Over the last two weeks, the two cement producers we cover released H1 2022 earnings. Overall, the results were mixed as one company reported a slump in Net profits while the other reported growth. However, investor reaction has not been as expected. See page 2 for details

FX

Last week, the exchange rate at the Investors and Exporters Window (I&E Window) strengthened by 0.20% to N428.13/US$1. Elsewhere, the foreign exchange (FX) reserves of the Central Bank of Nigeria (CBN) declined by 0.25% to US$39.09bn, as the CBN continues interventions across the various FX windows.

The FX reserve position remains close to its historic high, and we doubt that the CBN wishes to see the exchange rate slip this year. Therefore, we believe that the current I&E Window rate, or something very close to it, can be maintained for at least several months.

BONDS & T-BILLS

Last week, trading in the Federal Government of Nigeria (FGN) bond secondary market was bearish as system liquidity remained tight. As a result, the average benchmark yield for bonds rose 29bps to close at 12.25%. Across the curve, the yields on the 7-year (+15bps to 11.90%) and 10-year (+45bps to 12.66%) bonds expanded, while the yield on the 3-year (-1bp to 11.41%) bond declined. Our view remains that the combination of thin system liquidity and elevated Federal Government domestic borrowing will continue to drive yields upwards over the coming months.  

Activity in the Treasury Bill (T-Bill) secondary market was also bearish as selloffs persisted across the curve in the face of tight system liquidity. As a result, the average yield for T-bills rose by 29bps to 7.62%. Conversely, the yield on the 307-day T-bill compressed by 1bp to close at 6.82%. At this week’s primary auction, the DMO is expected to roll over N150.62bn worth of maturing bills. Elsewhere, the average yield for secondary market OMO bills rose by 147bps to 11.10%, while the yield on the 270-day OMO bill rose 425bps to 11.03% 

OIL

Last week, the price of Brent suffered its worst weekly decline since 15 January 2016, slumping by 13.7% w/w to settle at US$94.92/bbl – lowest level since 16 February. Nonetheless, Brent is up 22.04% year-to-date and has traded at an average of US$104.75/bbl, 47.76% higher than the average of US$70.89/bbl in 2021.  

Oil prices weakened to levels last seen prior to the invasion of Ukraine by Russia as prospects of a global recession and destruction of demand came back into the limelight. Despite the positives of a strong US jobs market as shown by the higher-than-expected growth in nonfarm payroll data, the potential downside of the US Federal Reserve having to adopt further interest rate hike measures to tackle inflation drove oil prices lower. In addition, signs of weak demand as seen in U.S. inventory build-up contributed to the dire outlook. Elsewhere, the Organization of the Petroleum Exporting Countries and allies (OPEC+) agreed to the lowest monthly quota increase since 1986, at 100,000 bpd, as the group exercised caution in the wake of recession fears.  

In this exceptional year for oil prices, we maintain that prices are likely to remain above the US$73.00/bbl set in Nigeria’s government budget 

EQUITIES

Last week, the NGX All-Share Index rose by 0.70% w/w, its first weekly gain in three weeks, to settle at 50,722.33 points. Consequently, its year-to-date return fell to 18.74 Honeywell Flour Mills (+36.10%), PZ Cussons (+20.59%) and Stanbic IBTC Holdings (+9.15%) closed positive, while BUA Cement (-15.15%), Guinness Nigeria (-8.29%) and Fidelity Bank (-5.66%) closed negative. Performances across the NGX sub-indices were broadly positive with NGX Consumer Goods (+3.00%) in the lead, followed by NGX Banking (+2.63%), NGX Pension (+2.06%), NGX-30 (+0.46%) and NGX Oil & Gas (+0.60%). On the flip side, NGX Industrial Goods (-5.76%) and NGX Insurance (-0.37%) indices closed negative. The Model Equity Portfolio will resume next week.

READ REPORT