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The Market Today - 31 August 2017

Investors shun energy stocks on Nigerian bourse                                         

Energy stocks on the Nigerian bourse, particularly those of petroleum marketers, have been largely isolated from the market recovery in the year so far. On the average, shares of the listed pure-play petroleum marketers have lost 22% ytd vs. NSE ASI 33% ytd gains. We recall most of these stocks rallied following announcement of the sector liberalization in May 2016 as investors believed the move would unlock the value of the sector. Investors have however had to lower their optimism as the move only turned out to be a "partial deregulation" – Premium Motor Spirit (PMS) price remains regulated within a ₦135-₦145/litre band and has become uneconomic for independent marketers to import (amidst oil price recovery to around $50/bbl and weaker exchange rate), whilst subsidy payment is no longer provided for in the budget. With oil price forecast around the $50/bbl mark going into 2018, direct PMS importation by independent marketers would most likely remain uneconomic, and would keep them dependent on the NNPC for supplies at regulated thin margins. We also do not see an upward review in the pricing band as a viable option in the short to medium term given socio-political considerations. We believe the dim sector outlook would continue to cap investor interest in the sector.                                

NSE ASI sinks further amidst market rout                                           

Sentiment in the Nigerian stock market remained weak yesterday, with the NSE ASI dropping 148bps amidst red closes across all key sectors. In light of the recent negative trading pattern, as well as yesterday’s large losses and widely negative market breadth, we expect bears to hold sway in the market today.                            

Stock Watch: MOBIL has shed 30% over the last ten sessions. Recently, there was news about NIPCO (its Parent company) acquiring a further 3.2% stake in the Oil & Gas giant to increase its holding to 70% at the price of ₦417.12/share. Nevertheless, the stock currently trades at ₦165.11 and has returned -41% ytd.                                   

Fixed Income Market trades mixed amidst PMA                                             

The CBN conducted a Primary Market Auction yesterday, offering and selling ₦193.00 billion across the 91DTM, 182DTM and 364DTM bills at stop rates of 13.30%, 17.36% and 18.52% (effective yields: 13.76%, 19.01% and 22.72%). Amidst already tight liquidity, trading was mixed in the T-bills market with yields trending in opposite directions. Similarly, trading in the bond market persisted mixed yesterday with demand still skewed to the short-end of the space. Particularly, whilst yield on the 16.00% FGN JUN 2037 bond declined 3bps to close at 16.72%, yield on the 12.1493% FGN JUL 2034 bond advanced 11bps to close at 16.58%. Following sideways trading yesterday, we expect today’s OMO maturity (c.₦268 billion) to bolster buying interest in the fixed income market today – barring any CBN liquidity mop-ups.