Global Economy
Earlier this week, the US Bureau of Economic Analysis (BEA) issued a revised GDP estimate for Q2:2024. According to the BEA, real GDP increased at an annual rate of 3.0% in Q2:2024, according to the second estimate (compared to 1.40% YoY in Q1:2024). Compared to the first quarter, the growth in real GDP in Q2:2024 was driven principally by an increase in private inventory investment and an acceleration in consumer spending. These changes were somewhat offset by a decrease in residential fixed investment. Nominal GDP increased by 5.50% YoY, or USD383.2bn, in Q2:2024 to USD28.65trn, an upward revision of USD23.2bn from the previous estimate. Elsewhere, in the EU, inflation is expected to be 2.2% YoY in August 2024, down from 2.6% YoY in July 2024, according to a flash estimate from Eurostat. Looking at the main components of Euro Area inflation, Services is expected to have the highest annual rate in August (4.2% YoY, compared with 4.0% YoY in July 2024), followed by food, alcohol & tobacco (2.4% YoY, compared with 2.3% YoY in July 2024), non-energy industrial goods (0.4% YoY, compared with 0.7% YoY in July 2024) and energy (-3.0% YoY, compared with 1.2% YoY in July 2024).
Domestic Economy
Earlier this week, the National Bureau of Statistics (NBS) published the Gross Domestic Product (GDP) report for Q2:2024, revealing that the overall Nigerian economy grew by 3.19% YoY, compared to 2.98% YoY in Q1:2024. The oil sector expanded by 10.15% YoY, (vs. 5.70% YoY in Q1:2024), despite a decline in crude oil production to 1.41MMbpd (vs. 1.57MMbpd in Q1:2024). The non-oil sector remained positive, growing by 2.80% YoY, consistent with Q1 2024. This growth was driven by an expansion in the agriculture sector 1.41% YoY in Q2:2024 (vs. 0.18% YoY in Q1:2024). Notably, the services sector grew at a slower pace of 3.79% YoY in Q2:2024, down from 4.32% YoY in Q1:2024. Furthermore, NNPC Limited has started exporting liquefied natural gas (LNG) to China and Japan, marking a key step in Nigeria’s shift from oil to gas. This transition leverages Nigeria’s abundant gas reserves and aligns with President Tinubu’s efforts to diversify the economy and support cleaner energy. By targeting high-demand markets in Asia, NNPC is maximizing the value of Nigeria’s natural resources. Elsewhere, Aradel Holdings Plc has expanded its portfolio by acquiring a 100% stake in the Olo and Olo West marginal fields for USD19.5mn through its subsidiary, Aradel Energy Limited. The deal, which includes USD16mn upfront and USD3.5mn in deferred payments, marks a key milestone for the company and the Nigerian energy sector.
Equities and stock recommendation
Sailing on the back of gains in BUAFOODS (+5.73% WoW to NGN394.90), OANDO (+60.71% WoW to NGN76.90) and FBNH (+10.57% WoW to NGN22.50), the Nigerian Equities market gained 0.63% WoW, as the NGX All Share Index (NGX ASI) edged up to 96,580.01 points. This pushed the market’s year-to-date (YtD) returns to 29.16%, up from last Friday’s 28.35% YtD. True to our expectations last week, positive sentiment in the Oil and Gas sector (+8.50% WoW) stemming from gains in OANDO (+60.71% WoW to NGN76.90) and TOTAL (+19.70% WoW to NGN673.90) helped to reduce losses incurred in the market this week, an offshoot of positive investors’ reaction to OANDO’s acquisition of Nigeria Agip Oil company, which was completed last week. Notably, all other sectors under our coverage closed positive as the Insurance (5.76% WoW), Consumer Goods (+3.48% WoW), Banking (+1.96% WoW) and Industrial Goods (+0.08% WoW) posted gains. Gains in these sectors was spurred by buying interest in CORNERSTONE (+16.38% WoW to NGN2.70), BUAFOODS (+5.73% WoW to NGN394.50), ETI (+6.60% WoW to NGN21.80) and LAFARGE (+1.35% WoW to NGN37.60) respectively. Top gainers this week were OANDO (+114.5% WoW to NGN76.90), RTBRISCOE (+108.8% WoW to NGN3.55) and DEAPCAP (+104.7% WoW to NGN0.88), while CUTIX (-37.8% WoW to NGN3.08), DANGCEM (-10.0% WoW to NGN532.00) and MTNN (-9.9% WoW to NGN180.00) led the laggards for the week. In the coming week, we expect that the positive sentiment from the Oil and Gas sector would be sustained and help keep the market in the positive zone. However, this could be countered by rising yields in the fixed income market.
