to 13.34%, yield on the 12.1493% FGN JUL 2034 bond advanced 13bps to 14.22%. With ₦324 billion in T-bills expected to mature today, we foresee the CBN intervening in the market by mopping up liquidity from the expected outflow driving yields higher in the T-bills space. On the other hand, following interest from buy-side clients in the Bonds space, we expect yields to further moderate slightly if the demand persists today.