Coy: United Bank For Africa Plc
Current Market Price:N8.25
Year High: N13.50
Year Low: N7.00
Fair Value: N19.70
Conservative Expected Q3-EPS: N1.90
- This report reviews the half-year financial performance of United Bank for Africa (UBA).
- But valuation was achieved through full year performances, from where projections were made and appropriate techniques adopted.
- We maintained that analyst influence might be reflected in the valuation and projections accordingly.
- The next financial statistics currently awaited by investors from the financial institution is the nine-month performance indices.
- History reveals that the bank usually releases its third quarter earnings in the second week of October. For example, released dates for the past three financial years are: October 16, 11, and 15in 2017, 2016 and 2015 respectively.
- Standing upon this fact, we expect same between October 8 and 19, 2018
- Please note that interim cash dividend trend had remained same (N0.20 per share) for the past three years, although slight variations were noticed in the payout ratio. We are of the opinion that such variations are negligible.
|Bourse||Nigerian Stock Exchange|
|Market Classification||Premium Board|
|Nature of Business||Commercial Banking|
|Date of Incorporation||February 23rd 1961|
|Date Listed||March 31st 1970|
|End of Accounting Year||31st December|
|Registrar||AFRICA PRUDENTIAL REGISTRARS|
|Share Price@Relsd (N)||8.05|
|Earnings per Share||1.28|
- Gross Earnings for the half year improved over the corresponding year by 15.80%, from N222.71 billion to N257.91 billion.
- Interest Income stood above that of similar period of 2017 by 20.87%; standing at N187.29 billion, as against the previous N154.95 billion.
- Interest Expenses increased at a higher momentum, compared to the rate of income/ gross earnings growth, rising from N53.57 billion to N76.21 billion, representing a difference of 42.26%
- Having considered all expenses and incomes, N58.14 billion was reported as Profit before Tax for the period, which is only 1.06% above the N57.53 billion reported in the same period of 2017
- After deducting income tax expense, the financial institution reported N43.79 billion as profit for the period as against the N42.33 billion earned in 2017 half-year. In other words, the profit only improved by 3.43%.
- Total Comprehensive Income for the period stood 42.72% below what was reported in 2017 half year financial activities. A total of N30.48 billion was reported, compared to N53.21 billion.
- Retained Earnings grew to N165.71 billion from N149.46 billion, a 10.87% improvement within the two periods under comparison.
- Total Assets was valued at N4.26 trillion after enjoying 15.65% improvement over the period.
- Total Liabilities was estimated at N3.77 trillion, as against N3.20 trill in 2017.
- Total Deposits received for the period stood at N3.03 trillion, compared to the N2.58 trillion in the corresponding half-year of 2017, a difference of 17.42%.
- Meanwhile, Loan and Advances to customers dropped marginally against the previous half-year’s figure. According to the released document, Loan and Advances is currently N1.55 trillion, as against N1.57 trillion last year.
- Net Assets, on the other hand improved by a marginal 2.72% in the period under consideration in this report.
|Financial Positions||2018(Mill)||2017(Mill)||% CGN|
|Cash and Cash Equiv. with CBN||1,031,779||763,224||35.19|
|Total comp Income||30,481||53,216||-42.72|
|Loans & Advances||1,553,976||1,571,842||-1.14|
- Estimated beta value of UBA Plc stood above both the market and industry’s Average Beta Value. This confirmed the volatility/patronage of its shares on the floor of the exchange
- Although, this is almost irrelevant, since we analyze a financial institution whose major business is to collect deposits (mostly reported under liability). We estimate Debt to Equity ratio as 104.21%, well above the 58.79% industry average.
|Debt to Equity||104.21||58.79|
- Interest Expense to Gross Earnings is presently estimated at 29.55%, which is 22.85% above the 24.06% estimated in the 2017 half-year result.
- PBT Margin stood at 22.54%, as against 25.83% last year, representing a 12.73% drop.
