Being an Analyst Note issued by Proshare Research on August 18^th  2022

On the back of an Impending Proshare Report, Analysts Review the Sustained Incidence of Oil Theft 

Following the interception of an oil supertanker fleeing Nigeria in Equatorial Guinea last week, the Nigeria Customs Service (NCS) said it had intercepted 3,998 jerry cans of Premium Motor Spirit (PMS), equivalent to 119, 940 litres along the Badagry waterways. Proshare analysts attributed the increased incidence of crude oil theft and smuggling in Nigeria to the high enticements, theft and diversion associated with the weak policing of oil infrastructure and the market distortion in the country.

While the involvement of security agencies and the low probability of being apprehended and sentenced create incentives for crude oil thieves, the significant price differential between Nigeria and its neighbouring countries continue to incentivize petroleum product smugglers. Proshare analysts believe weakening the motivations, and the supply chain infrastructure of oil thieves and smugglers will provide a short-term respite for the industry. Medium to long-term solutions may have to consider high-end solutions as recommended in the forthcoming Proshare Impact Report titled, "The Anatomy of Oil Theft in Nigeria: Understanding the Gravity."  

Emirates Cancels Air Flights to Nigeria as Analysts Review the Costs

In a press statement released recently, Emirates Airlines announced that it is suspending all its flights to and from Nigeria effective from September 1 to limit further losses and impact on its operational costs that continue to accumulate in the market. The airline noted that it has tried every avenue to address the challenges in repatriating funds from Nigeria and has made considerable efforts to initiate dialogue with the relevant authorities for urgent intervention, but no progress was made.

Proshare analysts noted that the issue that led to the self-suspension of Emirates is an industry issue that has to do with accessing foreign exchange. The high cost of aviation fuel further increases the lack of access to foreign exchange to meet schedule obligations. While some airline operators struggle to weather the storms by leveraging the hubs in their home country, some airlines have had to shut down. Proshare analysts warned that a continuous shortage of foreign exchange would worsen the situation for more airline operators.  

Analysts Call for Privatization of TCN as National Grid Collapses Again

Nigeria recorded its 7th system collapse on Wednesday due to industrial action by the National Union of Electricity Employees (NUEE). The Union members had on Tuesday picketed the TCN Board at the body's headquarters to protest unpaid entitlement, a compulsory promotion interview for principal managers. Analysts noted that the Transmission end has continued to be the weak link in the electricity value chain, suffering from massive infrastructural challenges and mismanagement. Analysts reckon disruptions will decrease if the government privatizes the value chain.

Analysts Express Commodity Price Optimism as Ukraine Increases Grain Exports

Ukraine expects five ships to arrive at its Chornomorsk seaport. These ships were to load more than 70,000 tonnes of agricultural products in a solid move to clear the backlog of contracts. The Ukrainian port authorities indicated that these exports would include Wheat, Corn, and sun-seed oil. This comes after three ships left Ukraine with 33,750 tonnes of food. These vessels Sera, Efe, and Petrel S, were loaded with 8,000 tonnes of corn, 7,250 tonnes of sunflower oil, heading for turkey, and 18,500 tonnes of sunflower meal heading for Amsterdam bringing the number of ships that had left the Ukrainian ports under the UN-brokered grain deal to 24.

Before the war in Ukraine, the country had an export volume of between 5 million to 6 million tonnes of agricultural products monthly. Now faced with a backlog of about 18 million tonnes of grains left over from last year's harvest, the country aims to attain 3 million tonnes of export in the coming months to cover this backlog and start selling new crops. Soft commodities have witnessed a high YTD, with Cocoa standing among the least profitable at a -5.4% YTD (See Table 1 below)

Table 1: YTD price movement 

Analysts Monitor Non-interest Finance as Jaiz Bank Shareholders bid to raise Sukuk 

Shareholders of Jaiz Bank Plc yesterday approved the board's request to mobilize the sum of N150 billion through the issuance of Sukuk instruments in either full or in series. Analysts believe the capital injection will boost the bank's current expansion drive, especially in the digital frontline. Jaiz Bank, with a share price of N0.85 at the close of the previous trading session, and a YTD gain of +51.7%, has also approved the payment of N1.38 billion as dividends for the 2021 financial year, representing 4kobo per ordinary share of 50kobo each.

