Ris­ing ten­sions in the Mid­dle East boost Brent prices

The Punch - - BUSINESS -

What shaped the past week?

Global:

Global mar­kets opened the week on a bear­ish note, as ma­jor mar­kets in Europe and the u.s closed in neg­a­tive ter­ri­tory, even with news of a pos­si­ble phase one trade deal be­tween China and the u.s. How­ever, asian mar­kets traded pos­i­tive in re­ac­tion to the news. On Tues­day, Euro­pean mar­kets turned red, while asian and u.s mar­kets traded mixed to pos­i­tive; although, global mar­kets on a whole closed the year in pos­i­tive ter­ri­tory. Just af­ter the new year hol­i­day, an ap­par­ent boost to sen­ti­ment saw ma­jor mar­kets trade bullish to start the year. This was sup­ported by the com­bi­na­tion of news that a time­frame has been set for the u.s-china trade deal, en­cour­ag­ing data on em­ploy­ment and man­u­fac­tur­ing in the u.s, and news of an ex­pand­ing man­u­fac­tur­ing sec­tor in China. How­ever, at week close, news of the u.s.sanc­tioned at­tack on the head of Iran’s Irgc-quds Force, Gen­eral Qassem Soleimani, caused ten­sions be­tween the re­gions and over­turned the gains in the pre­vi­ous ses­sion, as in­vestors turned cau­tious.

Do­mes­tic Econ­omy:

Last week Mon­day, Dan­gote Ce­ment Plc re­vealed plans to buy back 10% (1.7 bil­lion shares) of its shares in is­sue from share­hold­ers. In a no­tice filed at the Nige­rian Stock Ex­change, the firm stated that the aim of the share buy­back would be to im­prove the com­pany’s re­turn on eq­uity (ROE). The terms and con­di­tions of the re­pur­chase pro­gram, which is to be de­ter­mined by the com­pany’s board of di­rec­tions, is ex­pected to be com­pleted within 12 months from the date of ap­proval by share­hold­ers, which will be sought at the ex­tra­or­di­nary gen­eral meet­ing to be held on Jan­uary 22, 2020. Share re­pur­chase pro­grams serve as a means for firms to re­turn cash to their share­hold­ers. How­ever, the pro­grammes also im­pact the per-share prof­itabil­ity of the firm, most no­tably the Earn­ings Per-share (EPS) pos­i­tively due to the re­duc­tion in is­sued shares. Thus, we ex­pect this to be value-ac­cre­tive for the firm, es­pe­cially given the cur­rent at­trac­tive val­u­a­tion of DANGCEM.

Eq­ui­ties:

The Eq­ui­ties space traded in a pos­i­tive man­ner last week, as bar­gain hunt­ing ac­tiv­i­ties drove mar­ket ac­tiv­ity at the start of the year. The mar­ket gained 38bps w/w, as in­vestors sought stocks pre­dom­i­nantly in Oil & Gas (541bps w/w) and Bank­ing (295bps w/w) sec­tors. The Oil and Gas sec­tor closed the week as the top per­former, driven by in­ter­est in SE­PLAT (800bps w/w), with In­dus­trial Goods sec­tor gain­ing 29bps w/w due to gains in DANGCEM (1bp w/w). Mar­ket ac­tiv­ity im­proved w/w, with share vol­ume and turnover ris­ing 106% and 198% re­spec­tively.

Fixed In­come:

- The Fixed In­come Mar­ket traded in a mixed fash­ion in the last week, as in­ter­est in the space re­mained geared to­wards the short-end of the curve. The av­er­age yield on ntbs mod­er­ated 97bps w/w, as buy-side ac­tiv­ity was ob­served at the shortto-mid end of the space. no­tably the yield on the 69DTM bill mod­er­ated 175bps to set­tle at 4.14%, with the yield on the 195DTM bill eas­ing 122bps to set­tle at 4.55%. In the OMO mar­ket, the av­er­age yield on OMO notes dipped 23bps w/w as par­tic­i­pants in the space sold notes at the longer-end of the OMO space. Mean­while, in the bond space, trad­ing ac­tiv­ity re­mained tepid through­out the week, with the av­er­age yield on bench­mark bonds eas­ing 23bps. How­ever, we ob­served pock­ets of de­mand at the short end of the bond mar­ket where the yield on the 14.50% Fgn-jan-2022 bond dipped 131bps w/w to set­tle at 9.06%.

Cur­rency:

The naira de­pre­ci­ated n2.34 w/w at the I&E FX Win­dow to set­tle at n364.98 and re­mained un­changed w/w to at n359.00 against the dol­lar in the par­al­lel mar­ket.

What will shape mar­kets in the com­ing week? Eq­uity mar­ket: While last week was pos­i­tive for the in­dex over­all due to some port­fo­lio re-bal­anc­ing ac­tiv­i­ties, profit tak­ing was ob­served in the In­dus­trial Goods and Con­sumer Goods sec­tors to­wards the lat­ter part of the week. Thus, we ex­pect the next ses­sion to trade mixed, as in­vestors con­tinue to seek at­trac­tive mark­ers, while prof­ittak­ing ac­tiv­ity is likely to per­sist.

Fixed In­come mar­ket:

at the start of next week, we fore­see fur­ther yield mod­er­a­tions in ntbs space, driven by the level of sys­tem liq­uid­ity and in spite of the low yield en­vi­ron­ment. Mean­while, in the bond mar­ket, we ex­pect sen­ti­ment to re­main pos­i­tive as in­vestors seek higher yields.

