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The Market Today - 22 November 2017

FG eyes PSCs, VAIDS for 2018 non-oil revenues                                  

According to the Minister of State for Budget and National Planning, Zainab Ahmed, the Federal Government (FG) is projecting over ₦300 billion in revenues from intended amendments to FG production sharing contracts (PSCs) with International Oil Companies (IOCs). This is in addition to the ₦710 billion projected from reducing government’s stake in Joint Venture agreements and shows the FG’s desire to raise revenues by cutting its stake in oil assets. Meanwhile, the Minister also revealed that the FG is targeting ₦300 billion in additional taxes as a result of the Voluntary Assets & income Declaration Scheme (VAIDS), the tax amnesty program aimed at widening Nigeria’s tax base by drawing in previous tax evaders. The Senate has allegedly queried the fiscal authorities over ambitious non-oil revenue projections for 2018, citing the poor performance in the area for 2017. Non-oil revenues are projected to account for 63% of 2018 Budgeted revenues (2017: 57%), and we share the Senate’s view over-optimistic non-oil revenue projections, though we welcome the further clarity on proposed revenue sources.                               

Losses across key sectors pull ASI 52bps under                                  

Having traded relatively flat early into yesterday’s session, the Nigerian bourse downtrended till market close (ASI down 52bps), with no key sector closing up. Weak closes across key sectors and a bearish intraday trading pattern highlight the broad negative market sentiment, and we foresee this filtering into today’s session.                              

Stock Watch: At the start of the week, FCMB announced that it is acquiring an additional 60% stake in Legacy Pensions, taking FCMB’s holding to 88.2%, thus making Legacy a subsidiary of FCMB. The stock has gained 3% so far this week and currently trades at ₦1.13, below Vetiva target price of ₦2.93, and has returned 3% ytd.                               

Fixed income market continues the week bullish                                

The CBN conducted another OMO auction yesterday, offering ₦20 billion and ₦50 billion on the 93DTM and 198DTM bills respectively. The bank did not sell on the 93DTM bill but sold ₦18 billion on the 198DTM bill at a stop rate of 17.80% (effective yield: 19.70%).  Ahead of the MPC announcement, yields moderated 9bps on average in the T-bills space. Buying was also observed in the bond market with demand spread across the curve. Persistent OMO auctions may begin to pressure system liquidity and constrain buying on T-bills. Meanwhile, we foresee cautious trading in the bond space ahead of today’s bond auction - ₦100 billion on offer across the 14.50% FGN JUL 2021 and 16.2884% FGN MAR 2027 bonds.