- Similarly, Profit margin dropped against prior year’s. We have estimated 16.98% margin from Gross Earnings, compared to the 19.01% previous estimate.
- Return on Average Equity is now 8.82%, compared to the 8.76% returns achieved in the first six months of 2017.
- Return on Average Assets differs by 10.56%, moving from 1.15% to 1.03%.
|Interest Expense to Gross Earnings||29.55%||24.06%||22.85%|
- Gross Earnings to Total Assets was flat within the two periods compared.
- Gross Earnings to Equity is now 51.97%, as against the 46.10% estimated in the 2017 half-year financial statistics
- Financial Leverage is 8.60x as against 7.64x. This is an estimate of the number of times the total assets replicates the equity, meaning that the ratio got better over the review period.
- It was also established that 51.13% of the Total Deposit was given out as Loan and Advances during the period, 15.81% lower than the 60.73% during the first six months of 2017.
- Meanwhile, Loan and Advances is 36.41% of the Total Assets, 14.51% lower than the 42.59% of last half year. This shows a controlled/reduced risk compared to 2017.
|Gross Earnings to Total Assets||6.04%||6.04%||0.14%|
|Gross Earnings to Equity||51.97%||46.10%||12.74%|
|Loan to Deposit||51.13%||60.73%||-15.81%|
|Loan&Adv to Total Assets||36.41%||42.59%||-14.51%|
- Just as in the company’s report above, since shares outstanding remained constant during the two periods under consideration, the estimated amount earned per units of UBA shares is N1.28, which is 3.43% above the N1.24 earned last year.
- P/E Ratio for the period is 1.57x, as against 1.96x estimated last year.
- As we speak, the Book Value of UBA Plc is N14.51 per share, fairly same as N14.13 last year. This confirmed that the company is currently undervalued.
- Also confirming this fact is the Price to Book Value that is estimated below unity, proving the low price against the Book Value.
- Operating Expenses for the period is currently 29.55%, this is 22.85% above the 24.06% of 2017 half year financials.
|Sustainable Growth Rate||7.45%||7.35%||1.34%|
As noted above, our valuation explored few full years’ financials prior, projected appropriately based on our growth expectations.
Thus, we have placed the price of each UBA share at N19.70. Please note that our conservative earnings expectation for the expected nine months ended September 30th, 2018 is N1.90.
This is about 6.74% growth above the previous third quarter earnings (N1.78) and 48.43% improvement from the half year earnings.
Market Update for the week ended October 12 and Outlook for October 15-19 2018
Equities on the Nigerian Stock Exchange in the past week resisted further decline, recording mixed performances on a ranging movements supported by improved market breadth and buying sentiments, which halted previous week’s profit taking and sell-offs. This downtrend has persisted for the past eight months, revealing the behavioral pattern of investors towards various risks, both controllable and uncontrollable.
The seeming reversal as the market closed on bullish note could continue to play out over the coming weeks as investors and traders await more corporate earnings, alongside key economic indicators such as inflation report for the month of September.
Investdata Research notes that earnings and economic performance indicators in the first two quarters of this year have been mixed, reflecting a slowdown in the manufacturing sector, reflecting the implementation of the Federal Government’s Economic Recovery Growth Plan (ERGP). It was widely expected that ERGP would help sustain the recovery tempo after emerging from the recession, despite the rise in oil price well above the 2018 budget benchmark.
