Being an Analyst Note Issued by Proshare Research on August 25^th, 2022

Rising Energy Prices Would Continue to Stoke Inflation Observe Analysts

As a result of rising crude oil prices, net importation of petroleum products, and FX instability, Nigeria’s petroleum product prices continued to rise between June and July 2022. The average retail price for Premium Motor Spirit (Petrol) for July 2022 rose by +14.53% Y-o-Y and +8.03% M-o-M to N190.01 per litre in July 2022. The average retail price for diesel increased by +208.74% Y-o-Y and +5.53% M-o-M to N774.38 per litre in July 2022, while the average retail price for Kerosene rose by +98.76% Y-o-Y and + 3.68% M-o-M to N789.75 in July 2022 (see chart 1 below). 

Chart 1: Change in Petroleum Product Prices in July 2022

Analysts expect prices of petroleum products to remain high in August on the back of rising crude oil prices, high freight rates, and FX shortage for importing the fuels. Proshare analysts believe domestic refining capacity can be improved in the short run through support interventions for domestic oil companies to build modular refineries. 

FAAC shares N954bn for July, Excess Crude Account Gains 25%

The FAAC Allocation for July came in at N954.08bn, an +18.9% appreciation compared to the N802.41bn recorded in June. While distributable Value Added Tax (VAT) revenue fell by -8.5% from N193.82bn to N177.167 bn, Analysts attribute the appreciation in the FAAC to a +27% increase in statutory revenue compared to the June data. Meanwhile, the FAAC Allocation for July is the highest since January. However, the outlook for FAAC allocations appears bleak, as the future implementation of the Petroleum Industry Act (PIA) would see NNPC remittances to FAAC decline (see chart 2 below).

Chart 2: Monthly FAAC Allocation (N) (May 2021 -July 2022)

According to the committee, the Excess Crude Account (ECA) balance rose +25% from $376,655 in June to $470,599 in July. Last month, Analysts reacted to the sharp decline in the Excess Crude Account despite the Crude Oil Price rally.

Analysts Note that Higher Fertilizer Prices Force Farmers to Switch Crops as Rice Harvest Begins in Katsina.

Fertilizer prices have been a problem for farmers globally, with many complaining of the high prices or availability. Russia, a major fertilizer exporter, had its fertilizer exports reduced since the war with Ukraine started. 

This has caused a significant issue for economies depending on fertilizer imports from Russia. Dangote began fertilizer production in Nigeria but witnessed high demand from countries for the supply of its Urea fertilizer. With higher demand than supply, Urea fertilizer prices went up. Domestic Farmers were forced to investigate crops requiring lesser fertilizer usage, and some pivoted from legumes.

As Nigerian farmers struggled to get fertilizer at affordable rates, many moved to manure which later moved upwards. Some farmers in Katsina planted rice instead of soybeans or maize saying they found that rice needed a lesser amount of fertilizer than maize and generated higher revenue than maize grown on the same expanse of land. As harvest begins in Katsina, more rice will be made available to millers during the general 30-day harvest period. Analysts expect more rice to hit the market. 

Nestle Majority Shareholders take Position, as Other Investors Show Buy Interest  in Stanbic IBTC

Analysts noticed insider Director dealings in Nestle Plc. The NGX saw the purchase of 13,322 shares at a premium of N1320.5. Nestle sold at N1,300 as of August 23, 2022, and a total of 218,689 shares at N1303.03 per share were by the majority shareholders. The transaction was completed on August 24, 2022. Analysts observed a +0.2% share price rise since the sale went through. Nestle posted a recent year-to-date (YTD) price yield of -16.3%. Analysts expect capital appreciation as investors expect a high year-end dividend yield.

Meanwhile, analysts observed a huge buy interest in Stanbic IBTC Holdings as a +17,569.53% increase in volume traded caused an +8.9% increase in price from N28 to N30.5 per share. Investors are taking a bullish position as the bank released its financial Statement for Q2, which saw a +61.8% Increase in Profit before tax (PBT) and a +36.05% increase in Profit after Tax (PAT) (see 3 chart below).

Chart 3: Share price Movement of Nestle 

Analysts Believe Higher NTB Auction Yields Will Entice Investors 

At the primary auction yesterday, the Debt management office sold an amount of N295.53 billion worth of notes offered; the 364-day bill was oversubscribed by +6.14%, while the 91-day and 182-day had less subscription of -30.34% and -5.08% respectively. The rates for the 91-day, 182-day, and 364 maturities rose by 50bps, 50bps, and 105bps to settle at 4.00%, 5.00%, and 8.50%, respectively. The bid-to-cover across the three maturities were 1.76x, 0.93x, and 1.25x. To retrace the quietness in the market from the beginning of the week, analysts expect the increase in yields to motivate a few buying interests from investors while directing the average benchmark yield curve inward (see table below).   

Table 1: Nigerian Treasury Bills Auction Result

Analysts Hold Positive Outlook on Fresh Investments in New Energy

The Vice President, Prof. Yemi Osinbajo has declared that Nigeria is seeking $10 billion annually from international partners to fund the nation’s new Energy Transition Plan. This is fostered by the need for African countries to engage vocally in conversations on the future of global climate. The plan would enable Nigeria to tackle Climate change and achieve net-zero emissions by 2060. The plan has several incentives as it promises to provide about 840,000 job opportunities by 2060 and lift many Nigerians out of poverty. Analysts are uncertain about the plan's viability, as there were no explicit funding sources for which the plan needs to be executed for the next 38 years. However, it would be counter-productive for Nigeria to depend solely on foreign organizations or nations for climate financing as such funds are characterized as uncertain and could hinder the advancement of the renewables sector.

MTN Nigeria kicks off 5G pilot, to launch in 7 states

MTN Nigeria Communications plc has kicked off an open 5G pilot in the lead-up to its highly anticipated commercial launch. The company said it intends to launch 5G services in Lagos, Abuja, Port Harcourt, Ibadan, Kano, Owerri, and Maiduguri. Customers with certain enabled devices will be allowed to connect with and try out the new service where coverage is available. Analysts considered the spectrum issued to MTN Nigeria, as one of the two successful winners of the 5G license bid, a promising future for technology growth. While MTN targets a launch in Q3 in line with the conditions of the license, the second operator, Mafab Communications, was given a 5-month extension for its rollout by NCC.

Cryptocurrency Price Analysis: Hunting with the Bears

The fear and greed index, which explains general investor sentiment in the crypto market, has entered the extreme fear territory, with Bitcoin prices hovering between US$21,000 and US$20,900 since the fallout from the US$25,243.73 resistance level. The global crypto market performance seems to be rising steadily over the past 24 hours based on the smart contract platform and Ethereum Ecosystem, which have seen an increase of +4.2% and +2.6%, respectively, over the past 24 hours.

 The price of Bitcoin rose slightly by +1.46%, from US$21,290.71 to US$21,721.37, with a +1.66% increase in market cap. However, Ethereum rose from US$1,631.20 to US$1,708.04, gaining +4.17%, with most of its tokenized coins leading the market gain. Analysts believe that Ethereum has performed tremendously over Bitcoin amid the crypto downturn and has the potential to post gains due to the transition from a proof of work scheme to a proof of stake (see chart 4   below).

Chart 4: MARKET MOVERS