Being an Analyst Note issued by Proshare Research on February 2nd 2023

Fuel Scarcity may Ease in Days Ahead but Long-term Solutions Remain Illusive

Over the last 3 months, the availability and affordability of PMS (petrol) have become a nightmare for Nigerians despite the trillions of dollars spent on subsidies. Analysts named FX shortages and the inactions of Nigerian National Petroleum Company Limited (NNPCL) and major stakeholders in the industry as culprits in the disorientation of pricing and distribution of the fuel. Earlier in the week, the NNPCL engaged with oil marketers and security agencies to find ways of addressing the lingering fuel crisis in the country. 

The engagement concluded that there are no supply problems but distribution problems as well as promises that the queue will dissipate in less than 2 weeks through the collaborative efforts of all stakeholders in fuel logistics. While hoping that the collaborative efforts to ease the scarcity materializes and abide for a while, Analysts believe the industry will remain volatile without addressing the fundamental issues of monopoly and lack of domestic refining. Regulating prices without a monitoring framework leaves room for arbitrage. Analysts say the country should begin phased removal of fuel due to the rising cost implication on marketers’ margins. 

Moody’s Downgrades Nine Nigerian Banks to Junk Bond Status

Following the downward review of Nigeria’s rating to Caa1 from B3, Moody’s agency has downgraded nine Nigerian banks. The banks are Access bank plc, zenith bank plc, First bank of Nigeria Limited, UBA, GT Bank, union bank, fidelity, FCMB, and sterling bank. The international agency downgraded the long-term deposit ratings and senior unsecured debt ratings of the banks to Caa1 from B3. According to the agency, two factors triggered the downgrade, the weakening operating environment due to the macro profile of Nigeria and the exposure of the bank’s balance sheet to sovereign debt securities. Rated Nigerian banks have significant direct and indirect exposure to the Nigerian sovereign, 28% of their aggregate total assets are sovereign debt holdings as of June. Sadly, the downgrade makes it difficult for the above-listed banks to borrow from the international market as investors will demand high yields in compensation for the high risk. Also, banks with current Eurobond instruments such as Fidelity ($400m) might experience an outflow of investors which will raise their cost of borrowing and re-entry into the debt market.  Analysts expect a slight drop in the share price of the nine banks as the downgrade slightly waggles investors’ confidence. 

Metals See Price Hikes as Dollar Goes Soft

Metals have begun swinging back up as the US Federal Reserve (the ‘fed’) said it had tempered its fight against inflation. Copper prices rose on the back of a weakened dollar. Gold price equally climbed reaching US$1,972 per troy ounce as downward US Data and hopes of stimulus from China encouraged investors to choose solid metal asset classes alongside equities and US Treasury Bonds.

Investors’ Confidence Soars in January as Dangote Commissions New Cement Factory in Ogun State

The Nigerian Equity Market began the year on a positive note with the NGX All Share Index closing at 53,238.67 index points, an increase of 3.88% by the end of January. Despite facing challenges such as inflation, interest rate hikes, and the naira redesign, the equity market remained strong as investors sought hidden value stocks. The All-Share Index opened the year at 51,251.06 and rose by 1,987.61 index points, reflecting a growth of 3.88% by the end of the month. The market capitalization of the NGX started the year at N27.915 trillion and closed the month at N28.997 trillion, a gain of N1.082 trillion. Analysts predict that investors are taking positions ahead of the upcoming dividend yield season. 

Dangote Industries Limited has teamed up with China Sinoma International Engineering to construct a six million tons per annum cement plant in Itori, Ogun State. This new plant is expected to boost local production to 41.25 million tons per annum and increase total African capacity to 57.6 million tons per annum. The Itori Plant will be Dangote's fourth green field project cement plant in Nigeria, following the Obajana, Ibese, and Okpelle Plants. This new development is expected to strengthen investor interest in Dangote Cement, currently trading at a share price of N266.90.

ChatGPT Establishes New Record for the Quickest Expansion of Its User Base

OpenAI’s ChatGPT has set a new record for the fastest-growing user base in the history of AI and language processing. The achievement demonstrates the increasing popularity of OpenAI’s cutting-edge AI technology, which is patronized by an ever-growing number of businesses, organizations, and individuals. It is estimated to have reached 100m monthly users in January, just two months after the launch, making it the fastest-growing consumer application in history. An average of 13m unique visitors have used ChatGPT per day in January, more than double the levels of December. OpenAI announced recently a US$20 monthly subscription, initially for users in the United States only. Analysts believe that as businesses and organizations look for more ways to automate and streamline their processes, the demand for language models like ChatGPT is likely to increase. Also, with the ongoing investment in AI generally, it is expected that ChatGPT capabilities will continue to evolve and improve, offering even more value. 

UK Sets up a Robust Regulatory Plan to Protect Customers.

The UK government is currently looking for ways to set out ambitious plans to robustly regulate crypto asset activities in the country by providing confidence and clarity to consumers and businesses alike. This is part of ways to embrace the technological innovations emanating from the blockchain industry and to rein in some of the reckless business practices that have happened over the past year and have contributed majorly to the demise of FTX. Analysts hope that the proposed framework will come with strict rules for cryptocurrency trading platforms and help to establish a strong world-first regime, strengthening rules around the lending of crypto-assets for other countries to learn from or embrace is a welcome development.