Nigerian Financial Markets Review - 300109

Economic Update

According to the CBN governor, decisions taken on January 19 could help stabilize the value of the local currency. Particularly the reduction of Dollar denominated reserves that banks can hold and sale of Dollar under the retail strategy has helped support the supply of Dollar at the foreign exchange market. We are of the opinion that the value of the Naira during the week has been relatively stable due to an increase in Naira denominated funds required by multinational oil companies to finance their month-end transactions. This has helped supply of dollar in excess of $500mn during the week.

Meanwhile, the CBN has sold $672mn since it implemented the new measures over the last two weeks. The Naira may have dropped to N147.66 per US Dollar after interbank trading today.

Yesterday, the Lower arm of the Nigerian National Assembly, the House of Representatives passed a budget of N3.09tr or $22bn for the 2009 budget following its believe that the government needs to spend more to help drive aggregate demand in the economy. This amount is slightly lower than the N3.05tr ($21.8bn) passed by the Senate, last month. It may be recalled that Nigeria ’s presidency had earlier proposed a budget of N2.87tr ($20.5bn) for 2009. Given that the difference in the figures approved by the two arms is small, we would expect that a compromise be reached as to what a feasible budget figure for the country should be in 2009.

At the Intercontinental Exchange (ICE), the prices of London Brent Crude and US Light Sweet Crude hovered around $45.83/barrel and $42.07/barrel respectively.

Equity Market

Week to date change on the equity market slowed to -9.1% as the market showed some resilience after hitting its downward trend line. Key performance indicators ASI and market capitalization of listed equities gained 42 basis points to 21,813.76 points and N4.88tr respectively.

Today’s gain came on the heels of gains recorded by a few bank stocks and selected stocks in breweries, healthcare, and insurance sub sectors. We observed that the market index rebounded around its 8-month downward trend line established over seven sessions since June 2008.

Coincidentally, the market had always rebounded around this line for a short term rally. In view of this, we would not be surprised if the market appreciates in the coming week. Following today’s marginal gain, YTD change on the market improved by a similar margin to -30.64% compared with -30.95% yesterday.

Larger volume flow contributed to aggregate performance as investors exchanged 327.2mn shares (some 19.4% higher than previous day’s figure) for N1.47bn in 6,514 transactions. Two insurance stocks, CUSTODYINS, 30.9mn and INTENEGINS, 28.2mn contributed to market activity. While the latter shed 424 bpts to N1.13, the former appreciated to N1.36 at the close of market proceedings.

Sterling Bank Plc announced its financial performance for the year ended 30th September 2008. The bank’s gross earnings rose by 52.1% to N36.3bn, while net profits leaped by 239.7% to N6.56bn. Net profit margins arising from the results are 18.1% compared with 8.1% in the corresponding period. Despite a considerable increase in margins, we believe the bank could have done better as it still trails sector averages in key performance parameters. Meanwhile, the bank’s share price closed lower to N1.49 today after management proposed a cash dividend of N0.10 for investors, who hold the shares till February 9, 2009.

Today’s strong movers were PZ, N11.55 and DANGSUGAR, N10.08. These stocks gained 500 bpts to lead other twenty one stocks on the gainers’ list. Shedding similar margins off previous day’s price were LIVESTOCK, N1.14; MULTIVERSE, N0.57 and NAHCO; N6.27.

In spite of today’s appreciation, more equities closed to fresh 52-week lows today.

Fixed Income Market

Activity at the FGN Bond market was relatively active across key tenors today. The most active of these was the 12.5% FGN Bond 2009 Series 11 as its yield shed 30 bpts to 3.35%.                                                                                                                                                                        

Money Market

Money market rates appreciated further for the second consecutive day. The strongest mover was 7-day rate which appreciated by 33 bpts to 11.46%, while call rate gained 21 bpts to 8.42%. In the coming week, we anticipate some level of liquidity as FAAC funds are expected to hit the system.

Bills worth N20.1bn were issued yesterday, while another N69.5bn worth matured. A net inflow of N49.4bn hit the system yesterday and rates still continued to swing upwards.

Michael Nkadi| Investment Research | UBA Global Markets | UBA House, 57 Marina Lagos Nigeria | 234-1-2800020 | michael.nkadi@ubagroup.com