Being an Analyst Note issued by Proshare Research on August 1^st, 2022

Analysts Take Note of Nigeria Midstream Oil Industry and Systemic Theft

The large-scale oil theft and illegal oil refineries in Nigeria have kept the country's average daily oil output at an abysmally low level. Nigeria's crude oil production stood at 1.158mb/d in June 2022. Crude oil vandals have a network of pipelines that tap into the country's pipeline network to transit the oil to their reservoirs. The Trans-Niger Pipeline (TNP), with a capacity for 180,000 b/d of oil, has halted crude flow since mid-June due to theft in about 150 illegal tapping points along the pipeline. Analysts expect a formal shut-in of oil transit through the TNP as the operator, Shell, constantly declares force majeure on crude export from the connected terminal, Bonny Terminal, and shut-in of oil from fields evacuating through the pipeline. With persistent challenges in the midstream segment of the industry, Nigeria's crude output risks maintaining its downward trend in the second half of the year (see chart 1 below). 

Chart 1: Nigeria's Crude Oil Production ('kb/d)

Ukraine Begin Grain Export, but Analysts Still Cite Potential Challenges

Food prices hit record levels after Russia invaded Ukraine and prevented exports of essential commodities to the global market. This export prevention affected several countries in Africa, the Middle East, and Asia. Lebanon was seriously affected after the Beirut port explosion in 2020 took out part of their storage, making it very difficult to store food for strategic purposes. After agreeing on a deal on July 22, a ship containing about 26,000 tonnes of corn finally left the port of Odesa in Ukraine and is expected to get to Istanbul, Turkey, tomorrow, August 02. Once the inspection is complete, it sets sail for Tripoli, Lebanon.

While this proves to be great news after the deficit experienced from reduced exports from Ukraine, analysts call for calm as the President of Ukraine, President Zelensky, in his post on Twitter, highlighted the possibility of grain exports from Ukraine reducing by half after the invasion from Russia left many food storages destroyed. Until the remaining 16 ships set sail and leave the black sea, fears of potential risks resulting from the war still linger.

With Positive Q2 Corporate Financials, Analysts' Mood Remains Mixed

As more companies release their Q2 financial report, Analysts expect positive earnings to be a significant factor for investors in deciding which stock to buy. The Telcom companies in Nigeria, like MTN and AIRTEL, recorded lower double-digit growth in revenue while profit after tax (PAT) also recorded double-digit growth. The banking sectors also recorded positive change in the second quarter, attributable to increased interest income as the MPC hiked the Monetary Policy Rate (MPR). First bank and Unity Bank recorded N56.6bn and N1.3bn profit after tax, respectively. 

Analysts expect buying interest in insurance companies as the country enters its summer travel season, but the uncertainty in the industry recapitalization may be a deterrent. Elsewhere, analysts attribute the July 2022 bearish trend in the NGX to insecurities, policy instability, and unstable naira, giving investors a second thought about the market's viability (see chart 2 below). 

Chart 2: Movement of NGXASI Index Point For July 2022

Non-Interest Taj Bank gets National License as Local Bond Market Turns Bullish

CBN granted a national License to Taj Limited, coming on the heels of several awards bagged by the bank in their operations in the past two years with three International Standard Organisation (ISO) certifications. Also, the management in June unveiled plans to launch Nigeria's first private sector Sukuk offering under an N100bn programme in a Mudarabah structure. Analysts believe the national license will expand the bank's network across the country and encourage financial inclusion through seamless access to credit by Sukuk issuance. 

The week closed bullish with mixed activity on Friday at the mid and long tenor. The absence of higher return investment in other markets spurs buying interest to the long end of the curve while multiple selloffs occur at the mid-tenor. The overall average benchmark yield declined marginally by -0.04% to 12.26. Proshare analysts expect more activity this week as investors pivot to fewer risker assets as inflation expectations persist (see table 1 below). 

Table 1: FGN Bonds Market 

MTN MoMo Wallets hits 4.2 million in Less Than Two Months 

MTN Nigeria has said its mobile money business, MoMo, recorded 4.2m wallets in less than two months of its launch. Out of these 4.2m wallets, the company said 2.4m are actively in use, generating a MoMo transaction volume of approximately 7m within six weeks of operations. The company disclosed this in its financial result for the half year 2022. MTN MoMo officially commenced business on May 19, 2022, after the company was issued a Payment Service Bank (PSB) license alongside other mobile network operators to deepen financial inclusion in the country. As a PSB, MoMo collects deposits and offers its customers savings accounts. Analysts observed that mobile money adoption is snowballing worldwide with the idea of bringing financial products closer to rural households and businesses.

Federal Deposit Insurance Corporation Restates its Digital Assets Policy

The Federal Deposit Insurance Corporation issued an advisory note that it does not offer insurance services to digital assets or non-bank organizations. The released memo was in response to an insolvent cryptocurrency company (voyager) asserting that the regulator insured its deposits with a metropolitan commercial bank. As a result, the regulator issued a cease-and-desist order, citing the firm's violation of section 18 (a) (4) of the Federal Deposit Insurance Act, and directed the corporation to report to the Board of Governors and the FDIC detailing all efforts taken to correct the misrepresentation. Analysts observed that the corporation is afraid of missing out because it earlier rejected a buy-out bid from FTX. 

The global cryptocurrency market remained bearish over the last trading session, with major coins plunging below their 24hr high. Bitcoin fell -1.37% from US$24,121.64 to US$23,308.93, and Ethereum witnessed a decline of -0.41% from US$1,745.88 to US$1,685.54. However, Analysts observed a bearish sentiment across major moving averages and buying pressure at the 200-exponential moving average (see chart 3 below).

Chart 3: Bitcoin Indicators