Nigeria | NGX

Final consumption expenditure of households improved in the first half of 2021, after the COVID-induced plunge of the prior year. This recovery coincided with a 14.8% improvement in national disposable income, which we attribute to the impact of the increasing re-engagement of shut-out labour of the COVID restriction era. A few sector names also adjusted prices, attempting to compensate for the cost inflation induced by devaluation and surge in commodity prices. However, the competitive nature of the industry meant that margins still contracted across the board, with only a fraction of the cost burden transferred to customers.

Yield dynamics critical to banks’ performance in FY’22 We expect changes in yield dynamics to be a critical driver of banks’ earnings in 2022, given that net interest income accounts for c.60.0% of banks’ operating income. Our broad expectation is for yields to stay flat-to-falling in the first quarter of the year and rise gradually thereafter, with a base case shift of between +100bps and +200bps from current levels by year-end. In line with the stronger correlation between changes in interest income and asset yields (vs the less emphatic relationship between changes in interest income and interest-earning assets), we expect a 100 bps shift in asset yields to drive a 16.9% growth in interest income, all else equal.

We envisage another solid year for cement manufacturers, with private and public demand set to be major fulcrums. This prognosis on cement consumption is likely to reflect the knock-on effect of increased government spending and greater Public-Private Projects (PPPs) by institutions like RITC and INFRACO. Despite our broadly positive view on the sector, likely temperance in CAPEX implementation (as is often the case in most pre-election years), possible increase in market competition, and FX devaluation are likely to be of concern in the current financial year. Investors are, however, likely to remain excited about prospects for better near-term rewards from cement players, with DANGCEM set to lead the way with the second tranche of its buy-back program and WAPCO likely to further reward shareholders, after the well-received interim dividend payment.

Nigeria appears on course to surpass its pre-COVID 5-year peak growth of 2.21%. Precisely, we project growth rates of 2.65% and 2.70% for 2021 and 2022, respectively. However, these projected economic outturns still lag the long-run trend growth of 4.0% on the impact of inadequate structural and policy responses to the plunge in oil prices in 2015 and 2020.

Last week, the local bourse gained as the benchmark index rose 0.3% w/w to 43,308.29 points despite closing southward in 3 of the 5 trading days. Accordingly, YTD return improved to 7.5% (previously: 7.3%) while market capitalisation grew ₦54.0bn w/w to ₦22.6tn.

November started off on weak footing, with the domestic bourse recording its first negative weekly return in eight weeks. The NGX All-Share Index retreated 0.1% w/w to close at 42,014.5 points. Consequently, YTD return slid to 4.3% while the market capitalisation declined by N12.6bn w/w to N21.9tn. Market activity also tapered w/w as average volume and value traded declined 35.1% and 48.0% w/w to 228.6m units and N2.5bn, respectively ...