Being an Analyst Note Issued by Proshare Research on August 31^st, 2022

Nigeria Could Find Oil Respite in Dangote Refinery

The Group CEO of the Nigeria National Petroleum Corporation Limited (NNPCL), Mallam Mele Kyari, has stated that NNPCL has the first right of refusal to supply the Dangote refinery with about 300,000 barrels per day (b/d) of crude oil over 20 years. With a 20% stake in the Dangote refinery, NNPCL would also have access to 20% of the produce from the refinery. Analysts noted that if the government and upstream operators sell more crude to the Dangote refinery, it would be a respite for the country's many challenges. There would be an increase in oil revenue, a halt in petroleum products importation, and a halt in the subsidy regime, albeit the PMS price will rise above the current price. Additionally, freight and insurance charges will drop significantly, and there may be moderate oil theft, given its subsea pipelines. The Dangote Refinery, expected to come online in H1 2023, is projected to be the largest refinery in Africa (see chart 1 below).

Chart 1: Africa's Top Refineries Capacity ('000 barrel per day, b/d)

Traffic Returns to Apapa Ports as Scheduling Platform Fails

The recent designation of parts of the ports corridor as Priority Lanes has generated criticisms from Analysts.  According to them, re-introducing the Priority lanes is an admittance of the failure of the Eto (e-call up system). The Eto was designed to schedule the movement of trucks in the port corridor to starve off traffic gridlock. Analysts believe truckers would not need to use the priority lanes if the Eto had been operational. Analysts note that a Maritime strategy would improve the cargo clearing logistics at the ports and address the fundamental administrative challenges facing the Maritime sector. A sound maritime strategy would unlock opportunities in the country's ocean economy since foreign investors would be incentivized to invest in the much-needed infrastructure required in the sector.

USDA Encourages Farmers to Engage in Double Cropping

The Ukraine war caused a significant disruption in the wheat trade. Russia and Ukraine account for about 30% of total wheat production globally (778.6 MMT), which would stand at around 233.58 MMT. The war highlighted the gaps between supply and demand as no country could immediately cover the deficit caused by the war. The US is a significant producer and second-largest exporter of wheat but could do little to cover the demand caused by undersupply from Ukraine and Russia.

The large scale of US wheat export has prompted the U.S. Department of Agriculture (USDA) to initiate policies to encourage American farmers to begin double cropping (a process that involves the planting of more than one crop on a piece of land in the same year to generate more than one crop per year) to increase its wheat production. While some farmers have refused to take to the prompt others have complied. Considering that double cropping reduces the size of each crop compared to when a crop is planted, the benefit of double cropping is an increased size of the harvest and increased inflow in revenue.

Investors Take Pole Position in e-Tranzact while MTN Faulters 

Analysts observed buying interest in e-Tranzact has share price moves up by +9.65% despite the Nigeria Exchange Limited (NGX) inched down by -0.07% to close at 49,642.69 basis points as against 0.01% gain recorded to close at 49676.75 basis points at the end of the previous trading session. The NGX Market CAP records a loss of N18.37bn in Naira terms. e-Tranzact volume traded increased by +8391% to close at 424739 against the 5002 record close of the previous day's trade. Analysts believe investors are taking advantage of the Director's dealings, looking forward to the positive Q3 performance to improve their investments and hidden market indicators.  E-Tranzact posted a recent price yield-to-date (YTD) of +32.3%

Mtn experienced selloffs as the share price fell by -0.5% to close at N199 as against N200 recorded at the previous trading session's close. Mtn with a yield-to-date (YTD) of +1.52%, analysts note the +781% increase in volume traded at the close of the previous trading session is due to more selloffs than buying interest. Analysts expect an improvement as Mtn is looking to launch the 5G pilot in Q3 in line with the conditions of the license. A positive Q3 result would incentivize future investors (see chart 2 below).

Chart 2: Share price movement of MTNN and e-Tranzact

Fixed Income Market Turns Bullish as Liquidity Improves 

The bond market closed bullish on Tuesday, deviating from the persistent selloffs experienced since MPC raised the rate. The buying interests were seen at some selected maturities, especially the 2026 and 2042 maturities. Analysts observed the improved liquidity with the inflow of FAAC allocation, and the high maturities yield at 12.95% and 14.00% spurred investors' interest. However, the average benchmark yield declined by 22bps to settle at 13.13%. Proshare Analysts believe the market reaction is a one-off and expect a return to the bearish stand as several companies issue high yields commercial papers (see table 1 below).

Table 1: FGN Bonds Market 

Swiss Life Takes Bold Step to Advance Efforts Against Climate Change

Swiss Life Asset Managers, an asset management firm based in Switzerland, plans to raise €750m for a new global renewable energy fund. The new fund follows Swiss Life Asset Manager's first dedicated international renewable energy fund, Fontavis ESG Renewable Infrastructure Fund. The Fontavis ESG Renewable Infrastructure Fund II aims to invest in unlisted clean energy and infrastructure assets and companies and offer a diversified portfolio of direct infrastructure energy investments. The fund targets investments in member countries of OECD (Organization for Economic Cooperation and Development) and will build a diversified portfolio with unlisted assets focused on energy generation from renewable sources such as wind, solar, hydro and biomass and storage and renewable fuels. The fund will be managed by a dedicated renewables team that builds on strong, long-term partnerships with project developers, energy companies, and public authorities. Analysts believe this is a positive development as it allows various nations to get investments that would allow a smooth transition to renewables.

Social Media Company Snap Goes Through Rough Patch 

Snap is laying off 20% of its workforce, which equates to over 1,000 employees; this action came off the back of the company missing revenue and earnings for Q2. Analysts have observed this trend in social media companies in recent times. Significant drivers for the revenue reduction were the cut in digital advertising costs of organizations. Apple's change in privacy policies also affected the company adversely because tracking users became much more difficult. The analyst expects this trend to continue until we see an improvement in the macroeconomic environment.    

Hodlnaut Placed Under Interim Judicial Management by Singapore High Court.

Months ago, Holdnault, a crypto lender, froze withdrawals and laid off 80% of its workforce to stabilize liquidity and cut costs. The Singapore High court has placed the lender under interim judicial management for its debt restructuring method.  Analysts underlined that judicial management allows a financially distressed company to be reorganized under the supervision of the court and emphasized the need for greater regulation of the crypto market as it might create a run on the financial system.

The global Crypto market traded slowly compared to recent performance, with Bitcoin hovering between US$20,279.54 and US$19,617.64, with a +8.77% increase in trading volume. The breakdown from the 25,000-resistance attained last week indicates the end of a consolidation phase in August, as buyers have stuck at the 9-day hull moving average of US$19717.97 for a recovery phase. Most significant coins also posted negative returns over the past 24 hours, with Ethereum, BNB, and XRP dropping by -0.05%, -2.27%, and -0.83%, respectively (see chart 3 below).

Chart 3: Bitcoin Price Movement