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Proshare Analysts Review Nigeria’s Unmet Deadlines for Gas Flaring and the Country's Agricultural Challenges

Aug 08, 2022   •   by TheAnalyst, Proshare Research   •   Source: Proshare   •   eye-icon 186 views

Being an Analyst Note issued by Proshare Research on August 8th  , 2022

 

Nigeria’s Unmet Gas Flaring Deadlines Raises Analysts' Heckles

Nigeria has the largest proven gas reserves in Africa with an estimated proven reserve of 208.62trillion cubic feet and produced about 1.7trillion cubic feet of natural gas annually. Gas flaring, which represents the loss of associated gas during oil extraction, has remained a major challenge in Nigeria. Nigeria is the seventh-largest gas-flaring country globally behind Russia, Iraq, Iran, and the US, among others, and continues to miss its gas flaring deadlines with huge revenue loss, valued at US$1.04bn in H1 2022. While Proshare analysts recognised that the country has made some progress in curbing gas flaring through the Natural Gas Flare Elimination and Monetisation Plan, they believe a viable regulatory alternative would be to increase the penalties on gas flared so significantly that it serves as a deterrent. Currently, firms producing over 10,000b/d of oil pay $2 per 1000scf, and others producing below 10,000b/d pay $0.5 per 1000scf of gas flared (see chart 1 below).

 

Chart 1: Gas Flare Tracker Estimated Volumes (MMSCF)

 

Analysts Scan Nigeria’s Agricultural Problems as Ogun State Takes Steps to Improve Cocoa Production

In a bid to improve agricultural production in the state, the Ogun State government gave out 10,000 cocoa seeds to 3,000 farmers approximately 3 seedlings to a farmer. These genetically modified seeds are said to have a lower maturity time of about 18 months compared to the previous variety which takes between 3 to 5 years to mature. This means that compared to the planting cycle of the old crop, this newer variety should promote a higher yield in the same period as the old variety’s maturing period. 

 

While this is a good initiative, Nigeria must battle with keeping farmers on their farms in northern Nigeria as bandits have taken on a new guise of acting as farmers going to farms and then attacking and kidnapping the real farmers. The consequence has been a culture of fear with farmers terrified of approaching their farmlands. Analysts believe that the growing fear could result in low crop production in some northern states which would affect the farm output and raise food prices.

 

Capital Hotel Market Cap crosses N10bn over Private Placement Listing; 

Capital Hotel increased its shareholdings by 1,611,995,510 ordinary shares to bring its total shares to 3,160,775,510 ordinary shares of 50kobo each above the N10bn market capitalization. With the share price closing at N3.40 as at the close of the previous trading session, its market capitalization rose from N5.27billion to N10.75billion. The transaction involved the issuance and purchase of new shares by 22 Hospitality Limited, making the hospitality company the majority stakeholder, holding 51 percent of the issued and fully paid shares post transaction completion. Capital Hotel noted that the capital raised from the transaction is meant to be utilized for the renovation of the hotel with 22 Hospitality Limited.

 

Analysts believe the share volume issued over a short period would affect investors' dividend per share which in turn would affect its earnings per share. The share price of Capital Hotel has remained flat with significant increases and decreases in traded volume in July and early August 2022 (see chart 2 below).


Chart 2:   Capital Hotel's Share Price and Volume Traded 22 July – 5 Aug 2022

 

Analysts Observe a Slight reversal of Bond Market Bearishness

During the week, the FGN Bond saving auction swayed investors’ reactions toward the bearish stand in the secondary market. However, on Friday, the reaction tilted slightly bullish with few buying interests at the short end while the remaining tenors had no activity. The overall average benchmark yields compressed marginally by -0.04% to 12.53. Analysts expect the multiple selloff sentiment should persist all the week as firms issue commercial papers with higher yields to attract investors (see table below).

 

Table 1: FGN Bonds Market 

 

Analysts Note that Climate Change May Create Investment Winners and Losers   

The current Nigerian administration recently welcomed a US developer known as SUN Africa LLC, a US-based firm, that aims to revitalize the Nigerian energy sector. The company’s project which is financed with a $1.5 billion loan from the US Export-Import Bank, hopes to deliver solar power in multiple locations across the country. This is in line with the administrative plan of the government to transition to sustainable forms of energy and to integrate solar into their energy mix. Analysts have decried that poor maintenance and insufficient investment in the transmission network have resulted in only about a third of the country’s installed capacity being dispatched by the national grid daily, a fraction of what’s needed in a nation of more than 200 million people. Proshare analysts are worried that solar power as a source of electricity would be quite expensive for Nigerians to bear.

 

Most key global economies are formulating plans and setting aside funds to ensure a transition to renewable sources of energy. This is evidenced in China’s fourteenth five-year plan (14FYP) which would help to limit its warming to 1.5 degrees Celsius by 2030. With the energy market’s imbalances, Analysts believe the possibility of China’s inability to reduce its coal usage could render the 14FYP ineffective.

 

Gaming Effect on Tech Companies, Analysts Take a Second Look

Several video gaming companies had a miserable Q2 2022 result, with the likes of Microsoft, Sony, and Nintendo each reporting a fall in quarterly video game sales. Analysts believe the fall in sales could be attributed to the increased frequency of outdoor activities. Since the global economy is already exhibiting post-pandemic world features, there would be a spark in the relaxation of Covid-19 restrictions. Analysts believe the performance of gaming companies reflects a reversal in sales of companies that made huge sales during the height of the pandemic.

 

Crypto-Exchanges under Enforcement Microscope, Analysts Peep into the State of Play

The Indian financial crime-fighting agency reported that the enforcement directorate is investigating nine cryptocurrency exchanges for allegedly assisting fintech companies in laundering proceeds by converting them into cryptocurrency. The regulator disclosed that a large sum of money was sent to the Wazir cryptocurrency exchange. As a result of the daring action, the regulator froze the Wazir X bank account worth 64.67 crores. Analysts observed that the Reserve Bank of India outlawed fintech operations and denied them loan business licenses as a result of their exploitation of personal data and threatened borrowers with calls and extortion.


The price of Bitcoin is showing a strong move near US$24,506.07 and currently trades at US$24,140.10. Bitcoin gained +5.19% in the last 24 hours, reaching a 24-hour high of US$24,144.70. Similarly, most major altcoins are attempting a fresh increase. Ethereum rose above the US$1,770 price mark, increasing by +5.56% from US$1,682.32. Analysts believe the fresh move could drive Bitcoin to the US$26,000 price level (see chart 3 below).


Chart 3: Bitcoin Price Movement

 



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