March 20, 2017/InvestmentOne Research

Trade ideas for the week

• We remain positive on both quality Banking and cement stocks on continued elevated interest rate regime and potential for increased government capex spending.
• We continue to sell Consumer names on pressure on disposable income and limited FX supply for input materials..
• Though we expect the ASI to remain volatile on concern regarding the weak macro backdrop, we see support to market performance from a likelihood of policy shift in the FX regime..

§  Hence, we advise investors to tread with caution and gradually build position in quality names for an extended investment horizon.

• 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), Nestle (N500)
• Prices represent average entry prices
  

The week in review

• ASI advanced by +1.64% (90bps) w/w
• Yields on FGN bonds contracted  w/w, dragged by decline in CPI and lower stop rate at this month auction.
• Naira strengthened by +2.2%  w/w against the USD at the parallel market to end the week at N450 level.
• February headline CPI declined by 94bps to 17.78%
• US Fed hiked benchmark rate by 25bps, guided to a more dovish stance.

The week ahead

• March MPC meeting to hold this week.
• February FAAC disbursement report scheduled to be released by the NBS

Thoughts for the week

• As indicated by data released by the NBS last week, headline CPI declined by 94bps in February to 17.78% on higher base effects of 2016. While the decline in headline CPI supports expectation of a shift to an accommodative stance by the monetary authority, we expect the MPC to maintain the status quo at the end of this week meeting given the need to keep system liquidity tight in defense of the Naira. Furthermore, while we see higher base effect of 2016 as a positive for further deceleration in headline CPI, we caution that potential for shift to a liberal FX regime and its implication for PMS price remains risk to inflation outlook going forward. On a positive note, we see expected positive impact of continued FX forwards sales by the CBN on input costs for businesses as portending a positive outlook for inflationary pressure during the course of the year.