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The Market Today - 22 March 2019

Federal Government eyes partial divestment in JVs                                      

In a bid to grow the Nigerian economy, which is still reeling from fragile growth, the federal government plans to sell its stake in oil joint ventures (JVs) down to 40%. This was made known to the public by the Minister of Budget and National Planning, Senator Udo Udoma. The federal government’s plan to restructure its equity capital in JVs is in line with the administration’s Economic Recovery and Growth Plan (ERGP)—an economic blueprint that proposes the divestment of government’s assets in JVs as well as refineries and other downstream subsidiaries. While the planned divestment from JVs will provide an instant boost for government revenue and result in reduced cash call obligations, it comes with the consequence of a reduced share of oil revenue from JVs afterwards. Given that oil output from JVs contribute about 33% of the nation’s total crude production, the aftermath of a reduced share in JVs will have considerable impact on government oil revenue in the coming years.                                   

Oil & Gas sector drags ASI to sixth-straight negative close                                     

Despite green closes in two key sectors, the NSE ASI shed 50bps due to heavy losses in the Oil & Gas sector. Market breadth turned positive with 23 advances to 15 declines. Whilst investor interest in select stocks in key sectors fail to lift the All-Share Index, we foresee a mixed session with a slight positive tilt to close the week as buy interest persists.                             

Stock Watch: Following the suspension of trading of Diamond Bank, investors interested in Tier II names have been snapping up shares in FIDELITY, WEMABANK and FCMB, driving their prices up 13%, 11% and 7% respectively this week.                              

Yields jump as CBN returns longer-dated bills at OMO                                              

Amid an OMO maturity of ₦121 billion, the CBN held an OMO yesterday, selling ₦293 billion (₦200 billion offered) across the 91DTM, 182DTM and 350DTM bills at stop rates of 11.80%, 12.98% and 13.04% respectively (effective yield: 12.16%, 13.88% and 14.99%), indicating the return of the longer dated maturity to auction for the first time in two weeks. Meanwhile, the Interbank Call rate advanced 583bps to settle at 16.00%.

The secondary T-bills market, consequently, turned bearish, with sell-offs observed on the long-end of the space. Conversely, the bond space turned mildly positive, with benchmark yields on moderating 3bps on average. We expect further yield advances in the T-bills space in today’s session and foresee further mild buy-side activity in the bond space.