April 2, 2024/United Capital Research
Global Markets – Solid Quarterly Gains Across Global Markets
Last week marked the end of trading for the month of March and for Q1-2024. March was yet another solid month for financial markets with broad based market participation. The week was not too notable in terms of economic data. However, February’s Personal Consumption Expenditure (PCE) data was released. PCE inflation met expectations, with the 12-month core index reading at 2.8%, same as in January and meeting census forecasts. However, the month-on-month reading ticked down to 0.3% in Feb-2024 from 0.4% in Jan-2024, also meeting census. However, the latest figures give the Fed room to maintain rates at current levels. In all, the S&P 500 extended its monthly gaining streak to 5 months, up by 3.2% m/m and 10.2% YTD, its best start to a year since 2019.
European Central Banks had a dovish tone with the ECB signaling June as the most probable start of monetary easing. With mixed results across the region, economic growth remains subdued. On economic data, Germany’s Federal Statistical Office reported a 1.9% m/m fall in retain sales in Feb-2024, its biggest drop in 17 months, consequent on high interest rates and weak global demand. However, consumer sentiment improved in the eurozone due to easing energy concerns. The European Commission reported that its gauge of consumer confidence had increased to its highest level in 2 years. In financial markets, the Easter-shortened week saw modest trading activity, nonetheless, European markets advanced to close out on a strong month. In March, STOXX Europe 600 was up 3.7% (+7.0% YTD), DAX up 4.6% (+10.4% YTD), and the FTSE 100 up 4.2% (+2.8% YTD).
In Asia, Chinese stocks declined at the close of the month amid concerns about the continuing property sector downturn. Despite messages by Chinese Premier, Li Qiang about China being open for business, investors remain unconvinced that China will further increase government support to meet its growth goals. The Shanghai Composite fell by 0.1% m/m (+1.2% YTD).
In commodity markets, energy futures rose significantly in the month. In March, Brent Crude was up by 6.8% (+13.9% YTD) and Dutch Natural Gas was up by 10.5% (-15.1% YTD). Similarly, metals moved higher in the month, with Gold having a standout performance, hitting a new all-time high of $2,200/ounce. Gold was up 9.1% in the month (+8.2% YTD).
Q2-2024 starts this week. From a corporate action perspective, we expect the week to be relatively quiet as we anticipate the start of the earnings season in a few weeks. Key economic data releases will be EU Inflation Flash and Unemployment Rate, Global PMIs, and US Labour Market Data (JOLTS and the monthly BLS Employment Report).
Macroeconomic Highlights
The Central Bank of Nigeria (CBN) has issued a circular to Bureau De Change (BDC) operators informing them of the sale of $10,000 to each BDC at a rate of N1,251/$1. The Apex Bank directed each BDC to sell the Dollar to eligible customers at a rate not exceeding 1.5% above the purchase price, implying that each BDC is not expected to sell above N1,269/$1.
Data from the Federation Account Allocation Committee (FAAC) Disbursement reports published by the National Bureau of Statistics (NBS) shows that, the Federal Government has deducted over N415.0bn from State Government allocations to service their external loans. An analysis of the report showed that the deductions incurred by the sub-nationals were N57.0bn in 2019, N74.0bn in 2020, before increasing to N86.2bn in 2021, N78.0bn in 2022 and N120.01bn as of December 2023. The figure indicated an increase of 110.0%, signalling the country’s huge debt amidst dwindling revenue.
Nigeria’s broad money supply (M3) has surged to a new historic high of N95.56tn as of February 2024 despite the hawkish tightening stance of the Monetary Policy Committee (MPC). This figure represents a staggering 79.29% surge from the N53.3tn recorded in February 2023, showcasing a substantial y/y growth of N42.26tn, compared to the preceding month of January 2024, which stood at N93.72tn, this represents a 1.96% increase, equivalent to N1.84tn.
The MPC has concluded its two-day meeting for March 2024. This meeting marks the second MPC meeting for the year 2024 and the 294th meeting of the CBN. The MPC at the end of their meeting voted to hike the MPR by 200 basis points. The Committee voted as follows: Raise the MPR by 200bps to 24.75% from 22.75%, increase the asymmetric corridor to +100bps/-300bps, retain the Cash Reserve Ratio (CRR)of Deposit Money Banks at 45.0% and adjust the CRR of Merchant Banks from 10.0.0% to 14%.
