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The Market Today - 19 October 2017

2018 Budget shows FG commitment to fiscal expansion                                                              

As part of preparations for the presentation of the 2018 budget, President Muhammadu Buhari presented the 2018-2020 Medium Term Expenditure Framework (MTEF) and the Fiscal Strategy Paper (FSP) to the legislature. Drilling into the details, the Federal Government (FG) proposed an oil price benchmark of $45/bbl (2017: $42.50/bbl) and oil production volume of 2.3 mmbpd for the 2018 budget. Also, the executive proposed an exchange rate of N305/$1; with GDP growth rate of 4.8% and inflation rate of 12.42%. We highlight that whilst the 2018 oil price benchmark is well below 2017 average ytd price ($52.70/bbl), domestic oil production is yet to reach the targeted 2.2 mmbpd (August: 2.1 mmbpd). Meanwhile, the FG projects capital expenditure of ₦2.4 trillion (2017: ₦2.2 trillion) whilst aggregate revenue is pegged at ₦5.65 trillion – 11% above 2017 estimate. The proposed 2018 Budget is in line with recent trend and consistent with the countercyclical fiscal policy of the present administration. Nonetheless, as seen in recent years, speedy budget passage and execution, as well as healthy revenue generation and borrowing, are needed to actualize the promise of fiscal projections. We remain cautious about the timing of the 2018 Budget passage but note that healthier oil earnings and a lower interest rate environment should help support budget financing.                                                               

Bearish trading persists as NSE ASI loses 8bps                                                   

The Nigerian bourse closed 8bps lower yesterday following a choppy trading session with sentiment tilted bearish.  Whilst trading should remain mixed, we expect a sustained bearish tilt in today’s session, noting the widely negative market breadth, as well as the decline in market turnover to ₦2.9 billion (Previous: ₦4.7 billion).                                                              

Stock Watch: GUARANTY released its 9M’17 towards the market close yesterday, with PAT rising by 7% to c.₦126 billion – 22% above Vetiva estimate. The stock currently trades at ₦41.70, slightly below consensus target price of ₦41.75 and has returned 69% ytd.                                                           

T-Bill yields march upwards amidst PMA                                                             

The Central Bank of Nigeria conducted a Primary Market Auction yesterday, offering ₦90.26 billion and eventually across the 91DTM, 182DTM and 364DTM bills. Tight liquidity favored bears in the T-bills market as sell pressure heightened across the curve. Demand was however stronger in the bond market with buying sentiment particularly evident on select benchmark bonds.