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The Market Today - 26 October 2018

President reiterates value in domestic air transport VAT removal                                              

At the commissioning of the new International airport terminal in Port-Harcourt, President Buhari reiterated that the decision made by the Federal Government in June to remove Value Added Tax (VAT) on domestic air transportation was a necessary move to make air travel more affordable and create job opportunities in the aviation sector. Tough economic conditions that tightened consumer wallets in the past few years has driven increased substitution of air travel for road and consequently reduced domestic air passenger traffic. Meanwhile, this may also serve as a mild relief for domestic airlines that have been struggling in the past few years, highlighted by the AMCON takeover of two major players; Arik Air (2017) and Aero Contractors (2016). The room for growth in the aviation sector in Nigeria remains vast as the sector contributes only 0.1% to the country’s GDP and only a small fraction of the population utilizes air transportation.                                          

Consumer Goods leads mild market recovery                                            

A solid performance from two key sectors boosted the ASI to a +44bps close. Furthermore, investor sentiment was upbeat, with the market performing positively for most of the session while turnover was fairly healthy. Market breadth turned negative with 19 advances and 20 declines. With market sentiment continuously volatile and heavyweights being the key drivers of activity, we anticipate an active close to the week, with overall market performance leaning positive.                                    

Stock Watch: UNILEVER released its 9M’18 results yesterday, reporting a 7% rise in revenue to ₦24 billion and a 225% jump in profit after tax to ₦3.8 billion. The stock gained 116bps yesterday to settle at ₦43.50 and is 6% up YTD.                                   

CBN auction rate guidance drives bearish market                                    

Following a ₦373 billion maturity, the CBN held an OMO auction, selling ₦186 billion (₦370 billion offered) on the 98DTM (11.5%), 182DTM (13.0%), and 364DTM (14.5%) bills, all higher than previous levels, with effective yields of 11.87%, 13.90% and 16.95%. Due to the net maturity, the Interbank Call rate declined 517bps to 11.50%. Following the mop-up by the CBN, and the anticipated FOREX sale today, liquidity is likely to turn tight. Thus, we foresee another bearish outing in the Fixed income market.