The bank's unaudited financial result for the period ended June 30 2022 showed a +26.8% PAT at N2.5bn against N2bn recorded in 2021. Analysts observed a +19.55% increase in the company's total assets from N233.60bn to N279.28bn and +36.20% growth in shareholders' funds from N17.85bn to N24.31bn in H1 2022. (see chart 1 below).

Chart 1 : Jaiz Bank Share Price Movement

Analysts Eye Nigerian Bond Market Yield Inversion

Scanning through the yields across different tenors, analysts noticed the four years and seven years tenors indicate an inverted curve, where the four years yield is at 12.76 while the seven years is at 12.62, contrary to the standard yield curve. However, the two and ten years tenors maintained the upward slope at 10.97 and 13.26, respectively. The inverted yield at the four and seven years suggests investors are becoming pessimistic about the economic prospects, especially the inflation expectation. Usually, the inversion of yields serves as an indicator of recession, although the 10-year to two-year treasury spread is the generally accepted indicator in most countries; analysts believe the inverted curve in the 4-year to 7-year signals that the 10-year to 2-year will soon succumb to the pressure (see chart 2 below).   

Chart 2: Bond Average Benchmark Yields as of September 18 2022 

Nigeria's external reserves increased by $12.4 million to $38.89 billion, representing a 0.03% increase from $38.88 billion recorded on August 10, 2022. The reserve has been recording a decline in recent times due to the constant intervention by the CBN in the official FX market to manage exchange rate volatility. Analysts believe the slight rise is just a one-off situation as the primary contributor (Oil earnings) to the reserves still suffers a severe decline as the oil theft conundrum persists. 

USA Vs. China: The race to Attain Sustainable Energy Irks Analysts

The USA's recently passed clean energy investment is the largest in its history. The bill included nearly $370bn in subsidies for renewable energy development, bringing the country closer to meeting its 2030 emissions reduction target. The passage of this bill was also motivated by the need to catch up with a rival superpower, China. 

On the one hand, China is perhaps the world's largest coal consumer and carbon dioxide emitter. On the other, it has emerged in the last decade as a global clean energy champion with a high level of investment, incentives, and policies set up by the Chinese government earlier in the decade, giving them a significant head start. Thus, Chinese companies now dominate many of the clean energy industries, particularly in the manufacturing of solar panels and wind turbines and are seen to reap the economic benefits as the world is finally embracing the fight against climate change. The USA considered closing that gap a critical issue for climate, geopolitical leadership, and the future of the American economy. Analysts maintained a positive outlook on renewable energy as two of the largest economies contributing significantly to global warming are taking strides in the right direction to achieve net zero emissions.

Chams Plc transitions to an NGX-listed Holding Company Observe Analysts

Chams plc, a fintech and digital payments solutions company, has transitioned to a holding company on the Nigeria Exchange (NGX). Cham's started the process in 2021 to meet the requirements of CBN to change its listing to a non-operating holding company, focussed primarily on growing its consumer and business digital payment solution while also expanding other potential and current investments in the digital space to ensure sustainable value for stakeholders. Analysts believe the company would continue to show good performance and deliver consistent results as its financial results showed that it has significantly grown its business asset, and is focused on its existing subsidiaries and business asset to building shareholders' value.

Bitcoin Price Analysis: Cryptocurrency Investors Play in the Trough Say, Analysts 

The global cryptocurrency market continued to face problems due to the dominant bearishness. The changes have resulted in significant losses for various coins, with Bitcoin reversing its 24-hour high of US$23,885.25 to US$23,432.58. The weekly data reveals a loss of -4.06% with a year-to-date decline of -50.88%. Ethereum fell by -2.91% from US$ 1,892.44 to US$1,842.33. According to Coinglass, analysts noticed that 72,216 traders were liquidated, with the most significant single liquidation occurring on Okex-BTC-USDT-Swap, valued at US$1.50m (see chart 3 below).

Chart 3: Bitcoin Price Movement