Nigeria | NGX

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.

TRANSCORP's aggressive growth strategy has translated into consistent upgrades in the power business, with installed capacity increasing by 25.8% to 590MW in FY'21. This trend continued in FY'22, with another 241MW added, even though a weaker gas supply in Q3'22 trimmed output. However, we do not expect similar gas shortages in 2023, given that the restoration of the Trans-Forcados pipeline has alleviated gas distribution constraints. ...

Across 9M'22, cement sector volumes remained mostly flat YoY at c.22.2 MT, aided by an over 15.0% surge in the output from BUACEMENT, which masked the impact of weaker outturns in DANGCEM and Lafarge. But for the support from BUACEMENT's new line-4 in Sokoto, sector volumes would have declined across the board. According to DANGCEM and Lafarge, the pullback in volumes reflected inadequate gas supply, heavier than expected rainfall, and depressed consumer wallets. In our view, support from BUACEMENT's new plant, improvement in gas supply, and continued private/public sector partnership suggest that sector volume may be higher in FY'23.

Our previous oil palm sector reports highlighted key drivers that could upturn the global CPO supply-demand balance and keep prices elevated. However, recent events across markets have led to a pullback in CPO prices. Specifically, increased supply from Malaysia and Indonesia (the two largest producers of CPO) and an expected slowdown in demand from China and India led to a 29.2% YoY pullback in CPO prices in Q4’22. Going into 2023, we expect global and domestic CPO prices to be slightly weaker.

Given the heightened volatility across financial markets, driven by geopolitical developments and monetary policy responses to inflation and currency pressures, we believe FY’23 presents a new opportunity for Nigerian banks to reimagine or consolidate go-to-market strategies. Even as banks have demonstrated resilience in light of post-pandemic externalities, we see renewed threats from stricter regulatory environments, political risks, and nimbler fintech competition. Against this backdrop, we assess our coverage banks’ exposures and readiness to mitigate these risks through their diversification footprints and by embracing digital technologies for scale.

In line with our prognosis (see here), price increases and volume expansions were critical to revenue growth in 2022, with our consumer goods coverage companies growing by an average of 29.6% over the period. We expect this top-line momentum to taper slightly on the cumulative impact of higher inflation, weaker naira, and tighter monetary policy. However, we are broadly positive on margins as the combined impact of higher prices and energy cost moderation will likely mask pressures from higher raw material prices and finance costs. Drags from finance costs are likely to reflect the impact of higher yields, while input cost pressures may be stoked by passthrough from currency weakness.