Being an Analyst Note issued by Proshare Research on January 23rd 2023

Price Differentials May Deter New Industry Investments as Petrol Pricing Runs into Confusion

Three months into the shortages of Premium Motor Spirit (also called petrol) in Nigeria due to NNPC fuel import monopoly, increase in ex-depot prices, forex scarcity, and logistics issues, the market is yet to get clear direction as to pricing and sustainable resolution for the scarcity. Aside from deterring investment in the downstream oil industry, businesses are unable to make decisions on energy costs. Although the ministry of petroleum has rebutted an official increase in pump price, retail outlets of the NNPC Ltd and other major marketers have adjusted their pump price upward to between N185 and N195/litre, thereby deepening the uncertainty in pricing.

In retail outlets belonging to independent marketers, pump prices also differ across stations, cities, and states. In Lagos, petrol is trading around N230/litre. It sells at N240/litre in Ogun State and Port Harcourt, and at N250/litre in Calabar, and between N300 and N400/litre in the black markets. It is increasingly difficult to establish the pump price in each city/state as stations along the same route dispense at different prices. Some marketers say the commodity may sell above N800/litre once the subsidy is removed, although analysts doubt the forecast, given the possible range of landing cost and ex-depot price. Analysts insist that the inability to resolve the long-standing scarcity and differential pricing shows a weak regulatory structure in the industry. Investors in the sector are likely to get skittish and the regulatory authorities seem to have lost control over both product supply chains and product pricing. Against this background Q1 2023 may witness dark industry clouds and rising consumer anger. 

CBN Launches Cash Swap Program for Rural Communities 8 days to Deadline 

To hasten the circulation of the new currency notes, the Central Bank of Nigeria (CBN) has launched a cash swap programme in rural areas. The CBN disclosed this in a circular to all Deposit Money banks, Mobile Money operators, super and other agents. The initiative allows residents of rural areas to exchange old notes for new naira notes with a maximum of N10,000 per person while amounts above N10,000 shall be treated as cash in deposits into wallets or bank accounts in line with the cashless policy. The service will also include individuals without bank accounts. According to the circular, agents are permitted to charge cash-out fees for cash swap transactions but prohibited from charging any further commissions to customers for this service. Analysts believe the initiative should hasten the circulation of the new notes, but 8 days might not be enough to effectively distribute the new notes considering the large population of the country. 

Nigeria’s Active Mobile Subscription Rises by 14% to 222m in 2022

According to the Nigerian Communications Commission (NCC), the total number of mobile subscriptions in Nigeria rose to 222.23m in 2022 from 195.13m as of December 2021 despite the implementation of the federal Government’s National Identification Number-Subscriber identity Module policy. The Global System for Mobile Communications Association (GSMA) had also predicted that 18m new subscribers will be added to the country’s subscriber base by 2025. The NCC’s statistics showed that MTN, which is the largest operator, gained 15.4m new subscribers in 2022, Airtel gained 6.1m, Glo gained 5.3m and 9mobile gained. Analysts say the growth signifies a complete shake-off of the decline that plagued the telecom industry in 2021 when the total number of mobile subscriptions declined by 4.42% from 204.15m as of December 2020 to 195.13m as of December 2021 (see chart 1 below).

Chart 1: 

MTN Nigeria Set to Allot Incentive Shares to Qualified Nigerians

MTN Nigeria Plc has announced the imminent execution of its planned allotment of incentive shares to qualified shareholders who participated in its first public offer. The Offer for Sales of 575m ordinary shares of MTN Nigeria previously held by MTN International (Mauritius) Limited was completed on 31 January 2022 with approval from the Securities and Exchange Commission. To qualify for the incentive shares, MTN says shareholders must meet 3 conditions:

1. Purchased and was allotted at least 20 ordinary shares in the offer;
2. Holds some or all of the shares allotted at the offer as at the Qualification Date, 31 January 2023 but subject to holding at least 20 ordinary shares
3. The name must appear in the Register of Members at the Qualification Date.

MTN, with a present share price of N229.90 and a market capitalization of N4.68m, is set to reward its existing shareholders with one ordinary share for every twenty ordinary shares purchased and allotted up to a maximum of 250 ordinary shares. Although the incentive shares allotment is a promise fulfilled, Analysts expect MTN Nigeria to see renewed buy interest as investors build trust in the company (see chart 2 below).

Chart 2: 

Bill Gates Backs Australian Start-up Rumin8.

Gates-founded Breakthrough Energy Ventures LLC took part in Rumin8’s US$12m Phase 2 seed funding round. The Perth-based start-up wants to reduce livestock emissions by developing a supplement for livestock made from synthetically replicated bromoform, the active ingredient found in red seaweed. This feeds into the circular economy as this farm methane can be purified to produce biomethane, a renewable natural gas source (RNG). Utilizing renewable natural gas brings us closer to carbon neutrality, though it is more expensive to produce than natural gas. Millions of homes and businesses struggling with inadequate power supply could benefit from the introduction of this alternative energy source. In addition, it would assist with reducing carbon emissions in the Nigerian Agricultural sector since Agri-emissions of carbon dioxide account for around 24% of global greenhouse gas emissions.

Bitcoin Records a Bullish Weekend Run

Weekends have been good for the cryptocurrency market lately, and last weekend was no exception. After a great rise in value on Saturday, when coins traded profitably, Bitcoin traded at US$22,782.20 from US$20,628 on Friday. Analysts expect the rally to last for a while as inflation pressure gradually eases, as the Federal Reserve Bank slows down interest rate hikes in coming months. Investors are flooding back into risker assets, like crypto on easing monetary policy stops rising money market rates. The current bull market favours crypto holders (see chart 3 below).

Chart 3: