FREE

The Market Today - 16 August 2017

Nigeria’s crude production finds stability                                             

According to reports from the Ministry of Petroleum Resources, Nigeria’s national crude oil production remained stable at 2.06 mbpd in July (June: 2.05 mbpd), a marked improvement on a lifting of 1.77 mbpd in July 2016. The steady rise in the average daily crude production (H2’16: 1.69 mbpd; H1’17: 1.86 mbpd) can be attributed to abated militancy in the Niger Delta region of the country, following relatively successful negotiations between the Federal Government (FG) and militancy groups to bring a halt to disruptions that at their peak, reduced Nigeria’s daily crude production to 1.52 mbpd in August. Whilst average daily crude production remains below the 2017 Budget benchmark of 2.2 mbpd, we highlight that stronger oil prices – Ytd Brent Crude average: $52.21/bbl vs. benchmark of $44.50/bbl – should support FG oil revenues, and in turn, foreign exchange liquidity. Moreover, we expect daily crude production to inch up further amidst stability in the Niger Delta region and the completion of repairs to damaged infrastructure.                                          

Bearish sentiment persists, ASI down 225bps                                    

The Nigerian stock market continued the week in the red (ASI down 225bps), with all key sectors closing in the red on the day. We anticipate another session of losses on the exchange given the broad based bearish sentiment yesterday – as seen by the downward trending intraday chart and negative market breadth – and red closes across counters.                             

Stock Watch: GUARANTY released an impressive H1’17 result after market close yesterday with PAT up 17% y/y and 22% above our estimate. The Bank also declared an interim dividend of ₦0.30/share. The stock has lost 3% over the last four consecutive sessions and currently trades at ₦38.92 returning c.58% ytd.                                          

Yields trend northwards as sell-offs persist                                        

Amidst already strained liquidity, the CBN conducted an OMO auction yesterday, offering ₦25 billion across the 191DTM and 359DTM bills and selling ₦106.9 billion, maintaining respective stop rates of 17.95% and 18.55% (effective yields: 19.81% and 22.69%). Trading in the T-bills market was mixed albeit tilted towards a bearish bias. Whilst modest demand was observed on select maturities in the T-bills market, strong sell was noticed  on the short-mid end of the space. The bond market also continued bearish as yields trended northwards across the curve. Notably, the yield on the 16.2499% FGN APR 2037 bond advanced 12bps to close at 16.62%. We expect cautious trading today as the CBN conducts a ₦62.44 billion T-bills Primary Market Auction. Also, whilst attractive stop rates may spur interest at the PMA, we note that the liquidity squeeze may ultimately cap demand at the auction.