Nigeria | NGX

Domestic equities outperformed global peers in the review month, delivering a 4.8% MoM gain. The strong earnings results of bellwethers like MTNN and BUAFOODS may have notably impacted market performance. We also note the positive contribution of the Oil & Gas sector (+16.0% MoM), which may have benefitted from improvements in crude oil production (+19.8% MoM to 1.6 million barrels per day) and proactive positioning to benefit from the potential impact of higher PMS prices on downstream players.

We revise our FY'22/23 revenue projection to N1.5 trillion (vs N1.4 trillion per our last forecast). This revision primarily reflects sustained revenue enhancement strategies (improved route-to-market and expansion of fertiliser blending capacity) and the impact of higher product pricing. Already, the company has attained 75.3% of our full-year projection, with north of 34.0% sales traction across the Food, Agro-Allied, and Sugar segments.

According to management, Guinness Nigeria Plc (GUINNESS) will likely sustain the transfer of cost burden to consumers in the near term despite potential negative implications for volumes. In our view, the net positive impact of this strong pricing resolve, which cascaded to the 15.8% YoY expansion in gross profit in H1’22/23, could be supported by the company’s aggressive e-commerce penetration and marketing campaigns, driving our forecast FY’22/23 revenue of N233.3 billion ahead of the expected increase in excise duty. This revenue projection also captures our expectation for an increase in election-related spending, which may place a floor on volume contractions and boost management’s confidence in its current pricing strategy.

MTNN extended its sustained uptrend in active subscribership aided by the aggressive expansion of network coverage and service infrastructure in FY'22. In particular, data and voice subscribers grew by 5.2 million (+15.3% YoY) and 7.2 million (+10.5% YoY), respectively. 

Despite a tightening-induced plunge in 2022, global equities commenced 2023 on a strong footing. Specifically, MSCI World and Emerging Markets indices appreciated by 7.0% and 7.9%, respectively, in January 2023 (vs -4.3% and -1.6% in December 2022). This equity turnaround was primarily driven by the moderation in inflation (particularly in the U.S. and the Eurozone) that raised hopes for temperance in hawkish monetary policies. In addition, a flurry of positive earnings releases amid strong Q4'22 economic growth numbers in the U.S. and China, and a better-than-expected outturn in the Eurozone boosted risk appetite.

The African LCY sovereign bond market has traded cautiously since the start of the new year amid fragile macroeconomic conditions and reduced global liquidity. To wit, the Bloomberg African Bond Index (AFMI) pared 3.6% in January 2023, lagging the emerging market index (+3.6%). Furthermore, growing fiscal concerns and the contagion risk from countries like Ghana resulted in widened credit spreads. In our view, the current yield level in the African credit market appears relatively attractive in countries with relative fiscal prudence and improving fundamentals. Nevertheless, broad valuations remain a mixed bag, requiring investors to be cautious when assessing value through a traditional lens, given that sovereign credit stress (see figure 3) touched an unprecedented level in 2022.