January 30, 2017/InvestmentOne Research

Trade ideas for the week

• We remain positive on Cement names on potential for increased government CAPEX spending.
• Also, we prefer quality Banking stocks on continued elevated interest rate regime and potential for capital gains on investors’ positioning for corporate action.
• We continue to sell Consumer names on pressure on disposable income and limited FX supply for input materials.
• Risk on NGN remains on the downside as poor dollar liquidity persists.
• We overweight FI instruments, as rising yields present good entry point..
  

Our Picks

• Dangcem (N150.0); GTB (N22.5); Zenith(N14.5); and Access (N4.8)
• Prices represent average entry prices
  

The week in review

• MPC left key rates unchanged.
• ASI gained  +0.40% (40bps) w/w
• Yields on FGN bonds compressed mildly w/w, on liquidity injection. 
• NGN/USD ended the week flat at both the parallel and interbank market.

The week ahead

• Fed to hold its first rate decision meeting in 2017 this week.

Thoughts for the week

§  With key policy rates left unchanged, the MPC held on to its hawkish stance at its January meeting. This was largely in line with market expectation and deemed appropriate given the twin objectives of attaining real return on investment and attracting FX inflows from offshore investors. However, consensus remains that given the lack of transparency/confidence in the FX regime; the illiquidity  in the FX market would persist and consequently continued pressure on NGN/USD equilibrium. This, in our opinion, would continue to weigh on real sector output and corporate earnings.