Being an Analyst Note issued by Proshare Research on August 11^th , 2022

Analysts Look at PIA Governance Flaws and Oil Company Performance 

Following the rejection of the ministerial consent by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), The President and Minister of Petroleum Resources, Muhammadu Buhari, cancelled his approval of the acquisition of the entire shares of Mobil Producing Nigeria Unlimited (MPNU) by Seplat Energy. Analysts asked who was wrong or right for governance clarity and learning moments. The fault was neither the Commission's nor the Petroleum Ministry but the Petroleum Industry Act (PIA) 2021.   Analysts believe there are governance and power devolution gaps in the PIA that needs fixing with either legislative amendments or other regulatory policies and guidelines by the Ministry. 

Meanwhile, six leading oil and gas companies listed in Nigeria recorded average revenue growth of +36% Year-on-Year (Y-o-Y) in the first half of the year (H1) 2022 (see table 1 below). The performance was driven by a combination of internal and external occurrences such as movement in the foreign exchange rate, rising crude oil prices, the war in Ukraine, and OPEC decisions, among others.

Table 1: Revenue Performance of Selected Oil Companies in Nigeria

Source: NGX, Proshare Research

IMF's Report Shows that Nigeria's Fertility Rate Poses Existential Considerations Observe Analysts

In a recent report titled: 'The New Economics of Fertility,' the IMF identified that the fertility rate in Nigeria and some low-income countries defy the standard fertility patterns, which should see a negative relationship between childbearing and income levels. Meanwhile, Proshare Analysts note that Nigeria's population growth rate (2.6%) has, until last year, exceeded the country's economic growth rate reflecting the country's budding population crisis (see chart 1 below).

Chart 1: Nigeria's Annual Population and GDP Growth Rate (2016-2021) 

Source: NBS, IMF, Proshare Research

Energy Service Market Expands Access to Renewable Energy Note Analysts

The increase in renewable energy generation is expected to propel the growth of the energy as a service market going forward, as evidenced by the rise in the share of renewables in global electricity generation, which jumped to 29% in 2020, up from 27% in 2019. It is expected to grow in value from $50.04bn in 2021 to $57.14bn in 2022, with the global energy market as a service expected to reach $89.22bn in 2026. The companies operating in the energy service market are beginning to enter partnership agreements to meet consumer demand and provide a unique approach for homeowners and operators to migrate to renewable energy at lower costs. Analysts expect this trend to make renewable energy more accessible faster while increasing the probability of the world reaching the net-zero emissions target by 2050.

Equity Analysts Assess Wema Bank H1 2022 Performance 

Wema bank, with a year-to-date (YTD) ratio of +365%, has shown to be an excellent investment for investors who took advantage of the low-priced index at the end of last year. Investors' faith in the bank has brought about a high capital appreciation for those who decided to cash in on the positive YTD. Wema bank recorded a profit of N5.2bn in its Q2 financial statement, which is a 42% increase against Q2 2021. Analysts believe the share price will keep improving, and investors' faith will be a reward in the long run, albeit the share price has been bearish recently (see chart 2 below). 

Chart 2: Wema Bank YTD Share Price Movement

SOURCE: NGX, Proshare Research 

Analysts Gripe at Rising Debt Stock as Ways and Means Hits N19.91trn in 2022

Following the data released by CBN, the federal government has borrowed N2.45trn from the Apex bank in the first half of the year through Ways and Means Advances, indicating a rise from N17.46trn recorded in December 2021 to N19.91trn in June 2022. The amount owed to the apex bank is not part of the country's total public debt stock, which stood at N41.60trn as of March 2022. 

Despite multiple cautions from experts, the federal government has kept borrowing from the CBN to fund the budget deficit, which is now increasing the country's debt stock. Analysts believe that the country leveraging its asset to generate revenue is a viable way to close the widening fiscal deficit instead of borrowing from CBN. 

At yesterday's NTB primary auction, the DMO sold exactly N₦150.62 billion worth of notes offered. The rates on the 91-day, 182-day, and 364-day notes were allotted at 3.50%, 4.50%, and 7.45%, rising by 70bps, 40bps, and 45bps, respectively. The bid-to-cover ratio across the three papers stood at 1.76x, 0.93x, and 1.25x. Analysts believe the raised yields should attract investors to the secondary market today (see chart 2 below). 

Table 2: Nigerian Treasury Bills Auction Result

Source: Commercio papers

Analysts Review FG Plans to Generate N484bn from Electronic Money Transfer 

Electronic money transfer was introduced in the Finance Act 2020, which amended the Stamp Duty Act and taps into the growth in electronic funds transfer in Nigeria. The Federal Government is set to make a total of N483.73bn in three years from electronic payment. This projection was made by the budget office of the federation and revealed in its 2023 – 2025 Medium Term Expenditure Framework. According to the budget office, the nation intends to make at least N137.03bn in 2023, N157.59bn in 2024, and N189.11bn in 2025. 

Levies would be shared among the three tiers of the government. It is a single one-off charge of N50 on any transfer of money deposited in any account on sums of   N10,000 or more. Analysts believe this is a substantial, meaningful source of revenue for the government. However, it impacts businesses; it appears like a rip-off as businesses still have to pay taxes and value-added tax.

Analysts Review Reserve Bank of India Regulations Over Digital Lending Apps

On the surface of outlawing digital lending companies, the RBI introduced a slew of regulations that seek to rein the operation of credit delivery through digital lending apps. The regulatory framework emphasizes that only regulated entities, such as banks and shadow banks, will be permitted to disburse and collect loan repayment and address concerns about data collection. 

Digital lending apps must exercise a clear audit trail with the borrowers' consent on credit charges and interest rates. Analysts who would have been more optimistic about the regulations are concerned about the role of shadowed banks, knowing that there would be back and forth in the rules and noted that in June, the RBI restricted non-banks from issuing prepaid wallets, cards, and credit lines; which some businesses amended their conditions, while others, such as Slice, changed their business models.

 The cryptocurrency market headed up this morning after retracing to the support level and surpassed the 5-day moving average index of US$23,698.52 with an average volume of 65,588. Bitcoin was trading near the 50% 13-week retracement of US$24,971.94 and grew +7.08% from US$22,941.78 to US$24563.98. Analysts noted that over the past seven days, Bitcoin had gained +6.98% and +23.98% in 30-days.

Charts 3: Bitcoin Technical Indicators

Source: Barchart, Proshare Research.