Govern­ment plans Lon­don Eurobonds road­show

The Punch - - INTERVIEW - Fixed In­come mar­ket: • Cor­po­rate An­nounce­ments:

auc­tions at the start of the week, healthy sys­tem liq­uid­ity sup­ported buy­ing ac­tiv­ity in the T-bills mar­ket, with yields declining 30bps d/d on aver­age. Mean­while, ac­tiv­ity was more mixed in the bond space, with bench­mark yields ad­vanc­ing 3bps on aver­age. On Tues­day, the CBN held an OMO auc­tion, sell­ing N322 bil­lion (N500 bil­lion of­fered). Fol­low­ing the liq­uid­ity mop up, trad­ing turned neg­a­tive in the T-bills space, with sell­ing ob­served across most tenors and heav­i­est at the short end of the space. Mean­while, sell pressure was dom­i­nant in the bond mar­ket, with yields ad­vanc­ing across board. Trad­ing per­sisted bear­ish in the T-bills space at mid­week, with yields ad­vanc­ing 16bps on aver­age. The bond space was how­ever mixed with a pos­i­tive tilt, with buy­ing ob­served on the mi­dend of the space. Fol­low­ing a N360 bil­lion OMO ma­tu­rity, the CBN held an­other OMO auc­tion on Thurs­day, sell­ing N365 bil­lion (N600 bil­lion of­fered). Driven by this, sell­ing in­ten­si­fied across the sec­ondary T-bills space, with yields ad­vanc­ing 13bps on aver­age while the bond space re­mained mixed. Fi­nally, the week closed neg­a­tive, with yields declining 6bps in the T-bills space on Fri­day but ad­vanc­ing 15bps w/w. Mean­while, the bond space saw yields ad­vance 4bps on Fri­day and 9bps w/w with in­vestor sen­ti­ment re­main­ing tepid.


The CBN in­jected $210 mil­lion at the In­ter­bank For­eign Ex­change on Tues­day. The Naira ap­pre­ci­ated N0.14 w/w at the I&E FX Win­dow to set­tle at N363.60 against the dol­lar and de­pre­ci­ated N0.50 w/w to set­tle at N361.50 in the par­al­lel mar­ket.

What will shape mar­kets in the com­ing week? Eq­uity mar­ket: With weak sen­ti­ment con­tin­u­ing to drive tepid ac­tiv­ity, we fore­see an­other mixed to neg­a­tive start to next week’s trad­ing.

With the CBN keeping a lid on sys­tem liq­uid­ity, we ex­pect trad­ing to re­main muted in the T-bills space at week open. Mean­while, we ex­pect mild de­mand in the bond space next week as the an­nounce­ment of a Eurobond is­suance this month is likely to in­crease the ex­pec­ta­tion of re­duced bond sup­ply.


We ex­pect the naira to re­main sta­ble across the var­i­ous win­dows of the cur­rency space as the CBN con­tin­ues to in­ter­vene in the FX mar­ket.

Fo­cus for the week

smug­gled into the coun­try that has con­tin­ued to gain ground. The com­pany also re­ported a de­te­ri­o­ra­tion in the Apapa traf­fic grid­lock which con­tin­ued to ham­per evac­u­a­tion and dis­tri­bu­tion of fin­ished prod­ucts from the re­fin­ery in the quar­ter. On a y/y ba­sis, we note that prices have de­clined by 19% y/y, in line with the 31% y/y down­trend in global sugar prices as at Q3’18, while sugar vol­umes have mod­er­ated 16% y/y driven by the afore­men­tioned fac­tors. Buck­ing the trend of gross mar­gin im­prove­ment recorded in pre­vi­ous quar­ters, Q3’18 gross mar­gin came in 952bps weaker q/q at 21% (Ve­tiva: 27%), the low­est level since Q1’17. We be­lieve this was due to lower prices in the pe­riod, and pos­si­bly ef­fi­ciency losses. As such, Q3’18 EBIT de­clined 54% q/q to N5.4 bil­lion (Ve­tiva: N9.4 bil­lion), weak­est EBIT in eight quar­ters. Over­all, 9M’18 PAT came in at N16.7 bil­lion, 37% and 11% lower when com­pared to 9M’17 and Ve­tiva es­ti­mate re­spec­tively.

