June 12, 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.
- While recent rally have seen valuation a bit stretched, we still see value on quality names highlighted in our top picks below given sustained buying interest by investors.
- We expect Consumer names earnings to see support from price hike and recent reforms in the FX market.
- In the near term, we expect continued support to ASI’s performance from recent reforms in the FX market as well as new PFA guideline which required increased investment allocation to equity.
- With that being said, we however highlight potential for profit-taking on recent gain in the index.
§ Hence, we advise investors to stick to quality names and lengthen their investment horizon.
Our Picks
- Dangcem, GTB, Zenith, Access and Nestle
The week in review
- ASI gained +6.07% w/w on sustained buying interest by investors
§ Yields on FGN bond remained at 16% levels
- At the parallel market, Naira gained +2.3% w/w to end the week at N368/$.
- Shell announced lifting of Force Majeure on Tran-Forcados Terminal.
The week ahead
- NBS to publish May 2017 CPI report on Thursday, 15th June 2017.
- US Fed to hold its rate decision meeting this week
Thoughts for the week: Forcados Reopening and its Implication for Nigeria Macro Outlook
§ In the outgone week, Shell Petroleum Development Company announced lifting of force majeure on Trans-Forcados oil terminal, potentially boosting the country’s oil export by c.300,000bpd.
§ While the potential increased oil export may contribute to excess global supply glut and put downward pressure on prices, we highlight that Forcados reopening would be a significant fiscal boost to the country’s economy, as oil export would possibly rise to 2.2mbpd assumed in the 2017 budget.
§ This could further boost FX inflows into the country, enhance CBN’s FX intervention sales and positively impact government revenue and spending capacity.
§ We add that the improved government spending capacity should see improvement in construction and real estate; while the recently opened NAFEX window and CBN’s continued FX sales should provide some support for the manufacturing sector.
§ Hence, we could see the country’s GDP turn positive in 2017 from downturn of 2016 in line with IMF and World Bank projections.
§ Downside risk to the current positive macro outlook however remains from movement in oil price as well as peace in the Niger Delta given it’s been largely driven by positive crude oil price performance and improvement in production .
