Nigeria | NGX

After experiencing a decline from its peak levels in the latter half of 2022, CPO price showed signs of improvements in early 2023. Specifically, according to data from Index Mundi, CPO prices rose by 9.3% in the review period, bouncing back from a 23- month low of $888.99 per ton in October 2022 and surpassing its five-year average of $963.50 per ton in March. This optimism was partly driven by positive economic conditions in India and China, the two largest CPO importers. In addition, CPO prices were supported by the expectation that ongoing drought conditions in South America will negatively impact the supply of soybean oil (a key substitute product).

The Afrinvest weekly sentiment weakened to 3.9x from 4.8x recorded the previous week.

MTN Nigeria has established itself as a dominant player in the telecommunications industry, with a network infrastructure covering 92.0% of the population, which enabled the company to amass an impressive subscriber base of 75 million mobile users.

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.