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The Market Today - 22 August 2017

Primary market activity surges in the equity market                                   

After years of tepid primary issues in the Nigerian capital market, activities have gradually seeped back into the Primary market on the Nigerian stock exchange as companies revisit plans to raise equity. These activities have come in the form of a flurry of rights issues across various key sectors on the exchange. With currency devaluation inflating finance costs on dollar-denominated loans in 2016 coupled with the need to boost capital buffers, companies now look to the primary equity market to provide relief to their bottom lines by raising equity capital to pay down the loans as well as to support growth. More so, we believe the high interest rates on domestic borrowing provides a case for equity capital raising versus domestic borrowing. That said, the recent upturn in activity on the exchange has also increased confidence in companies’ willingness and ability to raise funds in the equity market as valuations now appear richer. So far, a number of companies across key sectors have announced capital raising plans and we expect more to follow in the near term, particularly in the lower tier space of the banking sector.                                

Industrials pull ASI under at week open                                               

The Nigerian stock market started the week in the red, losing 91bps, primarily on the back of losses in the Industrial Goods sector. Whilst yesterday’s negative close can be largely attributed to losses in large cap DANGCEM, varied intraday trading and weak closes across key sectors points to mixed market sentiment. We anticipate a similar trading pattern today albeit with a bullish tilt.                                 

Stock Watch: After shedding 12% over four sessions once it hit a year-high of ₦13.23 in mid-August, NASCON has rebounded in the last four sessions, notching 11% to ₦13.02. The stock has returned 53% Ytd.                                

Activity wanes in bond space at week open                                         

The CBN conducted an OMO Auction yesterday, offering ₦35.00 billion and selling ₦51.93 billion across the 185DTM and 353DTM bills at stop rates of 17.950% and 18.549% (effective yields: 19.75% and 22.604%) respectively. Lukewarm trading sentiment dominated the bond market yesterday as yields on most maturities closed flat across the mid-long end of the space. Likewise, following the liquidity squeeze, the T-bills market opened the week mixed albeit with a bearish bias as yields moved in opposite directions. Ahead of the bond auction on Wednesday, we expect heightened activities in the bond space – particularly on auction bonds. However, we expect the tight system liquidity to further cap demand in the T-bills market.