The much awaited Q3 numbers are likely to make little or no difference to the NSE’s benchmark indicators, judging by the unfolding events after the just concluded primaries by various parties to select their candidates for various elective positions. This is because investors continue to watch the horizon, notwithstanding the undervalued state of listed equities. It is also not known yet whether efforts by the Securities & Exchange Commission (SEC) to allay the fear among investors over the oncoming general elections. Ms. Mary Uduk, acting director-general of the SEC, while fielding questions at the end of the just concluded World Bank Group and International Monetary Fund Annual Meetings in Bali, Indonesia, on Sunday, said the commission is exploring various avenues to deepen the nation’s capital market
The global markets during the period under review were mixed, as the 10-year US Treasury Yield hit 3.25% due to the impact of rate hike that characterized the activities of the Federal Reserve Bank. This triggered capital withdrawal from small and emerging market economies. These trends are reinforced by a flight to safety as investors increasingly seek safer instruments or assets that offer more attractive yields, while protecting their long year gains in equities. The expected bottoming out in emerging markets will expectedly redirect capital flow, helping Nigeria’s market post- elections, depending on whether oil prices remain relatively stable and above $70 barrel per day.
Back home, sentiment report for the week, showed ‘buy’ position of 86%, as against the 24% ‘sell’ volume, while volume index of total transaction stood at 0.65, amidst demand for stocks by bargain hunters ahead of earnings season and gradual accumulation of value stocks by investors at the subsisting low prices.
Energy behind the week’s performance, however remained weak, despite the improved traded volume and liquidity that entered the market as reflected in the money flow index at 20.74 points from previous week’s 19.68points.
Equity Indicators Last Week
The All Share Index reversed previous week’s negative position with a gain of 73.83 basis points, closing at 32,456.98bps from an opening figure of 32,383.15bps, which represented a 0.23% growth on an increased traded volume, compared to prior week’s. Market capitalization rose by 0.23%, closing at N11.85tr, from previous N11.82tr, as a result of value gain by medium and high cap stocks.
At the end of the week’s trading, low and medium stocks topped the advancers table as buying pressure increased, as investors and traders cashed out on low price stocks to position ahead of more quarterlyearnings release any moment from now.
Meanwhile, the NSEASI’s year-to-date negative returns reduced to 15.1%, just as market capitalisation yielded negative returns of N1.79tr, or 12.98% below the year’s opening value.
Bearish Market Breadth
Market breadth however remained negative as decliners outweighed advancers in the ratio of 37:29, amidst short- and long-term positioning.
The benchmark index had a mixed performance for the period, as it opened the week on a positive note, gaining 0.21%, but lost 0.11% on Tuesday and Wednesday respectively before retracing up on Thursday and Friday with 0.11% and 0.12% to close the week at 0.23% gain against the previous week loss of 1.17%.
The performance of various sectoral index for the period was mixed as the NSE Banking and Industrial Goods closed up, while others like NSE Insurance, Consumer goods and Oil/Gas were down, while the NSE ASeM index that closed flat.
The week’s market activity was up in volume and value by 43.26% and 25.41% respectively to 915.86m shares worth N9.84bn, from previous week’s 639.32m shares valued at N7.84bn.
Wema Bank and CAP were the best performing stocks for the period, as they topped the gainers chart, chalking 17.86% and 15.99% respectively, closing at N0.66 and N33.00 each, due to market forces and sentiment. The worst performing were First Aluminum and Cutix, which shed 21.43% and 17.35% respectively to close at N0.33 and N3.90 each on profit taking
We expect another mixed performance this new week, as technical indicators reveal short term rebound is imminent at the very point RSI is reading oversold at 27.51in an upward movement with Money flow index at 20.73, as market resisted further decline ahead of Q3 corporate earnings reporting season, as investors awaits economic and issue based campaign from the presidential candidates of various parties.
However, we believe investors can take advantage of the current low prices of stocks with strong fundamentals in order to reap medium-to-long term benefits. Stage by stage buying is recommended as investors expect inflation data for September in the new week.
There could be repositioning on the strength of earnings in the midst of unfolding events in the political environment. Investors should review their positions in line with their investment goals and take action as events unfolds in the global and domestic environment.
However, we would like to reiterate our advice that investors should go for equities with intrinsic value, ahead of end of quarter which will ushered in another earnings season, ahead of Q3 interim dividend paying equities in October/ November due to the auditing process of their financials for Q3.
