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The Market Today - 22 February 2018

Delta state to build 10,000 barrels modular refineries                                                   

The Delta State Government said it would commence the construction of three modular refineries, with a capacity of 10,000 barrels per day before the end of the year, subject to approval from the Department of Petroleum Resources (DPR). Given the average construction duration of c.2 years for modular refineries, the proposed 10,000 barrels capacity installations should berth around 2020, if its commencement timeline proceeds as planned. This effectively adds to the refinery projects in pipeline, notably the 650k bpd Dangote Refinery and AGIP 150k bpd scheduled for completion by 2019 and 2020 respectively. We should highlight that similar plans to construct modular refineries are currently in consideration particularly within the private investment community, with some probably waiting for a clearer policy landscape before publicly disclosing their intentions. Whilst all these should immensely improve petroleum product supply in the longer term, we highlight that supply in the short to medium term would remain challenging as existing refineries continue to operate at dismal capacity and current import dynamics remain largely limited to NNPC.                                                             

Banking sector rebound supports equity market                                                             

The Nigerian bourse narrowly made it into the green yesterday, eking out a meagre 2bps gain as positive performance from the Banking sector counterbalanced selling pressure across other key sectors. Although the market closed mildly higher, overall market sentiment remains quite unconvincing even as market breadth remains negative and most key sectors shed further weights. We believe this could drag the ASI back to the red today. Meanwhile, we note some bargain hunting across a couple of recently beaten down stocks particularly in the banking space and believe this could lift the sector once again today.                               

Stock Watch: Having shed 18% over the last four sessions, FCMB currently trades at a price of ₦2.29, below Vetiva’s target price of ₦5.06, and has returned 55% ytd.                                                              

Yields advance in secondary bonds market amidst PMA                                                              

Whilst the CBN remained silent on OMO auctions yesterday, the DMO conducted the monthly bond auction, reporting a total sale of ₦80 billion (Offer: ₦100 billion) across the re-opened 5-year bond and a newly issued 10-year security at stop rates of 13.70% and 13.98% respectively.  Amidst the auction, sentiment in the bond market was generally negative (yields climbed 7bps) with only slight buying observed on the short dated maturities. Trading sentiment in  the T-bills market was however upbeat, as yields declined 14bps on average. Assuming the CBN continues to hold off on OMO auctions, we expect stronger buying activities in the T-bills market today – with system liquidity further supported by a ₦29 billion inflow. Meanwhile, given the soft demand at the bond auction today amidst yields rates being higher than previous auctions, we expect to see increased sell pressure across the bond space today as yields adjust to primary market levels.