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The Market Today - 25 May 2018

FO Shareholders approve divestment plans                                                      

Shareholders of Forte Oil PLC recently approved management’s plan to divest all non-downstream businesses of the company. We recall that management had recently announced a business restructuring plan that would involve divesting the following businesses: Forte Upstream Servicing Ltd (FUSL), Amperion Power Distribution Company Ltd and AP Oil & Gas Ltd. The proceeds of this divestment would be used to fund expansion of its flagship petroleum products retailing business in Nigeria. We note that this strategic shift is hinged on management’s more optimistic outlook of the petroleum downstream segment given their view of market liberalization in the near-to-medium term. Following the shareholder approval, the company would now seek regulatory assent to carry out the restructuring.                                                               

Nigerian Bourse suffers steeper losses                                                

The Nigerian Stock Exchange recorded a sizeable loss yesterday (ASI down 106bps) with all key sectors closing in the red. With sentiment markedly negative at session end and widely negative market breadth, we anticipate a bearish open to the market today.                                                         

Stock Watch: At their 39th Annual General Meeting on Wednesday, the shareholders of Forte Oil approved the divestment of its Upstream Services Business, its power generating business and its downstream business in Ghana. The proceeds from the divestment will be used to fund their downstream marketing business. FO currently trades at a price of N40.70 and has declined 6% ytd.                                                          

Market trades mixed, OMO auction undersubscribed                                                   

The CBN conducted an OMO auction yesterday, selling N113 billion (offer: N300 billion) across the 112DTM and 231DTM bills at respective stop rates of 11.05% and 12.15% (effective yields: 11.44% and 13.16%). Despite this, the Interbank Call rate declined 892bps to 7.75%. Sentiment in the bond space was mixed albeit with notable sell pressure on long-dated maturities driving yields 9bps higher on average. Trading on T-bills was flatter and more titled towards buying as yields moderated 3bps on average. Given the undersubscribed OMO auction and healthy system liquidity (N270 billion), we anticipate strong buying momentum today. However, this may be dampened by another liquidity mop up by the apex bank.