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.
Company: FLOUR MILLS NIG. PLC (FLOURMILL)
Current Market Price at Earnings Release: N28.70
Intrinsic Value: N40.00
Latest Cash Div: N1.00
Key Financial Tickers:
- This report observed the financials of Flour Mills Nigerian Plc, for the first three months ended June 30, 2018. Meanwhile, full year indices were utilized in arriving at the intrinsic value for each unit of its shares.
- Please note the reduced dividend of N1.00 in its last full-year financial performance as against the previous year’s N2.62, resulted mainly from the increased share outstanding (now 1.467 billion ordinary shares of 50k each), due to the recently concluded rights issue. Recall that the right offer price was N27.00 per share.
- Nevertheless, we identified that the performance indices for the first quarter under review stood below that of the corresponding period of 2017.
Four Mills Nigeria’s Strength
- The major revenue drivers for Flour Mills are its investments to raise capacity in the different business segments of operation. Most significant is the commissioning of a 750,000MT sugar refinery in Lagos to increase its operating capacity from 24% at the end of FY’14. The plant is currently operating at about 50% capacity by producing 375,000MT.
- We expect revenue from the sugar refinery to grow at a much lower compound rate of 2.6% annually till 2019.
- Also, the increase in its flour milling capacity will contribute significantly to revenue growth in the ‘other foods’ segment (food businesses, apart from Golden Sugar) over the next few years from when the company launched its products in the snacks, powdered drinks and breakfast cereals segment of the market.
- We estimate that the ‘other food’ segments will grow up to 3.5% YoY till 2019 as Nigeria’s population and middle income earners increase, giving the ongoing aggressive efforts by the labour union to increase Nigeria’s minimum wage.
|Bourse||Nigerian Stock Exchange|
|Market Classification||Main Board|
|Nature of Business||Flour milling, Pasta Production, Importation, Blending, Distribution and Sale of Fertilizer, Manufacturing and Marketing of Laminated and Woven Polypropylene Sacks, Operation of Terminals A and B at Apapa Ports, etc|
|Date of Incorporation||September 29th 1960|
|Date Listed||August 14th 1979|
|End of Accounting Year||31st March|
|Registrar||Flour Mills Registrars Limited|
|Auditor||Akintola Williams Deloitte|
|Share Price (N)||28.70|
- Total Turnover (TO) reported for the first three months of 2018 is 10.70% below the corresponding quarter of 2017, as N133.02 billion was reported for the period, as against the N148.97 billion of Q1-2017
- Despite the reduced TO, Selling and Distribution Expenses increased to N2.02 billion, compared to N1.25 billion in similar period of 2017.
- Similarly, Administrative Expenses for the period at N4.68 billion was higher than the N4.05 billion of Q1-2017.
- Thus, Operating Profit stemmed below the 2017 figure. A total of N15.083 billion was estimated through the first three months of 2017 compared to the current N11.207 billion
- Profit before Tax slipped to N5.213 billion, as against to the N6.194 billion reported for same period in 2017.
- Having considering Tax Expenses for the period, N3.649 was reported as the Profit for the period, this is 19.47% below corresponding quarter’s profit of N4.531 billion.
- Due to the loss on available for sale investment, the Total Comprehensive income for the period was estimated at N3.634 billion, as against N4.556 billion in Q1-2017.
- Retained earnings improved over the period to N71.577 billion from N67.903 billion in prior year.
- Non Current Assets increased marginally, by 3.56% from N225.85 billion to N233.89 billion. This confirmed marginal capital investment within the observed periods
- Meanwhile, Current Assets dipped by 16.85%, having moved to N180.97 billion from N217.66 billion reported in the previous first quarter financial.
- Non Current Liabilities increased within the period to N67.12 billion, compared to the N284.17 billion in 2017 first quarter.
