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The Market Today - 4 July 2017

FG to boost tax revenue through tax reform                                       

The Minister of Finance, Kemi Adeosun highlighted that the signing of the executive order by Ag. President Yemi Osinbajo to back the Voluntary Assets and Income Declaration scheme (VAIDS) will bolster tax revenues in Nigeria. The minister mentioned that the government was eyeing revenue generation of over $1 billion from the scheme. The VAIDS program allows tax defaulters to voluntarily declare assets and income for tax payment purposes. Such persons who come forward would be granted a waiver of penalties. The scheme aims to expand the existing tax base and broaden the federal and state tax brackets. We highlight that a similar scheme was adopted in India (Voluntary Disclosure of Income Scheme), yielding c.$1.2 billion and increasing the tax base by over 350,000 persons. We recall that a few weeks ago, the Minister for Budget and National Planning commented that revenue generation from Customs and Tax would need to be improved to help finance the record budget. We therefore believe that the implementation of this scheme is a step in the right direction for tax collection especially given Nigeria’s shoddy history in that regard – c.₦118 billion generated by the FIRS over the past 18 months according to Babatunde Fowler.                                     

ASI opens the quarter in the red, down 105bps                                              

Starting Q3’17 in the red, the Nigerian bourse sustained the bearish momentum from last week’s close, with the ASI down 105bps yesterday. Given the weak value traded of ₦1.5 billion vs 30 day average of ₦5.3 billion, as well as the consistent negative market breadth, we expect another negative close for the Nigerian bourse today.                                    

Stock Watch: FLOURMILL reported its FY’17 earnings yesterday showing impressive performances across key line items (PBT - ₦10.4 billion vs FY’16 loss before tax and exceptional item – (₦12.2 billion)). The company announced dividend of ₦1.00 for every 50k share. We expect this to boost demand for the stock which currently trades at ₦27.00 and has returned 46% ytd.                                  

T-bills yields march northwards on liquidity pressures                                             

Following yesterday’s auction, as well as a special OMO auction conducted last week  Friday (₦285 billion sold), trading activity turned bearish in the T-bills market with yields at the short end of the T-bills market rising 82bps on average pressured by tighter liquidity. Meanwhile, yield moderations were observed at the mid to long end of the bond space. Whilst the relatively lower yields at recent OMO auctions (compared to secondary market and previous auction levels) present a case for improved demand, we believe the strained system liquidity will keep yields under pressure in today’s trading session.