March 27, 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 shed -0.77% (77bps) w/w
• Yields on FGN bonds trended further south on increased demand
• Naira strengthened by 15.4% against the USD at the parallel market to end the week at N390 level.
• February FAAC sharing to subnationals declined by 7% to c.N429bn.

The week ahead

• OMO maturity of c.N51bn expected by 30th March
• NBS to publish Q4 2016 Unemployment and Under employment report

Thoughts for the week

• Barely a month after the successful issuance of the $1bn Eurobond, the Federal Government last week secured the approval of National assembly to issue a further $500mn Eurobond to finance 2016 budget deficit. This in addition to the expected stability in oil earnings should be supportive of government capex spending, FX reserve and exchange rate stability in the near term. Having said that, given recent IMF comment on Nigeria’s need for reforms, particularly as it relates to FX market, we believe that the recent success recorded by the CBN with regard to FX market needs further policy support in terms of increased flexibility in the interbank market. This should bode well for improved inflows from autonomous sources and consequently further ease FX liquidity for market participants.