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The Market Today - 15 March 2018

OPEC shows growth in Nigeria’s production, still within quota
According to the Organization of Petroleum Exporting Countries (OPEC), Nigeria’s crude oil production (excluding condensates) has stabilized around 1.8 mb/d in recent months. Specifically, oil production in the country stood at 1.82 mb/d, 1.78 mb/d, and 1.81 mb/d in December 2017, January 2018, and February 2018 respectively. This is a substantial improvement from average oil production of 1.56 mb/d and 1.66 mb/d in 2016 and 2017. We note that OPEC imposed a production quota of 2.8 mb/d for Nigeria and Libya at the end of 2017 and the two countries have so far complied with the quota in 2018 (joint-production of 2.77 mb/d and 2.80 mb/d in the first two months of the year). Whilst increasing oil production is an essential element of Nigeria’s 2018 economic outlook, the country has a key role to play in supporting global crude oil prices by complying with the OPEC quota. We are relatively optimistic on this front and expect the Ministry of Petroleum to focus efforts on condensate production in order to milk gains from higher volumes and higher prices this year.

Selling intensifies as big banks release FY results
Driven by negative closes in all key sectors, save for the Industrial Goods sector, the NSE ASI fell 54bps yesterday. Indicated by the widely negative market breadth, down trending intraday chart and red closes across key indices, trading sentiment was poor yesterday. Barring a positive market catalyst, we anticipate another bearish session.

Stock Watch: GUARANTY released its FY’17 results yesterday with bottom line coming in 6% ahead of our expectation. The tier I bank also proposed a total dividend of ₦2.70 (2016: ₦2.00; Vetiva: ₦2.44). The stock currently trades at a price of ₦47.30 and has returned 16% ytd.

Yields decline amidst lower rates at PMA
The Central Bank of Nigeria conducted a Primary Market Auction yesterday, offering ₦90.72 billion (₦191 billion maturity) and selling ₦95.72 billion across the 91DTM, 182DTM and 364DTM bills at stop rates of 11.75%, 13.00% and 13.19% respectively (effective yields: 12.10%, 13.90% & 15.19%) – all lower than the previous PMA. Amidst general expectation of lower PMA levels and a net liquidity inflow, buying interest intensified across the secondary T-bills market, with yields declining 12bps on average. Similarly, positive sentiment dominated the bond space, with demand firmly weighted across the middle of the space. With PMA rates stopping below secondary market levels, we expect strong demand in today’s session as yields adjust to primary market levels. However, with c.₦453 billion hitting the system today via a combination of PMA and OMO maturities, we anticipate an aggressive mop up action from the CBN, capping the pace of yield moderations.