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The Market Today Report The Market Today - 20 August 2018

GENCOs call for increased support from the FG                                               

The Association of Power Generation Companies (APGC) has called for increased support from FG and its agencies to enable the Generating Companies (GENCOs) stay operational. Specifically, the GENCOs called on the FG to settle outstanding invoices for power supplied to the grid, and requested a follow-up financing plan to the existing ₦701 billion Power Assurance Facility (PAF) when it runs out. We note that liquidity has been a persistent challenge to the power generation sector despite last year’s roll-out of the PAF. Moreover, the FG may need to look beyond the PAF to other elements of the Power Sector Recovery Program (PSRP). In particular, the resolution to pay off historical MDA and state government debts and automate future payments holds significant value for GENCOs given the size of MDA power liabilities.                                                             

ASI closes in the green ahead of two-day break                                                               

"The market remained in positive territory at week open (ASI: +21bps) despite negative closes across three of the four key sectors.  Despite another green close for the ASI, market sentiment remains visibly negative with declines across major large caps in most key sectors and a widely negative market breadth. As such, we foresee another slow start to trading when the market resumes from a two-day break on Thursday.                                  

Stock Watch: ZENITHBANK has lost 7% in the last 5 sessions. In line with the broader market rout, the stock has closed in the red seven out of eleven sessions. Currently trading at ₦21.85 (ytd: -15%), the stock trades below our target price of ₦35.11.                                                  

Trading remains tepid as weak demand persists                                                              

The interbank call rate advanced 150bps to 8.33%, but despite this, trading in the T-bills space was slightly positive as yields advanced 6bps on average. Buying was concentrated on the short-mid end of the space, with yields on the 150DTM and 115DTM bills moderating 31bps and 30bps to settle at 13.04% and 12.41% respectively. Meanwhile, trading in the bond space remained tepid, with selling concentrated on the long-dated maturities as yields rose 10bps on average. In particular, yield on the 16.25% FGN APR 2037 bond rose 76bps to settle at 14.93%. We expect demand on short-dated instruments to be supported by Thursday's ₦514 billion OMO maturity, although buying would be capped by any liquidity mop up. We banticipate tepid trading on the long end as demand remains weak.