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The Market Today - 23 November 2017

NNPC continues to struggle with turn-around of refineries                                                        

The Nigerian National Petroleum Corporation (NNPC) has stated that it will continue its plans to restore the operations of the four state-owned refineries to their optimal capacity of 445,000 bpd. We note that after recording some improvements at the start of the year – refinery capacity utilization rising from 7.5% in December 2016 to 24.6% in April 2017 – the refineries have suffered multiple setbacks, particularly with the prolonged shutdown of the Kaduna refinery. Unsurprisingly, refinery output shrank 45% y/y in Q3’17, indicating the size of the task ahead of the NNPC. In a bid to achieve its objectives, the NNPC has set up committees to investigate, analyze and proffer solution to the numerous problems facing the refineries. We believe that successful efforts here, coupled with the completion of the Dangote Refinery in 2019, would help lead the country towards petroleum self-sufficiency.                                                                

ASI inches into the green in mixed session                                                        

The market traded largely mixed with two sectors closing in the green whilst the other two key sectors closed flat. The ASI eked a mild 2bp gain in an overall flat session. Despite the marginally green close, we believe bears remain dominant in the Nigerian equity market (noting the still negative market breadth). However, we expect cherry picking to persist across select beaten down stocks and thus foresee another mixed trading session today.                                                       

Stock Watch: NESTLE has gained 4% over the last four sessions. The stock currently trades at a five-year high of ₦1,300.00, significantly above Vetiva target price of ₦817.96, and has returned 60% ytd.                                                               

DMO lowers rates marginally at penultimate bond auction                                                        

The CBN conducted another OMO auction yesterday offering N50 billion across the 92DTM and 197DTM bills. Whilst the apex bank made no sale on the shorter dated bill, the bank sold N44 billion on the longer dated bill at a stop rate of 17.75% (effective yield: 19.63%). Also, the DMO at yesterday’s bond auction reported a total sale of ₦87 billion (Offer: ₦100 billion) across the 5-year and 10-year tenors at stop rates of 14.79% and 14.80% respectively (October auction rate was 15.00%). Overall, yields on benchmark bonds advanced 1bp on average. The T-bills market was however largely bullish as yields declined 12bps on average. With the OMO maturity of N201 billion expected today, we expect the CBN to conduct another OMO auction to cap system liquidity. We however expect to see some demand across the T-bills space. Also, noting that buy sentiment strengthened towards the end of yesterday’s trading session we foresee a more upbeat bond market.