Nigeria’s total public debt stock rose by 10.73%, q/q, to N97.34tn in Q4’2023 from N87.91tn in Q3’2023, according to the National Bureau of Statistics (NBS). The figure also shows a y/y increase of 10.46% over the N46.2tn recorded in the corresponding period Q4’2022.
The Central Bank Nigeria on Thursday in Abuja, unveiled new minimum capital requirements for banks, pegging the minimum capital base for commercial banks with international authorisation at N500.0bn. The Apex Bank also disclosed that the new minimum capital for merchant banks would be N50.0bn, while the new requirements for non-interest banks with national and regional authorisations are N20.0bn and N10.0bn, respectively. A circular signed by the Director, Financial Policy, and Regulation Department, Mr. Haruna Mustafa to all commercial, merchant, and non-interest banks and promoters of proposed banks emphasized that all banks are required to meet the minimum capital requirement within 24 months commencing from 01 April 2024 and terminating on 31 March 2026.
The rate of increase in deposit money banks’ credit to the private sector slowed by 5.0% in February 2024 from 22.0% in January 2024. Data from the CBN showed that credit to the private sector grew on a slowing rate to N80.86tn as of February 2024 compared to N76.29tn in January 2024.
According to data from the latest Consumer Price Index report (CPI) by the National Bureau of Statistics (NBS), food inflation, which constitutes more than 50.0% of headline inflation, rose for the 14th straight month to 37.92% in Feb-2024 from 35.41% in the previous month. February’s rate is almost at par with the 38.50% in August 2005.
This week, we expect the National Bureau of Statistics to release Full Year 2023 Air Transportation Data.
Domestic Equities: NGX-ASI Closed Lower…down by 8bps w/w
Last week, the local equities market was met with improvement in bargain hunting, as the dividend season continued to unfold. The first quarter came to a wrap with the bulls seeming to be getting ready for dividend season proper. Some listed corporates wrapped the quarter by releasing their audited full-year 2023 financial results. However, few listed firms announced through the NGX the delay of publication of audited full-year 2023 numbers (like United Bank for Africa, “UBA”). Overall, share price depreciation in MTNN (-1.3% w/w) broadly informed the NGX-ASI southward close, which retraced slightly by 8bps to print at 104,562.1 points. Hence, YTD return weakened to 39.8%, while market capitalisation closed at N59.1tn. Activity level improved significantly as the average value and volume of stocks traded climbed by 35.2% w/w and 26.3% w/w to settle at N11.6bn and 430.4mn units respectively. Investors sentiments toward equities investments remained strong as indicated by the market’s breadth, which printed at 1.3x from 1.6x in the prior week.
On a sectorial level, performance was mainly bullish as three (3) out of the five (5) sectors under our coverage closed in the green. The Insurance (+3.2% w/w) sector led the gainers on the back of share price appreciation across AIICO (+7.6% w/w), NEM (+2.6% w/w) and SUNUASSU (+17.2% w/w). Trailing was the Banking (+1.9% w/w) sector and Industrial goods (+0.2% w/w) sectors, owing to improved buy-interest across ZENITHBA (+11.4% w/w), GTCO (+7.7% w/w), UBA (+3.7% w/w), and WAPCO (+5.3% w/w). On the flip side, the Consumer goods (-1.0% w/w) closed in the red territory, driven by losses in DANGSUGA (-11.9% w/w) and INTBREW (-14.3% w/w). Finally, the Oil & Gas sector closed flat.
On corporate action, the newly listed Transcorp Power Plc released its audited financial statement for 2023. From the report, the GenCo recorded a laudable 57.3% y/y climb in its top line (Revenue), from N90.3bn in 2022 to N142.1bn. The sound topline growth helped produce a sustained growth in the company’s EBITDA silencing any probable impact from the significant 236.2% y/y and 51.7% y/y climb in impairment losses for the period, from N812.7mn to N2.7bn (quite reflective of the stifled consumer spending in the Nigerian economy, with many households struggling to meet their electricity bills), and administrative expenses, respectively. Despite a 75.0% y/y and 75.6% y/y climb in finance expenses and foreign exchange losses for the financial period, Transcorp Power Plc still recorded profit before tax (PBT) of N52.8bn, indicating an improvement of 84.6% y/y, from N28.6bn in 2022. Lastly, the corporate incurred a whopping 99.1% y/y climb in its tax expense for the period, from N11.3bn to N22.5bn. However, profit after tax (PAT) for the period printed at N30.2bn, a 74.6% y/y significant improvement from N17.3bn in 2022. Overall, we note that a strong top line performance empowered the GenCo’s sound financial performance in 2023.
