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The Market Today - 20 October 2017

FG lowers 2017 economic growth projection                                      

Nigeria’s fiscal authorities have downwardly revised their GDP growth projections for 2017 from 2.2% y/y to 1.5% y/y (IMF: 0.8%). Despite exiting its five-quarter contraction in Q2’17, growth came in much lower than expected (0.55% y/y vs. Consensus: 1.30% y/y), driven by a tamer than expected recovery in the oil sector and continued tightness across Services – Nigeria’s largest industry. We note that as at H1’17, GDP growth was -0.2% y/y, suggesting that in line with wider market expectation, the fiscal authorities anticipate a more positive H2’17. There are several pointers as to why this should be the case, including very strong Purchasing Managers’ Index numbers in Q3’17, a further ramp up in average daily oil production (Q2’17: 1.6 mbd. vs. Q3’17: 1.8mbd; OPEC estimates) and improved foreign exchange liquidity in the country. We project Q3’17 GDP growth to come in at 2.5% y/y and overall 2017 GDP growth to register at 1.1% y/y.

                                     

Flat trading session on the Nigerian bourse                                         

The Nigerian stock market traded flat yesterday (NSE ASI up 1bp) amidst mixed closes across key sectors. We anticipate sustained mixed trading in today’s session, as investors continue to cherry pick across stocks as earnings season progresses.

                                     

Stock Watch: DANGCEM released 9M’17 results yesterday with PAT rising 45% to c.₦193 billion – 6% behind Vetiva estimate. The stock currently trades at ₦220.00 (consensus estimate: ₦224.61) and has returned 26% ytd.                      

ZENITHBANK also released 9M’17 results yesterday with PAT up 35% to c.129 billion – 20% above Vetiva estimate. The stock currently trades at ₦26.25 (consensus estimate: ₦28.35) and has returned 77.97% ytd.

                                     

Tight liquidity pressures T-bill demand                                     

Amidst an OMO maturity of ₦75.64 billion, the CBN conducted an OMO auction yesterday, offering ₦70.00 billion and selling ₦98.87 billion across the 91DTM and 196DTM bills at stop rates of 16.00% and 17.81% respectively (effective yields: 16.66% and 19.69%). Despite yesterday’s OMO inflow and lower stop rates at recent auctions, tight liquidity continued to strain demand in the T-bills market, driving yields 10bps higher on average. In contrast, the bond market persisted bullish yesterday with yields trending southwards across the curve. We expect tight liquidity to continue to pressure yields at the short end of the curve. Meanwhile, modest buying should persist in the bond space as investors take a cue from CBN signal of lower rates in the medium-term.