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The Market Today - 8 September 2017

Rising debt profile, weak revenues pressure FGN liquidity
Nigeria’s total Public debt rose to ₦19.63 trillion at the end of Q2’17, up from ₦19.16 trillion in Q1’17, driven mainly by an increase in External debt from ₦4.22 trillion in Q1’17 to ₦4.60 trillion in Q2’17. Domestic debt also rose marginally, up from ₦14.93 trillion in Q1’17 to ₦15.02 trillion in Q2’17. We recall that the Federal Government (FGN) successfully raised a $300 billion (₦92 billion) Diaspora bond at the end of June this year. Meanwhile, the pace of domestic borrowing slowed after Q1’17 (41% lower q/q in Q2’17) on the back of high domestic interest rates and relatively weak demand at monthly bond auctions. More recently, the FGN commenced a roadshow for its planned ₦100 billion sukuk as part of its agenda to diversify the tenor and source of its debt profile. We highlight that whilst Nigeria’s debt-GDP ratio hovers close to the Debt Management Office threshold (19.34% vs. threshold of 19.39%), the cost of servicing its debt is much higher. According to the FGN 2018 Budget Call Circular, debt service to revenue ratio was 46% in H1’17, compared to the budget target of 36% and DMO threshold of 28%. It is likely that relatively weak government revenue (72% of target as at H1’17), will pressure government liquidity and may force a scale-back in spending.

Buying momentum strengthens in T-bills market
Buying strengthened on the Nigerian stock market yesterday with the NSE ASI closing 142bps higher – lifted by the Consumer and Industrial Goods sectors.Asides from the spike in DANGCEM that significantly pushed the ASI well into the green, market sentiment was quite lukewarm even as market breadth turned negative. That said, we expect the sideways trading on the exchange to persist in today’s session.

Stock Watch: PZ released FY’17 results yesterday, with bottom line up 73% y/y and 29% above Consensus estimates. The company proposed interim dividend of ₦0.50/share in line with estimate. The stock currently trades at ₦25.94 and has returned 79% Ytd.

Buying momentum strengthens in T-bills market
Amidst a ₦135 billion OMO maturity, the CBN conducted an OMO auction yesterday, offering ₦100.00 billion across the 91DTM and 182DTM bills. Despite the liquidity mop-up, yields continued to trend southwards in the T-bills market, declining 18bps on average. However, demand in the bond market watered down significantly as yields on benchmark bonds advanced 4bps on average. Barring any OMO auction that could strain system liquidity further, we expect further demand in the T-bills market at week close. In the bond space, we foresee tepid trading as investor demand softens.