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The Market Today - 08 December 2017

Oil production continues to underperform budget target                                         

Data from the Ministry of Petroleum Resources pegs Nigeria’s oil production at 2.04 mb/d in November, meaning that oil production has been sticky just above 2.0 mb/d for the last six months (6-month average: 2.02 mb/d). This puts average output for the year at 1.9 mb/d, less than the 2017 budget target of 2.2 mb/d. We anticipate higher production levels in the coming months following the lifting of Force Majeure on Bonny Light production in October 2017. However, we are skeptical that Nigeria would reach its 2.3 mb/d target level in 2018 given its output cap of 1.8 mb/d (excl. condensates) as part of the OPEC output agreement. Condensates have averaged 0.3/0.4 mb/d in recent years, meaning that Nigeria is unlikely to hit the 2.3 mb/d target and still comply with the OPEC agreement. On a more positive note, we are of the view that Federal Government plans to reduce its stake in Joint-Venture oil assets and Production Sharing Contracts would boost the efficiency of oil production in the country.                                 

NSE ASI continues uptrend, up 117bps                                     

As bulls tightened their grip in the Consumer Goods and Banking sectors, the Nigerian equity market booked another green close, with the ASI gaining 117bps. Value traded continued to strengthen on the day, 39% higher d/d to N10.2 billion, as foreign and institutional investors reportedly lock in year-end positions across the key sectors. Whilst we expect positive sentiment to remain dominant, we believe profit taking will become more evident at week close given a handful gains in the last few sessions and noting the pullback observed at the end of yesterday’s trading session.                                    

Stock Watch: DANGSUGAR has gained 17% over the last six sessions. The stock currently trades at a five-year high of N20.50, above Vetiva’s target price of ₦16.75 and has returned 236% Ytd.                                                                   

No slowing down for Bulls in Fixed Income market                                       

Despite liquidity inflow from a ₦90 billion OMO maturity yesterday, the CBN continued to hold off on OMO auctions. Supported by healthier system liquidity, buying interest continued to dominate the fixed income market, albeit yields declined at a slower pace on average. Particularly, yields in the T-bills market declined 25bps on average. Likewise, yields on benchmark bonds moderated 6bps on average. With the CBN continuing to refrain from conducting OMO auctions and amidst the liquidity boost, we expect demand to remain buoyant in the fixed income space at week close.