Other corporates that released their full year 2023 financial statement reports include: BUA Foods Plc, Okomu Oil Palm Plc, PZ Cussons, UAC Nigeria Plc (UACN), Julius Berger, Transcorp Hotels, Ikeja Hotels Plc, Nigerian Aviation Handling Company Plc (NAHCO), Skyway Aviation Handling Company Plc (SAHCO), Total Energies Marketing Nigeria Plc, Eterna Plc, Japaul Gold Ventures Plc, United Capital Plc (UCAP), Access Corporation, among others.
Among the corporates in the consumer goods sector, BUA Foods Plc recorded the best top-line performance, growing revenue by 74.3% y/y, from N418.3bn in 2022 to N729.4bn. Okomu Palm Plc (+26.6% y/y, from N59.3bn to N75.1bn), an UAC of Nigeria Plc (+10.2% y/y, from N109.3bn to N120.5bn) trailed behind in topline performance. The shifts in government policies adversely impacted the overall profitability of most consumer goods corporates, including BUA Foods, which saw a significant surge in its selling and distribution expenses (+109.9% y/y) and finance cost, +1,057.5% y/y (largely on the back of foreign exchange losses of N81.9bn, 81.3% of finance cost), to record at (N29.8bn from N14.2bn) and (N100.7bn from N8.7bn). As a result. Bua Food’s PBT shrunk significantly, undermining the strong topline performance to only climb by 0.8% y/y to print at N108.1bn from N107.2bn. Sponsored by deferred tax credit to the tune of N4.0bn in 2023, BUA Food’s net income printed at N112.1bn, 22.8% y/y higher than N91.3bn recorded in 2022. This performance makes BUA Foods the best performing consumer goods corporate in 2023, amid the very challenging macroeconomic environment. Okomu Palm Plc also recorded a strong bottom-line performance, as its net income improved by 27.2% y/y to print at N20.7bn from N16.2bn (particularly driven a sustained topline growth). UAC of Nigeria on the other hand returned to profit position in 2023, helped by wind fall gains from FX gains (N4.2bn, 71.2% of finance income, which printed at N5.9bn). That said, UACN recorded profit of N8.9bn in 2023, from a loss position of (N4.0bn) in 2022. UACN declared a final dividend of N0.22 kobo for 2023, with qualification and payment date set for 6 June 2024 and 21 June 2024, respectively.
In the construction space, Julius Berger Plc recorded sustained growth in its topline, albeit mild. Julius Berger’s revenue for 2023 printed at N446.1bn, 1.3% y/y higher than N441.0bn in 2022. Interestingly, owing a significant 483.3% y/y climb in the company’s investment income for the period (from N1.2bn to N7.0bn), its bottom-line performance was preserved. This performance was largely driven by the northward volatility of interest rates in 2023. That said, Julius Berger recorded a laudable N59.5% y/y climb in profits after tax (PAT) for the financial period 2023, from N7.9bn to N12.6bn. In terms of foreign currency revaluation gains, Julius Berger Plc recorded in its other comprehensive income for 2023 FX gains of N40.3bn, bringing total compressive income for the financial year 2023 to N52.9bn, 501.1% y/y higher than N8.8bn in 2022. Julius Berger Plc’s earnings per share (EPS) recorded at 7.78, 57.5% y/y higher than 4.94 in 2022. The company announced final dividend of N3.0 kobo, with qualification date of 31 May 2024. Dividend payment date was fixed for 21 June 2024.
