Category: ARM Securities

SUMMARY OF NEWS

Punch NBET, TCN demand N35.4bn electricity payments from Benin, Niger The Nigerian Bulk Electricity Trading Plc and the Transmission Company of Nigeria have jointly written to power firms of the Republics of Benin and Niger, demanding the payment of an outstanding $115.91m (about N35.4bn at the official exchange rate of N305 to a dollar) for electricity supplied to both countries from Nigeria. PFAs invest N4.2bn pension funds in infrastructure Pension Fund Administrators have gradually increased the amount of funds invested in infrastructure under the Contributory Pension Scheme to N4.2bn. NSE market capitalization hits N13tn mark, amid Nestle gain The Nigerian Stock Exchange market capitalization on Tuesday hit the N13tn mark, barely three weeks it crossed N12tn market, amid Nestle gain. OPEC: Oil producers committed to output cut deal A technical panel including members of the Saudi-led cartel and other oil producers said on Tuesday that they remained committed to cutting output and stemming the collapse in oil prices The Nation EFCC traces N47b, $487m to ex-Oil Minister Diezani The Economic and Financial Crimes Commission(EFCC) has so far traced N47.2 billion and $487.5million to the ex-minister. The agency also claimed that Mrs. Alison Madueke has N23,446,300,000 and $5milion (about N1.5billion) cash in various banks. MAN: Domestic manufacturing value hits N5.2tr The Manufacturers Association of Nigeria (MAN) has said the estimated value of manufacturing in the country during the second half of last year reached N5.02 trillion  as against N4.08 trillion of the corresponding period of the previous year. Guardian Nigeria records less than 0.5 per cent oil savings in 11 years Despite generating revenue from crude oil export from 2005 to 2015, Nigeria recorded less than 0.5 per cent savings in its Excess Crude Account (ECA), according to the Nigeria Extractive Industries Transparency Initiative (NEITI). Forte Oil restrategizes to grow market share Forte Oil Plc has unfolded plans to increase market share in the industry through the acquisition of strategic partnership and joint ventures for local refining of petroleum products. This Day FG Withdraws Suit against Seven Banks over TSA The federal government has filed a notice of discontinuance of a suit it filed before Justice Chuka Obiozor of a Federal High Court in Lagos against seven banks for allegedly withholding $793.2 million from the federation account. Vanguard Nigeria’s crude oil output rise to 2.06m b/d in July — FG Nigeria’s average oil production including condensates, increased to 2.06 million barrels per day (mb/d) last month, from 2.05 million b/d in June, as the country continued to ramp up production amidst retention of output concession from the Organization of Petroleum Exporting Countries (OPEC), the Ministry of Petroleum Resources has revealed. Business Day Cash crunch delays Q2 GDP, July Inflation report The economic lift that would come from the confirmation that Nigeria has exited recession will now have to wait a bit longer as the much awaited Gross Domestic Product (GDP) report for the second quarter of 2017 has been postponed due to lack of funds to mobilize the required data.

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We want you to know that now is the time to look at the equity investment. Trends show the market is about to rebound and the value of stocks are about to go way up. Invest now while prices are low to make big gains in coming future.

 

2016 – The Year that Was

2016 was a turbulent year for Nigeria and the domestic investment clime. The Nigerian economy went into recession, inflation spiked to a 12-year peak of 18.57% and the naira lost over 50% of its value at the interbank ($305/N) with the case in the parallel market even more precarious. Irrespective, for Nigeria’s broad financial market, the year was a mixed one. On the one hand, the Nigerian equities market closed negative for the third consecutive year (-6.14%) and FI yields climbed to 4-year highs under the weight of downbeat economic data even as Central Bank of Nigeria (CBN) tightened monetary policy. Yet, opportunities abounded for few investors who cherry-picked within Nigeria’s cheap equity valuations and attractive entry points at the treasury markets. That said, expected upside at the equity space was not for the near term as investors concerned themselves with the country’s economic deterioration and implied pass-through to company earnings. Sentiment for equities was further worsened by foreign apathy on account of FX illiquidity and local investors’ attraction to higher risk-free rates which endeared them to the bond market. In a word, a confluence of bad news, capital losses and uncertainty ushered in panic in the streets. Investors had to ask themselves, is this stock market decline the beginning of something worse? Should we all sell and seek safety? Market was buying high and selling low, almost everyone was losing money in stocks. Unfortunately, when it comes to stock investing, going along with the crowd—buying when the market is up and selling when the market is down—can lead to costly mistakes. A better strategy during the turbulent times, when many are turning their backs on stocks, is to leverage on cheap equity investment valuations —a virtue seen only by a few at the time.

