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The Market Today - 2nd March 2017

DMO introduces new market structure
The DMO in a circular issued yesterday raised the minimum subscription size in Treasury Bills primary auction to ₦50 million (Previous: N10,000). We believe that this decision must have been taken in a bid to redirect retail investors’ interest to the newly introduced FGN Savings Bonds. The bonds will be issued by the DMO through an auction process with minimum subscription size of ₦5,000 (Max: ₦50 million) and is expected to be listed on the Nigerian Stock Exchange (NSE) for secondary market trading. The Savings Bonds will be issued monthly in tenors of 2 to 3 years with quarterly coupon payment.

NSE ASI opens the month in red, down 58bps
The Nigerian bourse traded lower on the first trading day of the month with the NSE ASI shedding 58bps, pressured by weighty declines across Consumer Goods and Banking stocks. Whilst we expect more earnings releases in the next session, we believe the sustained pressure across select blue chip stocks, particularly ZENITHBANK and a couple of Consumer Goods names, could keep the NSE ASI repressed in the coming session.

Stock Watch: FO stretched its losing streak to 10 consecutive sessions. We highlight that the stock has been heavily beaten down from its 52-week high of ₦293.23 to ₦47.01 at the close of yesterday’s session.

NESTLE reported a 67% y/y decline in PAT for FY’16 (albeit in line with Bloomberg consensus estimate). With earnings coming in weaker y/y, the Board of Directors proposed a dividend of ₦10.00/share (vs. FY’15: ₦29.00), translating into a dividend yield of 2%. Given that the stock has been beaten down (ytd: -29%) since the start of the year, we do not expect any significant negative reaction in the session ahead.

An ad-hoc panel of the House of Representatives set up to recover debts by oil companies directed Conoil PLC to immediately commence the payment of ₦3 billion debt owed to the Pipelines and Product Marketing Company (PPMC). The panel also stated that it will direct the PPMC to halt petroleum supply to the company if at least 50% is not repaid within two weeks. Given the potential effect on Conoil’s sales and cash flow implications, we could see a negative reaction on the stock in today’s trading session.

Market trades on divergent paths amidst PMA
The CBN conducted PMA, selling ₦26 billion, ₦62 billion and ₦222 billion across the 91DTM, 182DTM and 365DTM at respective stop rates of 13.65%, 17.20% and 18.45% (effective yields: 14.13%, 18.81% and 22.68%). We expect today’s OMO mop up by the CBN to curtail demand in the session ahead.