July 24, 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 has 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.
- Going into the new week, we expect ASI performance to see support from investors’ expectation of positive Q2 2017 earnings scorecards.
- This, in addition, to sustained buying interest on account of recent reforms in the FX market as well as new PFA guideline which required increased investment allocation to equity bodes well for equities performance.
- We however highlight that NSEASI’s return in Q3 may be slightly positive given the limited upside potential in most tickers on account of recent rally.
§ Hence, we advise investors to stick to quality names and maintain a medium to long term investment horizon.
Our Picks
- Dangcem, GTB, Zenith, UBA, Access, NB and Nestle
The week in review
§ ASI gained +2.28% w/w as investors reacted to Q2 2017 scorecards
- Bond yields inched up marginally w/w as limited system liquidity constrained activities.
- At the parallel market, Naira firmed by +0.27% w/w to end the week at N366 to the USD.
The week ahead
- NBS to publish Q2 2017 Electricity Generation and Distribution data.
- Inflow of c.N65bn OMO maturity expected on Thursday 27th July
Thoughts for the week: OPEC meeting and MPC decision
§ This week would see MPC hold its 4th policy meeting for the year while OPEC members would meet today in Russia in its continued efforts to rebalance the oil market via keeping a lid on members’ output.
§ On the potential outcome of the MPC meeting, we are of the view that monetary authority would keep key rates on hold given the need to rein on elevated inflation as well as sustain the recent months stability in the FX market. The impact of a hold in rates would sustain the current trend in performance of various asset classes in the financial market .
§ Regarding the OPEC meeting, the disclosure by Saudi Energy Minister during the weekend indicating that including Nigeria and Libya in the output cut deal is not on the agenda for today’s meeting has allayed the fear of potential cap in the country’s output to c.1.8mbpd from 2.2mbpd.
§ This, in addition, to expected faster pace of oil market rebalancing as guided by OPEC secretary general would bode well for Brent crude oil performance.
§ Hence, we see support to the country’s economic output in the near to medium term given that Nigeria’s fiscal strength hinges largely on Brent oil price performance and production level (as 90% of FX earnings come from oil).
§ On the MPC, we believe the positive outlook for oil would be supportive of the CBN’s ongoing intervention sales in the FX market. While the rising m/m inflation and potential increase in electricity tariff remain immediate threats, we believe the upcoming harvest season should help moderate rising prices.