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The Market Today - 18 September 2018

New Finance Minister reiterates revenue challenges                                                  

In her inaugural address as Acting Minister of Finance, Mrs. Zainab Ahmed highlighted the revenue challenges that continue to hold Nigeria back. The country remains too reliant on oil prices which, though currently high, are volatile and outside the government’s control. The minster also stated that the Ministry of Finance has tried to boost internally generated revenues, particularly by improving Nigeria’s tax generation. The country has one of the lowest tax-GDP ratios in the world (6%) and efforts to strengthen this, e.g. through the Voluntary Assets & Income Declaration Scheme, have borne only little fruit. Amid this, Nigeria has turned to the debt markets to finance its fiscal plans, with debt stock increasing from ₦12.6 trillion in 2015 to ₦22.4 trillion in the middle of 2018. But with revenues still low, increased borrowing would continue to pressure Nigeria’s debt servicing costs                                                      

ASI off to a sluggish start as bears return                                                             

"The equity market closed the first session of the week in the red, losing 39bps as Friday’s brief respite was overturned. With the market returning to negative territory amid a short-lived recovery, we foresee another red close for the bourse in today’s session, even as the risk-off sentiment perists.                            

Stock Watch: Following a 148bps decline in yesterday’s session, UACN closed at ₦10.00, its lowest price since 2005. The conglomerate has shed 41% of its value since the start of the year and with a target price of ₦20.86, the stock is rated a HOLD as we await green shoots from the company’s ongoing restructuring.                                                        

New week brings renewed interest in FI market                                                             

In spite of the CBN’s pause on conducting Open Market Operations, the Interbank call rate advanced 116bps to 11.83%. Meanwhile, trading was more positive across the Fixed income market yesterday, with investors particularly interested in the T-bills market – yields delined 69bps on average. Specifically, yields on the 31DTM and 38DTM bills declined 213bps and 198bps to settle at 12.21% and 12.19% respectively. Demand was similarly healthy in the bond market, with yields on benchmark bonds declining 10bps on average. Notably, yields on the 15.54% FGN FEB 2020 and 12.40% FGN MAR 2036 bonds declined 40bps and 15bps respectively to close at 14.81% and 15.33%. We expect to see further demand in the T-bills market as investors remain wary of taking positions on longer tenors. Meanwhile, pending the release of the Q4’18 bond calendar, we expect tepid trading in the bond market.