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The Market Today - 1 March 2017

Can Oil recovery drive economic rebound?

The Oil sector performance remains key for 2017. Beyond growth in the sector itself, improvement in oil price and volumes will have a knock-on effect on the wider economy. Our base scenario assumes continued strong oil prices and volumes – relative to 2016 – which should prop up growth given the low base of the precious year. We forecast FY’17 real GDP growth of 1.9% for the broad economy. Although we foresee a step forward in recovery in 2017, we expect Q1’17 real GDP growth to be negative (-0.7%) as economic weakness persists slightly at the start of the year (January Manufacturing PMI: 48.2) and the slightly higher base of Q1’16 takes its toll. We see growth picking pace in Q2’17, largely driven by recovery in oil sector.

Investors to take cue from corporate announcements

DANGCEM reported a 4% y/y rise in FY’16 PAT – translating to an EPS of ₦11.34 vs. Bloomberg consensus estimate of ₦10.71. However, we saw a muted investor reaction in yesterday’s session. The Board of Directors also announced a final dividend of ₦8.50 (Div. yield: 5%) vs. ₦8.00 for FY’15. With more earnings expected to filter in over the course of the week, we expect the market performance to be largely shaped by investor reaction to corporate announcements.

Stock Watch: We expect WAPCO to announce its FY’16 earnings today. We anticipate a negative EPS for FY’16 (FY’15: ₦5.93). We however expect WAPCO to return to profitability in FY’17, supported by cautious optimism on ongoing energy diversification even as the year’s earnings would be significantly free from FX losses from dollar loan revaluation. WAPCO currently trades at ₦39.00 (TP: ₦68.42)

Anticipated CBN FX sale dampens sentiment

The CBN conducted another OMO auction yesterday, offering ₦20 billion and ₦30 billion across the 156DTM and 324DTM bills. Whilst no sale was made on the 156DTM bill, the apex bank sold ₦14 billion on the 324-day bill at a stop rates of 18.60% (effective yield: 22.28%). Amidst this, trading in the fixed income market was relatively quiet as investors took to the sidelines in anticipation of CBN’s SMIS. Given the sustained Secondary Market Intervention Sales by the CBN, we expect sentiment in the fixed income space to remain dampened in the coming session.