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The Market Today - 25 January 2018

House of Reps passes NSE demutualization bill                                              

The Nigerian House of Representatives passed the Nigerian Stock Exchange Demutualization Bill on Wednesday, leaving the final assent to the president. Once passed, the Bill would convert the NSE from a mutual association of exchange members to a public limited liability company accountable to shareholders, bringing the Nigerian capital market on par with international best practice. In our 2018 Outlook “Acta Non Verba”, we highlighted the potential benefits of NSE demutualization, including enhanced corporate governance, increased transparency, and greater efficiency as key benefits of demutualization, all of which would drive market expansion and deepening in the coming years. As such, we consider this to be a positive development and a key step in developing the regulatory and trading capability of the exchange.                                  

Negative sentiment sustained on the NSE                                            

With profit taking in full swing, bears tightened their grip on the Nigerian equity market, with the ASI slipping 96bps on the day. As investors continue to take profit on gains garnered since the start of 2018, market sentiment remains largely bearish. Whilst we expect investors continue to cherry pick across select stocks, we believe negative sentiment will remain dominant.

Stock Watch: ETERNA has lost 15% over the last six sessions, coming off a five-year high of ₦6.60. The stock currently trades at ₦5.46, above consensus target price of ₦3.91 and has returned 34% ytd.                                                                    

Rates rise at January bond auction                                            

At Wednesday’s bond auction, the DMO offered and sold ₦110 billion across the 5-year and 10-year notes at respective stop rates of 13.38% and 13.49%, slightly higher than previous levels (previous: 13.19% and 13.21%). Also, the CBN conducted another OMO auction yesterday, offering ₦80 billion across the 85DTM and 211DTM bills, and selling c.₦88 billion across both bills at respective stop rates of 12.60% and 14.40% (effective yield: 12.98% and 15.71%). Following a largely tepid session, yields inched slightly northward in the secondary bond market amidst the monthly bond auction. Notably, yields across benchmark bonds advanced 1bp on average. Meanwhile, sentiment remained mixed in the T-bills space with yields advancing a marginal 2bps on average. Whilst we expect today’s T-bills inflow of ₦60.59 billion to spur demand, we foresee another CBN auction today, further capping buying momentum. Meanwhile, we expect another mixed session in the bond market as yields converge towards slightly higher auction levels.