- Kindly observe that all items under the Non Current Liabilities in the first three months of 2017 stood below what was reported in the current first quarter financial.
- Enhanced by reduction in Bank Overdraft and Borrowings in the current first quarter financial compared to Q1-2017, the Current Liabilities stood at 31.91% below that of the previous quarter. See below table for details
- Since Assets and liabilities change rate favored the current quarter more, Net Assets for the current period is 46.02% above that of 2017. See below for details.
|Cash and Cash Equivalence||37,324||46,434||-19.62|
|Total Comp. Income||3,634||4,556||-20.24|
|Non Current Assets||233,898||225,855||3.56|
|Non Current Liabilities||67,127||53,703||25.00|
- Equity Holder may be suffering the impact of the nation’s economic challenges on Flour Mills, given that Total Debt by Four Mills is same as 97.93% of the total Equity. This is despite the fresh rights issue. Please note that the estimated industrial Average is 18.72%
- Current Ratio stood slightly below unity implying little challenges may be faced in settling current liabilities as at when due.
- Fairly above others in the industry, beta value of 0.97 as against 0.91 industrial average indicate lower volatility than the market
- Although far below the industrial average of 9.09x Flour Mills still have enough strength of servicing its interest yielding liabilities as at when due. Please note that it is strictly advised that, unless the company improved its financial strength, assessing interest yielding liabilities should be avoided.
|Liquidity/Risk Ratios||FLOUR MILLS||Industry||%CHG|
|LT Debt to Equity Ratio||97.93%||18.72%||423.13|
- Cost of Sales margin is currently estimated at 87.02% slightly below the 88.43% estimated last year.
- Profit before Tax margin is 3.92% also below the 4.16% margin estimated from the corresponding quarter figures
- Similarly, Profit after Tax margin stood below that of Q1-2017. We have currently estimated N2.74% as against the previous N3.04%
- Return on Average equity is currently estimated at N2.37% far below the 4.29% achieved in similar period of 2017
- Return achieved on Average Assets now 0.88% as against 1.02%
- This confirmed a lower profitability rating by the management of Flour Mills Plc. We are of the opinion that this shows the true economic state of higher running expenses and tight business terrain in the country, further impacting the unfavorable business environment are various insurgent in various part of the country, especially in the northern part of the country and oil exploration state.
|Cost of Sales Margin||87.02%||88.43%||-1.59|
- Testing the management efficiency, the Asset Turnover was gauged, the Ratio declined by marginal 4.54% from 33.59% to 32.06%.
- Also tested was the Equity Turnover, whichcurrently stood at 86.24% as against the 141.03% estimated in 2017. Please note that the newly raised capital through right issue further impacted the drop
- In other words, the equity was multiplied 2.69 times through the first three months of 2018 financial activities, far below the 4.20 times in Q1-2017.
- It was also estimated that Fixed Assets turnover is same as 56.87% below the 65.96% estimated in Q1-2017
|Total Asset Turnover||32.06%||33.59%||-4.54|
|Fixed Asset Turnover||56.87%||65.96%||-13.77|
- Following same trend as in the earnings the amount earned per unit of Flour Mills Plc in its Q1- financial performance,Earnings per Share (EPS)dropped by 48.46% against the comparable period of 2017. The current EPS estimate is N0.89
- Similarly, Total Comprehensive Income for the period is same as EPS since difference between the two figures is minimal. See the below table for details
- Price Earnings Ratio (PE/Ratio) is currently estimated at 8.06x as against the previous 4.05x. Although this is mainly used in confirming investment recouping time, it is also indicating investors’ sentiments on the price of Flour Mills; going by the reduction observed, it implies negative sentiments
- Two ratios confirming an overpriced position of each share of Flour Millsshare price on the floor of the Exchange are the Price to Book Value (P/BV) and the Book Value (BV). Since P/BV stood below one (1) it implies that the share unit is theoretically underpriced. Confirming this further is the estimated BV of N37.62 as against the market price of N28.70 (as at the released of the current full year result) and the current market price of N20.40 (10/10/18).
