Nigeria | NGX

At the end of Q1'23, Brent price was down 26.1% YoY at $79.77 per barrel. However, the commodity fared better between January 2023 and March 2023, with a related contraction of only 7.2% and a higher mean price of $82.22 per barrel. The downward pressure on the crude price primarily reflected unique demand and supply side triggers. The demand outlook for crude was further negatively affected by concerns stoked by the decline in China's leading growth/demand indicator — Purchasing Managers' Index (PMI), in April 2023 to 49.2 from 51.9 in March 2023. In addition to the concerns over China, the collapse of Silicon Valley Bank, Signature Bank, First Republic Bank, and UBS's rescue acquisition of Credit Suisse heightened apprehensions regarding global economic growth and oil demand. Thus, aided by the higher-than-expected output from Russia, which increased the global oil supply, crude prices experienced downward pressures in the period.

The general themes in Nigeria's cement sector include capacity expansion, utilisation, and rising prices. These themes were central to the sector's double-digit revenue growth in FY 2022. However, cement producers have recently begun facing dwindling volume growth and margin pressures from surges in the cost of energy (especially diesel), distribution, haulage, and other operating expenses. In addition, finance cost increases have been driven by foreign exchange losses. Nevertheless, pioneer tax incentives have consistently helped lower effective tax rates across the industry, which has supported strong EPS growth and cascaded to an average dividend payout ratio of c.70.0% across industry players.

H1'23 witnessed numerous twists critical to the banking sector outlook. These twists included the abolition of FX market segmentation, the entrenchment of a 2-way quote system premised on the willing buyer-seller mode and plans to normalise the use of the CRR as a monetary policy tool. The FX-linked reforms resulted in a devaluation of the naira to N769.25/$ in June 2023 from its 2022 closing rate of N461.50/$, essentially reducing the parallel market premium. In our view, these reforms have opened up a seismic shift in the Nigerian banking sector outlook, with banks reassessing their operational capabilities to capture opportunities whilst repealing existential threats. In this report, we examine the intricacies of the banking sector as it relates to the impact of a free-float FX system vis-à-vis banks' balance sheet exposures, asset portfolio & associated loss provisioning, statutory requirements via capital adequacy & NPL ratios, and the return of orthodox monetary policies.

Nigerian Equities have rallied hard in the last few weeks on the heels of the fiscal and monetary initiatives of the new administration. Investors have cheered the removal of the Petroleum subsidy, as well as the unification of the FX rate. Both actions have long been overdue and highlight the market-friendly attitude of the Tinubu administration. In terms of market performance, the NGXINDX has rallied c.11% in the last three weeks, ticking a 15-yr high.

Following two months of sustained losses on the domestic bourse, the equity market rose 6.4% m/m in May to 55,769.28 points. In part, the performance of the market was buoyed by a late rally towards the end of the month due to the opportunities presented by previous price corrections, and market reacting positively to critical reforms promised during the inaugural speech by President Bola Tinubu on May 29th. Consequently, YTD return of the market rose to 8.8% against 2.2% the prior month while market capitalisation advanced ₦1.8tn to ₦30.3tn. Trading activity for the month was mixed as average volume traded fell 44.4% m/m to 592.7m while average value traded rose 43.8% m/m to ₦7.5bn. The top traded stocks by volume for the month were ACCESSCORP (1.1bn units), UBA (1.1bn units), and FIDELITY (0.5bn units), in contrast SEPLAT (₦29.4bn), GTCO (₦13.6bn), and ACCESSCORP (₦12.1bn) led the value chart for the month.

On May 29, 2023, Nigeria witnessed the inauguration of President Bola Ahmed Tinubu as the 16th President of the Federal Republic of Nigeria. The inauguration came on the heels of the President's victory in the February 2023 election, which was tagged as the most keenly contested in Nigeria.The President identified improvement in security and safety as a primary goal. The administration plans security-related investments in personnel, training, equipment, pay, and firepower.