FREE

The Market Today - 24 April 2018

Rising external debt continues to raise skepticism                                                         

Nigeria’s growing external debt continues to divide attention, with the International Monetary Fund once again raising its concerns over the country’s ability to service its debts. The Debt Management Office (DMO) has long-stressed that the strategy of shifting from short-term domestic debt to long-term external debt is aimed at reducing Federal Government (FG) borrowing cost and private credit crowding out. Whilst we agree with these benefits, we highlight the currency risk inherent in external borrowing, particularly in a developing country with high inflation rate where you would expect to see depreciation of the domestic currency in the long-term. Furthermore, whilst buoyant oil earnings and a stable outlook for the domestic and global economy should keep this issue on the back-burner, we consider rising external debt as a potential medium-term structural risk to the economy.                                                             

Negative sentiment dominates mixed session at week open                                                    

The Nigerian Stock Exchange dipped 12bps to start off the week after a mixed session and an even split between sector gainers and losers. An even split between sector gainers & losers and choppy intraday trading point to a mixed trading session – in line with the trend observed at the close of last week. We foresee another varied session today even as Q1’18 earnings releases remain in focus.

Stock Watch: NB released its Q1’18 results yesterday, reporting Revenue of ₦83 billion (-9% y/y) below our forecast of ₦86 billion and PAT of ₦10 billion above our forecast of ₦9.6 billion. The stock gained 285bps yesterday and currently trades at a price of ₦129.70. It has declined 4% ytd.                                                        

Bulls continue to hold sway in fixed income market                                                      

Interbank Call rate declined 17bps to 2.83% in the absence of CBN liquidity mop up. Buying persisted in the T-bills space as yields declined 80bps on average. The bond market was likewise positive with yields moderating 11bps on average. As T-bill yields have moderated at faster pace, the yield curve has adopted a more traditional upward-sloping shape, albeit with a slight kink at the 364DTM level. We expect demand to wax strong in the fixed income market as system liquidity remains buoyant in the absence of CBN OMO auctions. Moreover, we expect yield moderation to be weighted towards the short end of the yield curve.