- Our weighted average DCF and P/E valuation for Flour Mills Nigeria gives TP of N45.00 (which implies a 56.79% upside potential from current price of N120.58.
- We therefore maintain a BUY recommendation on FLOURMILL.
Equity market this year has dashed many investors and players hope after recording juicy returns in 2017 that ushered in a strong market in January, that prompt many analysts and research firms to project positive outlook for the economy and market.
On the premise of this many players including individual investors, traders, stockbroking firms and others have expanded their expectation especially the stockbroking firms that had quickly increased salaries, employed more staffs, even some went ahead to buy cars for their directors before the ongoing downtrend was triggered by profit taking at the first stage during the full year earnings season.
Prices of stocks did not react positively much to impressive numbers due to exit of capital from emerging and frontier markets after US had earlier hike interest rate that reversed inflow of funds. In addition to dwindling economic activities, insecurities and political uncertainties which were revealed by economic statistics emanating from the apex bank (CBN) and national bureau of statistics (NBS).
As the factors mentioned above got deteriorated and political tension wax strong with listed companies positing mixed numbers in their Q1 and Q2 earnings reporting season where funds are already leaving the market, the few companies that posted impressive earnings had less positive reaction as smart money had continued to scale down their position for higher yield investment environment in developed markets and economics. In the past three earnings reporting season for 2018, reaction has been weak and mixed due to the prevailing socio-economic and political risk environment.
Investing public are probably more familiar with the bull or bear market forgetting that they come with different characteristic or condition that are peculiar with this cycle. The market dynamics behind any situation determines the impact and how long a company share price will rally on the strength of its earnings performance when released to the market. Companies reporting surprising earnings during up market experienced pretty brutal initial reactions than in a down market, the average one-day reaction to their earnings reports so far this year has decline by 1.2%, due to prolonged correction.
The second quarter earnings reporting period has actually been the most bearish for stock price reactions throughout history. It’s the only quarter of the year where stocks have historically averaged a decline (-2.19%) on their earnings reaction days going back to 2009.
This season, the possibility of earnings reaction to improve is high due to huge losses many blue chips stocks had suffered and the journey into February 2019 general election is becoming clearer to reduce the political tension as the major parties’ presidential contenders are known. As the year winds down many market players are likely to start returning to the market if the expected Q3 numbers beats expectation to reveal what the dividend possibility will be for the investors at the end of this financial year and post-election that will usher in another recovery trend on expected economic recovery again. As shown in the table below, the average three days earnings reaction during Q2 earnings reporting season.
See the table below for earnings reaction in the last earnings season (Half Year)
|SECURITIES||Reled Date Q2||3-Day %||Exp Rel Date Q3|
|UNION DIAGNOSTIC & CLINICAL||26-Jul-18||14.29||29-Oct-18|
|N NIG. FLOUR MILLS||31-Jul-18||9.92||30-Oct-18|
