Breakfast Report - 12 November, 2018

The Week Ahead                                                                            

Access Bank is reportedly in talks to acquire Diamond Bank as early as Q1’19. We note that Diamond Bank has struggled with its non-performing loans and capital adequacy ratio—estimated at 16.3% as of September 2018, just above the regulatory threshold of 15%—and has also drawn attention over its liquidity health ahead of its Eurobond maturity in May 2019. Furthermore, the Chairman and three non-executive directors of Diamond Bank resigned a few weeks ago, with no further information provided by the lender. Media sources report that the Central Bank of Nigeria is on board with the acquisition given its unwillingness to intervene in a manner similar to Polaris Bank (Skye Bank). While Access Bank will be weary of Diamond Bank’s non-performing loan portfolio, the acquisition would propel Access Bank into the upper echelon of Nigerian banks. As at 30 September 2018, Diamond Bank’s total assets stood at ₦1.6 trillion while Access Bank had assets worth ₦4.6 trillion.                                                                         

Equity: The market ended trading last week on a mildly negative note, moderating 9bps on the day but closing +23bps higher w/w. With weak sentiment continuing to drive tepid activity, we foresee another mixed to negative start to this week’s trading.                                                                                       

Stock Watch: After hitting its year-low of ₦9.00 last week Friday, UACN gained 11.11% last week to settle at ₦10.00. The stock is trailing its year-open price of ₦16.90 by 41%.                                                             

Fixed Income: With the CBN keeping a lid on system liquidity, we expect trading to remain muted in the T-bills space today. Meanwhile, we expect mild demand in the bond space this week as the announcement of a Eurobond issuance this month is likely to increase the expectation of reduced bond supply.