BY BAMIDELE FAMOOFO
Impressive corporate earnings by bellwether stocks supported market performance in the Nigerian Exchange Limited last week, as investors increased their bets on blue-chip companies in anticipation of continued expansion in profits.
Notably, investors’ buying interest in NB (+18.6%), SEPLAT (+16.5%), WAPCO (+16.1%), GUINNESS (+13.1%), and UNILEVER (+11.5%) supported market performance.
Pertinently, the All-Share Index rose by 2.4 percent w/w to close at 49,638.94 points. Consequently, the MTD and YTD return increased to +5.7 percent and +16.2 percent, respectively.
Similarly, activity levels were stronger than the prior week, as trading volumes and value increased by 62.8 percent w/w and 32.4 percent w/w, respectively.
Across the sectors, the Oil and Gas (+10.2%), Consumer Goods (+6.3%), Insurance (+3.4%) and Industrial Goods (+0.5%) indices closed in the green, while the Banking (-1.5%) index was the sole loser.
“In the week ahead, we expect investors to continue to rotate their portfolios towards cyclical stocks that delivered decent earnings this week. Thus, we see scope for the bulls to maintain dominance, albeit the magnitude of the gains will be substantially lower, as profit takers are likely to cash out on the gains across bellwether stocks. Notwithstanding, we reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings,” Stock Analyst at Cordros Research hinted.
The overnight (OVN) rate oscillated in the double-digit region through the week in the money market, eventually rising by 683bps w/w to close at 12.5 percent on lower system liquidity.
The average liquidity level for the week settled at N19.03 billion as against N78.37 billion in the previous week as outflows for the FGN bond auction (N219.88 billion), Net NTB issuances (N9.08 billion) and FX auction offset inflows from FGN bond coupon payments (N160.32 billion).
In the coming week, inflows from FAAC allocations (N448.46 billion) and OMO maturities (N20.00 billion) are expected to hit the system. This should boost system liquidity towards the end of the week and result in the OVN rate trending southwards at the end of the week.
Trading in the Treasury bills secondary market turned bearish in the review week due to weak system liquidity and market participants preparing bids for the week’s NTB PMA. Consequently, the average yield across all instruments expanded by bps to 3.8 percent as the average yield at the OMO segment expanded by 21bps to 4.2 percent but contracted by 8bps to 3.7 percent at the NTB segment.
At the week’s NTB PMA, the CBN offered N120.97 billion – N2.68 billion of the 91-day, N2.02 billion of the 182-day, and N116.27 billion of the 364-day – in bills. Ultimately, the CBN allotted N130.05 billion – N2.22 billion of the 91-day, N8.23 billion of the 182-day and N119.61 billion of the 364-day bills – at respective stop rates of 1.74 percent (unchanged), 3.00% (unchanged) and 4.79 percent (previously 4.60%).
We expect demand for T-bills to improve in the coming week as system liquidity becomes buoyant. Thus, we envisage a decline in the average yields on T-bills.
Similarly, the Treasury bonds secondary market traded with bearish sentiments, as demand for FGN bonds remained tepid, with only a handful of trades passing through during the week.
As a result, the average yield expanded by 9bps to 11.2 percent. Across the benchmark curve, the average yield expanded at the short (+14bps) and long (+6bps) ends following investors’ profit-taking activities on the MAR-2025 (+80bps) and APR-2037 (+22bps) bonds, respectively; but contracted at the mid (-2bps) segment as investors sold of the FEB 2028 (-5bps) bond. The DMO conducted the April 2022 FGN bond PMA on Monday (25 April).
At the auction, instruments worth NGN225.00 billion were offered to investors through a new issue bond; APR 2032 bond (Bid-to-offer: 1.0x; Stop rate: 12.5%) and re-openings – 13.53% MAR 2025 (Bid-to-offer: 1.5x; Stop rate: 10.0%) and 13.00% JAN 2042 (Bid-to-offer: 3.0x; Stop rate: 12.9%). Total subscriptions across the offer instruments settled at NGN409.41 billion, with the DMO eventually allotting instruments worth NGN348.58 billion (of which NGN128.70 billion was allocated to non-competitive bids), resulting in a bid-cover ratio of 1.2x.
Analysts maintained their view of an uptick in bond yields in the medium term, as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.
During the week, Nigeria’s FX reserves recorded its first depletion in five weeks as it decreased by USD160.32 million w/w to USD39.65 billion (27 April 2022).
Elsewhere, the naira depreciated by 0.2 percent both at the I&E window (IEW) and parallel market to N419.00/USD and N590.00/USD, respectively. At the IEW, total turnover (as of 28 April 2022) increased by 44.3% WTD to USD866.38 million, with trades consummated within the N410.00 – N453.15/USD band.
In the Forwards market, the naira depreciated at the 1-month (-0.1% to N418.31/USD), 3-months (-0.1% to N423.77/USD), 6-months (-0.2% to N432.48/USD) and 1-year (-0.3% to N448.53/USD) contracts.