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The Market Today - 7 June 2018

Current account surplus rises in first quarter                                                     

Nigeria’s current account surplus rose from ₦1.8 trillion in Q4’17 to ₦2.2 trillion in Q1’18, supported by continued recovery from the 2014 oil price slump. Exports rose 20% q/q, as both oil and non-oil exports increased in the period, with the former supported by stronger oil prices and production volumes. Meanwhile, imports also rose 19% q/q, primarily due to a spike in petroleum imports at the start of the year. We expect Nigeria’s current account balance to be supported by a healthy outlook for the oil & gas sector in 2018.                                                          

VAIDs rakes in N30 billion                                                          

According to the head of the Federal Inland Revenue Service, Dr. Babatunde Fowler, the government’s flagship tax amnesty program, Voluntary Assets & Income Declaration Scheme (VAIDS) has accrued ₦30 billion since inception (spanning an 11-month period), and expanded the tax net from about 14 million to 19 million people. The VAIDS closes at the end of June and is the government’s primary vehicle for expanding the tax base. Whilst we are pleased by the increase in the tax net, we are slightly underwhelmed by the ₦30 billion extra tax revenue raised as it only constitutes less than 1% of Nigeria’s current tax earnings.                                                                   

Equity market continues strong recovery                                                            

The Nigerian bourse posted another strong green close yesterday (+153bps) to return ytd returns back to positive territory. Many market indicators were overwhelmingly positive: market breadth was widely positive, trading turnover rose, and intra-day trading momentum was directed towards buying. Thus, we expect this market uptrend to persist in today’s session.                                                          

Stock Watch: DIAMONDBNK has risen 25% to ₦1.62 in the last six sessions. The stock trades below our ₦4.45 target price and has returned 8% YTD, slightly better than the Banking sector’s YTD return of 5%.                                                          

Yields head north in fixed income market                                                          

The Interbank Call rate declined 67bps to 2.83% in the absence of an OMO auction. Trading in the T-bills space was mildly bearish as yields advanced 10bps on average. Notably, yields on the 29DTM, 99DTM and 183DTM bills advanced 66bps, 78bps and 52bps to settle at 12.76%, 13.13% and 13.43% respectively. Sentiment in the bond space was likewise tilted negative as yields on benchmark bonds advanced 4bps on average, with sell pressure apparent across different tenors. Specifically, yields on the 15.54% FGN FEB 2020 and 16.2499% FGN APR 2037 bonds advanced 45bps and 5bps to settle at 12.97% and 13.47% respectively. We foresee another session tilted towards selling as the CBN is likely to return to the market to mop-up liquidity amid today’s ₦215 billion OMO maturity. The CBN released the Q3’18 bill issuance calendar indicating that ₦1.1 trillion will be maturing and getting rolled over during the period.