Among the hotels, Transcorp Hotels Plc recorded a significant 36.3% y/y climb in its topline, from N30.4bn to N41.4bn. The strong topline performance provided the buffer for the company’s impressive 48.9% y/y climb in operating profits for 2023, from N8.8bn to N13.1bn. The hotel’s profits after tax in 2023 improved by 134.6% y/y to print at N6.2bn from N2.6bn in 2022. On the other side, Ikeja Hotels Plc recorded a decline in revenue, from N12.9bn in 2022 to N11.1bn in 2023, down by 13.9% y/y. However, a blend of strong cost optimization strategy and FX gains (N2.1bn in 2023, from N120.2mn in 2022), helped boost the hotel’s bottom-line for 2023, with net income printing at N2.1bn, from a loss position of (N3.9bn) in 2022.
In the aviation sector, Nigerian Aviation Handling Company Plc (NAHCO) recorded a strong topline performance, improving its revenue by 70.1% y/y, from N16.7bn to N28.4bn. This performance was helped by the surge in air fares in 2023. Despite a 64.9% y/y in administrative expenses, from N3.7bn to N6.1bn, the company recorded strong profits before tax (PBT) of N8.7bn, 128.9% y/y higher than N3.8bn in 2022. NAHCO Plc recorded PAT of N5.5bn in 2023, which is 103.7% y/y higher than 2.7bn in 2022. Earnings per Share (EPS) improved to 2.84, 108.8% y/y higher than 1.36 in 2022. In the same vein, Skyway Aviation Handling Company Plc (SAHCO) a decent 48.6% y/y improvement in its revenue generated, from N11.1bn in 2022, to N16.5bn in 2023.The company rounded up the year 2023 with profits after tax (PAT) of N1.9bn, 533.3% y/y higher than N309.3mn in 2022.
In the oil & gas sector, Total Energies Marketing Nigeria Plc recorded a decent 31.8% y/y climb in revenue generated in 2023, from N482.5bn in 2022, to N635.9bn. Foreign exchange loss to the tune of (N11.5bn) in 2023 dampened the downstream company’s operating profit, which declined to N24.0bn from N29.7bn in 2022, down by 19.2% y/y. The company’s bottom line equally took a hit, with PAT declining 19.9% y/y to print at N12.9bn, from N16.1bn. Total Energies Marketing Nigeria Plc declared final dividend of N25.0/share, with qualification date set at 23 April 2024. Payment date was set for 17 June 2024. In the same vein, Eterna Plc also recorded impressive 57.3% y/y climb in its revenue generated, from N116.5bn in 2022 to N183.3bn in 2023. Owing to FX losses to the tune of N18.4bn, Eterna Plc recorded a loss after tax in 2023, incurring an accounting loss of (N9.4bn) from a profit position N1.0bn in 2022. In similar context, Japaul Gold Ventures Plc recorded a very decent 85.7% y/y climb in revenue generated, from N1.4bn to N2.6bn. FX losses (N1.2bn) recorded by the company dampened the impressive top-line performance, and thus translated to a weak bottom line, with the company recording a loss after tax of (N674.0mn), from a profit position of N156.0mn in 2022.
In the banking sector, Access Corporation released its audited financial statement for 2023. From the report, we saw that the bank grew its gross earnings by 87.0% y/y in 2023, from N1.4trn to N2.6trn. The bank’s net interest income grew by 93.4% y/y in 2023, from N359.6bn to N695.4bn. A corresponding increase in the bank’s non-interest income, from N507.7bn to N869.8bn (up by 71.3% y/y), drove a significant northward nudge in the bank’s PBT, which grew by 334.8% y/y, from N167.7bn to N729.0bn). Ultimately, the bank’s PAT grew by 305.0% y/y, from N152.9bn to N619.3bn. Access Holdings Plc recorded EPS of 17.23, 288.1% y/y higher than 4.44 in 2022. Access Holdings Plc declared a final dividend of N1.80 kobo, bringing total dividend for 2023 to N2.10 kobo (factoring in N0.30 kobo interim dividend). Qualification and payment date were set for 10 April 2024, and 19 April 2024, respectively.
Looking at other disclosures, Guinness Nigeria plc announced to the NGX and investing public, the delay in transition to the new arrangement with regards to the change in distribution model for imported Diageo International Premium Spirit (IPS) brands. The company noted that the transition to the new arrangements is taking longer than expected, hence the April 2024 completion date is no longer feasible. Accordingly, Guinness Nigeria Plc gave notice of the extension of the separation of the imported International Premium Spirit (IPS) brands from Guinness Nigeria Plc’s business to now become effective in the 2025 financial year.