|CEMENT CO. OF NORTHERN NIG.||27-Jul-18||8.77||26-Oct-18|
|DANGOTE FLOUR MILLS||27-Jul-18||7.88||26-Oct-18|
|MAY & BAKER||30-Jul-18||5.60||25-Oct-18|
|GUINNESS NIG. PLC||30-Aug-18||5.55||30-Oct-18|
|JAPAUL OIL & MARTIME||1-Aug-18||3.45||26-Oct-18|
|FORTE OIL PLC||31-Jul-18||2.08||23-Oct-18|
|FCMB GROUP PLC||27-Jul-18||1.52||26-Oct-18|
|STANBIC IBTC HOLDINGS||16-Aug-18||0.60||24-Oct-18|
|ECOBANK TRANSNATIONAL INC||19-Jul-18||0.48||26-Oct-18|
|OKOMU OIL PALM||10-Aug-18||0.00||31-Oct-18|
|CONSOLIDATED HALLMARK INS||27-Jul-18||0.00||29-Oct-18|
|LAW UNION & ROCK INSURANCE||27-Jul-18||0.00||30-Oct-18|
|AXA MANSARD INSURANCE||27-Jul-18||0.00||26-Oct-18|
|INFINITY TRUST MORTGAGE BANK||2-Jul-18||0.00||4-Oct-18|
|MOBIL OIL NIG.||27-Jul-18||0.00||19-Oct-18|
|MRS OIL NIGERIA||26-Jul-18||0.00||26-Oct-18|
|LEARN AFRICA PLC||27-Jul-18||0.00||29-Oct-18|
|AIRLINE SERVICES AND LOGISTICS||30-Jul-18||0.00||30-Oct-18|
|ZENITH INT’L PLC||6-Aug-18||-0.42||22-Oct-18|
|NASCON ALLIED INDUSTRIES PLC||24-Jul-18||-0.99||25-Oct-18|
|P Z CUSSONS NIGERIA||28-Sep-18||-2.33|
|U A C N||1-Aug-18||-4.92||26-Oct-18|
|A B C TRANSPORT||16-Jul-18||-8.70||31-Oct-18|
|NPF MICROFINANCE BANK||26-Jul-18||-8.72||31-Oct-18|
|CUSTODIAN & ALLIED INSURANCE||26-Jul-18||-10.66||24-Oct-18|
|UACN PROPERTY DEV. CO.||20-Jul-18||-10.99||29-Oct-18|
|RED STAR EXPRESS PLC||30-Jul-18||-11.29||26-Oct-18|
|LAFARGE W A P C O||23-Jul-18||-15.38||29-Oct-18|
By Afrinvest Research,
FGN/CBN Bills Market Update: Average T-Bills Rate Settled at 12.7% as PMA Holds on Wednesday
Last week, trading on the Treasury Bills (“T-Bills”) secondary market was flattish as rates dipped marginally by 1bp W-o-W to close at approximately 12.7%. Buying interest was observed in short and medium-term bills both declining 6bps and 3bps W-o-W respectively. On the flip-side, long term bills all advanced 29bps W-o-W on the back of sell-offs by investors, ahead of Open Market Operations (“OMO”) auction on Thursday.
At the OMO auction, there was no sale on the 91-Day OMO bill due to more attractive options in the secondary market. However, the 182-Day and 350-Day bills recorded bid to cover ratios of 0.3x and 1.4x respectively which depicts investors interest in high yield long-term instruments despite pre-election jitters. Thus, a total of N249.1bn was mopped up in this offer leaving liquidity levels at N144.9bn positive at the close of the week.
This week, the CBN is set to conduct its third Primary Market Auction (“PMA”) of this quarter to rollover maturing bills worth N147.6bn. Despite expected inflows totaling N494.8bn into the financial system from T-Bills and OMO maturities of N147.6bn and N347.1bn respectively, we expect liquidity to stay around current levels due to the PMA auction and possible OMO auction this week. We anticipate sustained interest in longer term bills on attractive yields as investors target the 364-day bill at the PMA and longer tenor (over 300 days) at the expected OMO auction this week.
FGN Bonds Market Update: Quiet Trading as Bearish Sentiment Persists due to Continued Sell-Offs
The local bond market was relatively quiet last week with continued weak sentiment as investors cautiously await the next bond auction scheduled for next week. Accordingly, average yields on benchmark FGN Bonds advanced 6bps to close at 14.8% W-o-W.
Going into the week, we expect the quiet trading to persist as investors anticipate the next auction as well as cautiously anticipate inflation numbers. We advise investors to seek opportunities in discount bonds (bonds trading below par value of N100.0) and attractive yields like the FEB 2020 which advanced the most up 30bps W-o-W to 14.06% followed by the FEB 2028 which advanced 15bps W-o-W to 15.25%.