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The Market Today - 25 October 2017

FG plans deficit financing through 2020
According to the Medium Term Economic Framework (MTEF 2018-2020) document, FG is proposing a ₦8.6 trillion budget for 2018 (2017: ₦7.44 trillion). Breaking down the budget, we highlight a ₦5.6 trillion estimated revenue for 2018 (2017 estimate: ₦5.1 trillion), translating to a deficit of c.₦3 trillion. Notably, we observe that whilst revenue generation is expected to gradually ramp up across three projected years, the Executive still estimates deficits in excess of ₦2 trillion across three years. Particularly worrying is the consistent uptick in debt service to revenue ratio across the period, up from 35.91% in 2018 to 2019: 37.5% and 2020: 37.4% (2017 estimate:32.73%). We note that although Debt to GDP remains contained at 17.11% (International threshold: 56%), the average Debt Servicing to Revenue ratio of 35% across the projected years is less comforting. As the government continues to ramp-ups its capital expenditure in order to bridge the expanding infrastructure gap, we see the need for revenue expansion across other non-traditional sources – particularly as oil revenue remains weak.

Market blue chips steer ASI into the green
Coming back from its loss at week open, the Nigerian Equity Market (+33bps) closed firmly in the green yesterday as investors reacted to positive earnings and also began hunting for bargains across sectors. We expect positive trading pattern to persist today as investors continue to react to positive corporate earnings and hunt for bargains across counters.

Stock Watch: NASCON released 9M’17 earnings yesterday, with revenue and PAT coming in 62% and 130% higher y/y. Interestingly, following the release of the result, interest in the stock was renewed and NASCON led the gainers table (up 10.23%). The stock currently trades at ₦14.33 and has returned 69% ytd.

Bond yields advance ahead of October PMA
The CBN conducted another OMO auction yesterday, offering ₦5 billion and ₦20 billion across the 86DTM and 191DTM bills respectively. Whilst no bid was made on the short-dated bill, the bank sold c.₦11 billion on the 191DTM bill at a stop rate of 17.8000%, lower than previous rate of 17.81% (effective yield: 19.6283%). Meanwhile, trading in the T-bills market turned mixed with a bullish tilt, with yields across the space trending in opposite directions. Ahead of today’s auction, the bond market was similarly mixed, but with a slightly bearish bias. Whilst we expect continued OMO mop ups across T-bills to keep yields under pressure, we foresee cautious trading in the bond space today as investors await the bond auction results.