This week, we expect bargain hunting activities to continue, with the recent release of a flurry of full year 2023 audited financial statements, and corporate actions. We expect a sustained southward trend of short-term rates in the fixed income market to motivate further bullish sentiments toward equity investments at different intervals.
Money Market Review: MPC Hiked the Benchmark Interest Rate by 200bps to 24.75%
Last week, the financial system opened with a surplus balance of N98.8bn. During the week, there was an inflow of N164.3bn worth of coupon payments. However, this was not sufficient to bolster the financial system due to the NT-bills primary market activity. As a result, the financial system decreased and closed the week lower with a surplus balance of N45.3bn. Consequently, the average Open Repo Rate (OPR) and Overnight Rate (OVN) declined by 79bps and 80bps w/w to settle at 26.53% and 27.28%, respectively.
The Monetary Policy Committee) held their meeting on the 25th and 26th of March 2024. At the meeting, the policy makers decided to raise the Monetary Policy Rate (MPR) by 200bps to 24.75% from 22.75%, a new all-time high. Also, the Committee adjusted the asymmetric corridor from +100/-700bps to +100/-300bps around the MPR. Meanwhile, the Cash Reserve Ratio (CRR) and the liquidity ratio were retained at 45.0% and 30.0%, respectively. This decision marks the MPC’s 9th consecutive increase in MPR since 24-May-2022, bringing the cumulative hikes in this cycle to +1,325bps.
In the primary market, the Central Bank of Nigeria conducted an NT-bills auction, rolling over a total of N161.3bn worth of maturing bills across the 91-day, 182-day and 365-day bills. At the auction, investors’ demand was strong, as total subscription printed at N2.6tn. The bulk of the bids were skewed towards the longer-tenured instrument which recorded a total subscription of N2.5tn. Notably, the CBN oversold the auction, allotting a total of N1.6tn bills. Thus, the stop rates across the 91-day, 182-day and 365-day bills remained unchanged at 16.24%, 17.00% and 21.12%, respectively. In the secondary NT-bills market, we observed bullish sentiments across the curve. As a result, the average yield on NT-bills declined by 4bps w/w to close at 17.66% (previously 17.70%). Similarly, the average yield on OMO bills decreased by 6bps to settle at 18.46% (previously, 18.52%).
This week, we expect the financial system to remained depressed in the absence of any inflows from coupon payments or maturities. Thus, we project that FTDs and money market rates to remain at current levels.
Bond Market: Bearish Sentiments Dominate in the Secondary Market
The secondary bonds market was dominated by bearish investor sentiments as average bond yield rose by 15bps to close at 19.41% (previously 19.26%). Similarly, corporate bonds traded on a bearish note, as the average yield on corporate bonds increased by 12bps w/w to 21.39% (previously 21.27%).
On the other hand, we observed mild buy-interests in the Nigerian secondary Eurobonds market in line with the renewed investors’ appetite for SSA Eurobonds. Additionally, there was an inflow of $197.5mn from coupon payments. This further drove bullish sentiments in the market as investors sought to reinvest their funds. Thus, the average yields in the market fell by 6bps w/w to settle at 9.42% (previously 9.48%).
Looking forward, we anticipate an overall bearish sentiment to dominate the market underpinned by concerns about the FGN bond auction calendar, the nation’s fiscal health and the efficacy of its monetary policy. Meanwhile, in the Eurobonds market, we expect the bullish sentiments in the market to persist in line with SSA Eurobonds.
Currency Market: Naira Appreciated at the NAFEM Window
Last week, the Naira appreciated by 8.5% w/w at the Nigerian Autonomous Foreign Exchange Market (NAFEM) to close at N1,309.39/$, from its previous close of N1,431.49/$. Meanwhile, activities in the NAFEM window improved, as average FX turnover rose by 29.0% w/w to settle at $487mn. Lastly, Nigeria’s external reserves fell by 104bps to settle at $33.9bbn. At the parallel market, the Naira appreciated by 11.4% w/w to close the week at N1310.0/$ (previously, N1480.0/$).
This week, we expect the Naira to trade at current levels with a possibility of modest improvement as the CBN’s policies crystalize and as the interventions in the FX market continue to yield positive result.