Fixed Income
Earlier this week, the Central Bank of Nigeria (CBN) conducted an Open Market Operation (OMO) auction, offering a total of NGN500bn in OMO bills across three tenors: 91-day (NGN75bn), 175-day (NGN75bn), and 364-day (NGN350bn). The average bid-to-cover ratio increased by 95bps to 1.53x compared to 0.58x at the previous auction. This was primarily driven by a surge in demand for the 364-day bill, which saw its bid-to-cover ratio rise by 133bps to 2.18x. Due to insufficient demand, there was no allocation for the 91-day and 175-day bills. The stop rate for the 364-day bill was set at 21.87%. Consequently, the CBN sold NGN758bn worth of 364-day OMO bills at the auction, 2.17x the amount offered.In the secondary market, the Nigerian Treasury Bills (NT-bills) market concluded on a positive note as the average yield declined by 111bps WoW to settle at 21.21%. Likewise, the FGN bond market observed bullish sentiment with the average yield down by 67bps WoW to 18.96%. This followed strong buying interest across the yield curve, particularly in the MAR-2025 (-203bps), 20-MAR-2027 (-99bps), FEB-2028 (-95bps), FEB-2031 (-115bps), FEB-2034(-152bps), and MAR-2050 (-163bps) instruments. Overall, the Naira fixed income market ended the trading week positive as the average yield fell by 89bps WoW to settle at 20.08%. In the coming week, we expect this bullish trend to persist as investors take advantage of the attractive secondary market. However, tight liquidity conditions could potentially dampen this enthusiasm.
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Weekly Commentary and Stock Recommendation: 26th August – 30th August 2024
Global Economy
Earlier this week, the US Bureau of Economic Analysis (BEA) issued a revised GDP estimate for Q2:2024. According to the BEA, real GDP increased at an annual rate of 3.0% in Q2:2024, according to the second estimate (compared to 1.40% YoY in Q1:2024). Compared to the first quarter, the growth in real GDP in Q2:2024 was driven principally by an increase in private inventory investment and an acceleration in consumer spending. These changes were somewhat offset by a decrease in residential fixed investment. Nominal GDP increased by 5.50% YoY, or USD383.2bn, in Q2:2024 to USD28.65trn, an upward revision of USD23.2bn from the previous estimate. Elsewhere, in the EU, inflation is expected to be 2.2% YoY in August 2024, down from 2.6% YoY in July 2024, according to a flash estimate from Eurostat. Looking at the main components of Euro Area inflation, Services is expected to have the highest annual rate in August (4.2% YoY, compared with 4.0% YoY in July 2024), followed by food, alcohol & tobacco (2.4% YoY, compared with 2.3% YoY in July 2024), non-energy industrial goods (0.4% YoY, compared with 0.7% YoY in July 2024) and energy (-3.0% YoY, compared with 1.2% YoY in July 2024).
Domestic Economy
Earlier this week, the National Bureau of Statistics (NBS) published the Gross Domestic Product (GDP) report for Q2:2024, revealing that the overall Nigerian economy grew by 3.19% YoY, compared to 2.98% YoY in Q1:2024. The oil sector expanded by 10.15% YoY, (vs. 5.70% YoY in Q1:2024), despite a decline in crude oil production to 1.41MMbpd (vs. 1.57MMbpd in Q1:2024). The non-oil sector remained positive, growing by 2.80% YoY, consistent with Q1 2024. This growth was driven by an expansion in the agriculture sector 1.41% YoY in Q2:2024 (vs. 0.18% YoY in Q1:2024). Notably, the services sector grew at a slower pace of 3.79% YoY in Q2:2024, down from 4.32% YoY in Q1:2024. Furthermore, NNPC Limited has started exporting liquefied natural gas (LNG) to China and Japan, marking a key step in Nigeria’s shift from oil to gas. This transition leverages Nigeria’s abundant gas reserves and aligns with President Tinubu’s efforts to diversify the economy and support cleaner energy. By targeting high-demand markets in Asia, NNPC is maximizing the value of Nigeria’s natural resources. Elsewhere, Aradel Holdings Plc has expanded its portfolio by acquiring a 100% stake in the Olo and Olo West marginal fields for USD19.5mn through its subsidiary, Aradel Energy Limited. The deal, which includes USD16mn upfront and USD3.5mn in deferred payments, marks a key milestone for the company and the Nigerian energy sector.