• Earn­ings re­vised lower, BUY rat­ing main­tained De­spite the more com­pet­i­tive op­er­at­ing en­vi­ron­ment, we ex­pect DANGSUGAR’S vol­umes to im­prove 20% q/q in Q4’18 sup­ported by the sea­sonal boost from the fes­tive sea­son. None­the­less, we re­vise our rev­enue es­ti­mate for the year to N156 bil­lion (Pre­vi­ous: N171 bil­lion) to ac­count for the Q3 results as well as lower sugar prices for the rest of the year. Af­ter re­vis­ing our gross mar­gin es­ti­mate lower fol­low­ing the sharp vari­ance in Q3, our FY’18 EBIT mar­gin comes to 23% (Pre­vi­ous: 25%). Driven by this, our FY’18 PAT fig­ure is re­vised lower to N23.6 bil­lion (Pre­vi­ous: N26.4 bil­lion). With this, our 12-month tar­get price is re­vised to N21.46 - re­it­er­at­ing our BUY rat­ing on the stock. DANGSUGAR cur­rently trades at a FY’18 P/E of 7.1x and div­i­dend yield of 7.0% (FY’18E DPS: N0.98). Over­all, we high­light that most of the chal­lenges fac­ing DANGSUGAR in the cur­rent fi­nan­cial year are more ex­ter­nal with re­spect to the Nige­rian op­er­at­ing en­vi­ron­ment. While th­ese fac­tors should be tran­sient in na­ture, ef­forts to cur­tail the smug­gled sugar by govern­ment au­thor­i­ties as well as im­prove traf­fic flow in the Apapa axis have yielded very dis­mal results and we are less op­ti­mistic about the time­line for im­prove­ment in th­ese con­di­tions.

None­the­less, we high­light that DANGSUGAR has noted its in­de­pen­dent ef­forts to by­pass th­ese im­ped­i­ments, with Man­age­ment stat­ing new ini­tia­tives to ex­plore water­ways for prod­uct lo­gis­tics. Mean­while, we high­light pos­si­ble up­side for do­mes­tic sugar prices in the near term given re­cent uptick in global sugar prices (up 25% QTD).

• Af­ter be­ing ap­pointed as the sub­stan­tive Group Man­ag­ing Di­rec­tor of Dan­gote Sugar Re­fin­ery Plc in June 2018, DANGSUGAR re­ported the res­ig­na­tion of Engr. Ab­dul­lahi Sule ef­fec­tive 1st of Au­gust 2018. We note that Engr. Sule had served in the com­pany for seven years and had been Act­ing Group Man­ag­ing Di­rec­tor since 2015. He has re­ported re­signed for per­sonal rea­sons. Fol­low­ing this, the com­pany an­nounced the ap­point­ment of Mr Ravin­dra Singh Singhvi as the Chief Op­er­at­ing Of­fi­cer ef­fec­tive 13th of Au­gust 2018. Mr Singhvi holds 37 years of ex­pe­ri­ence in Man­u­fac­tur­ing and Pro­cess­ing of Sugar, Petro­chem­i­cals, Ce­ment and Tex­tiles in In­dia.

Whilst rea­son­able care has been taken in pre­par­ing this doc­u­ment to en­sure the ac­cu­racy of facts stated herein and that the rat­ings, fore­casts, es­ti­mates and opin­ions also con­tained herein are ob­jec­tive, rea­son­able and fair, no re­spon­si­bil­ity or li­a­bil­ity is ac­cepted ei­ther by Ve­tiva Cap­i­tal Man­age­ment Lim­ited or any of its em­ploy­ees for any er­ror of fact or opin­ion ex­pressed herein.

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