Nigeria | NGX

Global growth was brought to a screeching halt, as the impact of the unprecedented event dampened growth forecasts, induced financial market shocks, risk aversions and supply-chain disruptions, prompting broad-based monetary and fiscal responses. The coronavirus pandemic which emerged from Wuhan, China spread over 150 countries, claiming over 2.0mn lives so far, with rising numbers of international cases, that necessitated partial or complete lockdowns. Hence, trickling economic data recorded historic fallouts worse than the aftermath of the 2008-09 Global Financial Crisis (GFC), as the International Monetary Fund (IMF) projects a 3.5% downturn in the global economy in 2020, with an expected rebound of 5.5% in 2021.

Drawing inspiration from the Irish poem "Second Coming", written in the aftermath of the First World War in 1919 amid a rampaging flu pandemic, we argue that the fate of several countries hangs in the balance in the face of the second wave of the deadly COVID-19 virus. The re-opening of economies combined with slack preventive measures and the evolution of mutated strains of the virus opened the doors to the second wave of widespread infections. The globe's economic fate now rests on the success or otherwise of distributing a few vaccines, with broad expectation skewed in favour of a V-shaped recovery. In Nigeria, the V-shaped recovery is likely to be led by the non-oil sector on the impact of 2020 low base effect, a ramp-up of government spending, increase in credit creation and sustained normalisation of economic activities. The current pace of yield increases is likely to moderate in Q1'21 on the impact of excessive liquidity but pick pace in Q2'21. Our expectation of an eventual pick-up in yields reflects lower OMO maturities, lesser dovish inclinations on macro recovery, and a wider budget deficit. Thus, investors are likely to stay short in the fixed income space. The government could also frontload greater than expected domestic borrowing ahead of a potential pick-up in yields, especially if there are signs that external funding conditions could deteriorate. In the equities market, we expect investors to take advantage of bargain hunting opportunities in cheap,

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In 2021, we expect the global economy to take ‘a shot at recovery’, thanks to the announcement and approval of effective Covid-19 vaccines. The risks of re-emerging infections remain high, however, and much will depend on the speed, scale, and long- term effectiveness of vaccination. Away from the virus, the outcome of the recent US presidential election which will see Joe Biden replace President Trump from January 2021 greatly reduces political risk. Also, a Joe Biden presidency is positive for global trade and efforts against climate change.

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Palm oil is of strategic importance as it is used in the production of more than half of the products sold in supermarkets globally. The continuous importance of Crude Palm Oil (CPO) for food, biofuel and cosmetics purposes has led to uptick in its demand universally. Palm oil remains the cheapest and most edible vegetable oil globally. The oil palm tree produces 4.95 ton of edible oil per hectare (ha), six times more than the rapeseed tree, the next highest. In addition to its use as cooking oil, it is also used in the manufacture of soaps and detergents, cosmetics, pharmaceuticals, biscuits, biodiesel among others.

Extablished in 1960 as Lagos Stock Exchange, the name was changed to Nigerian Stock Exchange in 1977. Operations began officially on August 25, 1961 with 19 securities listed for trading but informal operations had commenced earlier in June, 1961.

In our view, Flour Mills of Nigeria Plc (FMN) looks set to record strong traction in operating performance in the current financial year. The company has already surprised market watchers with a 4.3ppts YoY increase in gross margin to 16.5%1 and a c.3.0x surge in operating cash flow to N16.7 billion in the peak of COVID-19 restrictions (April to June or Q1'20/21). While panic buying/stockpiling (one-off support for top-line growth in Q1'20/21, by our assessment) has stopped, lingering border closures and gravitation to value brands are likely to remain supportive for the rest of the year (revenue: FY'20/21E: +5.5% YoY N605 billion; previous forecast: N524.8 billion).