Equities and stock recommendation
Sailing on the back of gains in BUAFOODS (+5.73% WoW to NGN394.90), OANDO (+60.71% WoW to NGN76.90) and FBNH (+10.57% WoW to NGN22.50), the Nigerian Equities market gained 0.63% WoW, as the NGX All Share Index (NGX ASI) edged up to 96,580.01 points. This pushed the market’s year-to-date (YtD) returns to 29.16%, up from last Friday’s 28.35% YtD. True to our expectations last week, positive sentiment in the Oil and Gas sector (+8.50% WoW) stemming from gains in OANDO (+60.71% WoW to NGN76.90) and TOTAL (+19.70% WoW to NGN673.90) helped to reduce losses incurred in the market this week, an offshoot of positive investors’ reaction to OANDO’s acquisition of Nigeria Agip Oil company, which was completed last week. Notably, all other sectors under our coverage closed positive as the Insurance (5.76% WoW), Consumer Goods (+3.48% WoW), Banking (+1.96% WoW) and Industrial Goods (+0.08% WoW) posted gains. Gains in these sectors was spurred by buying interest in CORNERSTONE (+16.38% WoW to NGN2.70), BUAFOODS (+5.73% WoW to NGN394.50), ETI (+6.60% WoW to NGN21.80) and LAFARGE (+1.35% WoW to NGN37.60) respectively. Top gainers this week were OANDO (+114.5% WoW to NGN76.90), RTBRISCOE (+108.8% WoW to NGN3.55) and DEAPCAP (+104.7% WoW to NGN0.88), while CUTIX (-37.8% WoW to NGN3.08), DANGCEM (-10.0% WoW to NGN532.00) and MTNN (-9.9% WoW to NGN180.00) led the laggards for the week. In the coming week, we expect that the positive sentiment from the Oil and Gas sector would be sustained and help keep the market in the positive zone. However, this could be countered by rising yields in the fixed income market.
Fixed Income
Earlier this week, the Central Bank of Nigeria (CBN) conducted an Open Market Operation (OMO) auction, offering a total of NGN500bn in OMO bills across three tenors: 91-day (NGN75bn), 175-day (NGN75bn), and 364-day (NGN350bn). The average bid-to-cover ratio increased by 95bps to 1.53x compared to 0.58x at the previous auction. This was primarily driven by a surge in demand for the 364-day bill, which saw its bid-to-cover ratio rise by 133bps to 2.18x. Due to insufficient demand, there was no allocation for the 91-day and 175-day bills. The stop rate for the 364-day bill was set at 21.87%. Consequently, the CBN sold NGN758bn worth of 364-day OMO bills at the auction, 2.17x the amount offered.In the secondary market, the Nigerian Treasury Bills (NT-bills) market concluded on a positive note as the average yield declined by 111bps WoW to settle at 21.21%. Likewise, the FGN bond market observed bullish sentiment with the average yield down by 67bps WoW to 18.96%. This followed strong buying interest across the yield curve, particularly in the MAR-2025 (-203bps), 20-MAR-2027 (-99bps), FEB-2028 (-95bps), FEB-2031 (-115bps), FEB-2034(-152bps), and MAR-2050 (-163bps) instruments. Overall, the Naira fixed income market ended the trading week positive as the average yield fell by 89bps WoW to settle at 20.08%. In the coming week, we expect this bullish trend to persist as investors take advantage of the attractive secondary market. However, tight liquidity conditions could potentially dampen this enthusiasm.
Click here for full report
Click here for our Stock Recommendation
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