 

Study the past to define the future

On the strength of historical data, equities market can be considered ‘the king of good times’. This is because the market does not only anticipate good times well ahead but also tends to rise (faster) as the economy recovers. Put simply, the stock market mirrors expectations about the economy well ahead of time in such a fashion that allows active and calculative investors make capital gains to increase their overall net worth.

In Nigeria, for instance, the stock market performance has been firmly correlated with crude oil price expectations, external reserve, and exchange rate. Pointedly, with crude oil exports representing circa. 70% and 90% of fiscal and export revenues respectively, it is not surprising the level of correlation expected between the economy and crude oil price or production shocks. Elsewhere, foreign inflows into equity are also determined by future expectations about external reserve and overall exchange rate stability as foreigners concern themselves with relative ease of entry and exit.

So far, signs of economic improvements has guided our view that Nigeria will exit recession this year. The OPEC-led production cut has also raised crude prices globally to ~$52.5/barrel (vs 2016 average of $45.1/barrel). On the domestic production front, contraction in crude output have sizably shrank following improved government conciliation and an increase in government amnesty provision. This is even as force majeure on the nation’s largest export terminal (Trans Forcados) was lifted in May. The foregoing has thus driven improved revenue picture for the FG with expected rise in dollar influx expected to sustain FX liquidity in the near term. On the back of these, the equities market has rallied 22.72% YTD with more prospect for further upside.

 

Wouldn’t you rather Invest now?

Before you start here, always remember stock prices are all about future earnings. Thus, with bullish economic and financial performance almost upon us, what the investment pros must be pricing in should be much rosier. Therefore, maximizing gains in the stock market requires looking past what’s about to happen and taking position in the market based on expectations of future performance. Earnings are about to come back into focus as second quarter reporting season gets set to kick off. Expectations are elevated. Investors may be hoping for more of a speed boat look to economic growth, but we believe that pontoon speed, while not exciting, is likely to be more beneficial to keeping the bull market going.

At ARM, we continue to build as well as prune our list of stocks. We pay specific attention to those with solid fundamentals or those that are unfairly being dragged down by the rest of the market—a case of “throwing the baby out with the bathwater.” These dislocations become widespread as many investors choose to flee or sell low during a correction rather than focus on the subsequent recovery. Having applied our framework, we stuck with our portfolio tilt towards stocks and we were net buyers of stocks in 2016 and, testament to our diligence, our funds benefited from the market rebound. Specifically, there is a strong correlation between the stock market and our Aggressive fund, due to its higher equity allocation (80-100%). The equity fund has constantly outperformed the market during periods of recovery or rebound.

 

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Nigeria’s inflation decelerated for the fourth consecutive month in May 2017 to 16.25% YoY (Year on Year) as core inflation dropped sharply in line with our earlier surmise relating to pass-through from high base effect from elevated fuel prices in 2016. However, food remained at an elevated 19.3% YoY in the review month as structural setbacks, such as higher transportation cost, offset potential gains from an appreciating naira.

Going forward, the Ramadan-associated strong demand for cereals should leave pressures on cereal prices largely intact in June. Thus, aided by still elevated transportation cost which have also limited gains from an appreciating naira, we remain bearish on food inflation despite ongoing green harvest in the Southern part of the country. That said, the cumulative benefits of sustained FX policy gains appear to have finally caught up with energy prices given the subdued MoM(Month on Month) growth in prices of PMS and cooking gas as well as the decline in diesel prices in recent readings. We expect this to lead to a moderation in monthly core inflation reading in June—albeit expected to have a relatively pale influence on YoY reading compared to that from the just ended high base effect from 2016. Overall, our expectations across the core and food inflation buckets should translate to an unchanged headline reading of 16.25% YoY in June 2017.

See full report here.

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