Cur­rency:

We ex­pect the naira to re­main largely sta­ble across the var­i­ous win­dows of the cur­rency space as the CBN main­tains in­ter­ven­tions in the FX mar­ket.

Fo­cus for the week

Con­sumer Goods - Ex­pect still slightly stunted growth in the man­u­fac­tur­ing sec­tor

Whilst the econ­omy has con­tin­ued to ex­pand this year, real eco­nomic growth has re­mained frag­ile, with GDP growth still com­ing in sub 3%. While the oil sec­tor has con­tin­ued to ex­pand post-niger Delta mil­i­tancy, the non-oil sec­tor has re­mained weak as real sec­tor in­vest­ments stag­nate. The man­u­fac­tur­ing sec­tor has been par­tic­u­larly weak this year, av­er­ag­ing a 0.6% growth in the past three quar­ters (Q1-Q3’18 av­er­age: 2.0%), and even re­trac­ing by 0.1% y/y in Q2. We be­lieve that this has been driven by a com­bi­na­tion of still-weak con­sumer pur­chas­ing power and a jump in de­mand for cheaper im­ported al­ter­na­tive prod­ucts. no­tably, while nige­ria ex­ited re­ces­sion in 2017, we be­lieve that con­sumer pur­chas­ing power has re­mained frag­ile, as sub­se­quent eco­nomic ex­pan­sion has con­tin­ued to lag es­ti­mated pop­u­la­tion growth. Fur­ther­more, con­sumer spend­ing power has re­mained lim­ited by sus­tained (but de­clin­ing) dou­ble-digit in­fla­tion fig­ures, weak re­tail credit ac­cess and in­suf­fi­cient fis­cal stim­u­lus. Ex­pect­edly, the Food and Bev­er­age sec­tor has also weak­ened, with growth fall­ing to an av­er­age of 2.0% in the first three quar­ters of 2019 from an av­er­age growth of 3.2% in 2018. apart from weak con­sumer spend­ing, the sub­sec­tor has been dragged by the promi­nence of cheaper im­ported food al­ter­na­tives such as bouil­lon cubes, sugar, and crude palm oil. With this, we be­lieve that many lo­cal food pro­duc­ers lost mar­ket share to cheaper im­ported sub­sti­tutes in 2019, es­pe­cially pack­aged food items. all in, Food & Bev­er­ages and Man­u­fac­tur­ing are ex­pected to grow at 12.3% and 1.2% y/y re­spec­tively in 2020, much lower than 13.6% and 0.8% in 2019.

In­creased prices to drive rev­enue growth next year

With con­sumer pur­chas­ing power still weak de­spite the exit from re­ces­sion and de­mand still largely price elas­tic, FMCG pro­duc­ers have been hes­i­tant in re­cent years to pass on ris­ing costs to con­sumers. no­tably, prices in the bev­er­age in­dus­try have re­mained largely sta­ble and have been cut in some cases de­spite higher costs. Coca cola, the last price hold­out in the 60cl soft drinks in­dus­try re­cently re­duced its 60cl rrp by 33.3% to n100/bot­tle. Even the ex­cise du­ties im­posed on beer, spir­its and to­bacco pro­duc­ers have driven min­i­mal changes in re­tail prices amidst in­tense com­pe­ti­tion. no­tably, with con­sumer wal­lets de­pressed and com­pe­ti­tion rife among in­dus­try play­ers and cheap im­ported prod­ucts, con­sumers have had a stronger grip on bar­gain­ing power. In re­cent months, fol­low­ing the clo­sure of the bor­der, we have seen a jump in head­line in­fla­tion, driven by food in­fla­tion amidst a short­age of food sup­ply. How­ever, we be­lieve that this in­crease was mostly driven by ba­sic food items as prices of pack­aged foods and HPC prod­ucts have been largely sta­ble. That said, we see scope for some price in­creases in 2020.

Stunted mar­gin growth amidst in­creas­ing in­put prices Whilst price in­creases should drive rev­enue gains across board, we fore­see in­creased pres­sure on mar­gins amidst higher ex­pected raw ma­te­rial costs. For ex­am­ple, while we ex­pect price of wheat to re­main sta­ble in 2020, driven by sta­ble sup­ply lev­els and healthy de­mand, we fore­see a jump in Bar­ley prices in 2020 as de­mand from Saudi ara­bia and north africa weigh on pric­ing. Palm oil and Sugar prices are also set to in­crease in 2020 as strong asian de­mand drives CPO price and re­duced sugar sup­ply sup­ports sugar prices. While many lo­cal FMCGS are look­ing to lo­cal­ize sourc­ing of raw ma­te­ri­als, in­puts are still largely sourced out­side the coun­try, in an es­ti­mated do­mes­tic to for­eign split of 60:40. With this, we ex­pect in­creased mar­gins for pro­duc­ers in the flour space but re­newed pres­sure on beer, sugar and HPC man­u­fac­tur­ers.

caus­ing the valve to tap.

My space bus engine gets un­bear­ably hot. As a re­sult, it slows the speed. The gear will not se­lect smoothly. The model is 2004 Mazda MPV. Anony­mously

You will need to con­firm that the engine ac­tu­ally gets hot, e.g. over­heat­ing. If it does, it could af­fect the trans­mis­sion be­cause the oil cooler is at­tached to the ra­di­a­tor. But you will need a me­chanic to do a proper di­ag­no­sis on the van to as­cer­tain the fault.

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