Nigeria Exits Pandemic-Induced Recession

Vetiva Research
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Nigeria Exits Pandemic-Induced Recession

Nigeria has joined China, Egypt and Ivory Coast on the path to economic recovery, exiting its pandemic-induced recession by a hair’s breadth in Q4’20.

The National Bureau of Statistics (NBS) confirmed this in its latest Q4’20 GDP report, which showed that the country defied the disruptive impact of the protests to advance by 0.11% y/y in the last quarter of the year.

However, the -1.92% y/y (Vetiva: -2.68% y/y) full-year contraction was unavoidable due to the lockdowns in Q2’20 and a sluggish return to normalcy through the rest of the year.

Technology drives output growth

The surprising recovery in Q4’20 and subdued output gap for FY’20 is attributed to the telecommunications (ICT) sector, which contributed 12.18% to GDP.

Considering the shift in business operations from physical offices to virtual environments, the increased adoption of digital services and investments boded well for the sector, which propelled a stellar 15.90% y/y growth in FY’20 (FY’19: 11.41% y/y).

Where Covid-19 has left Nigeria's health system Brandspurng
The Nigerian government struggles to contain Covid-19 while other diseases suffer some measure of neglect Photo by Kola Sulaimon/AFP via Getty Images

Alongside the ICT sector, gains in the Agricultural sector moderated the contraction in the non-oil sector to -1.25% y/y (FY’19 growth: 2.06% y/y) in 2020.

The oil sector, on the other hand, recorded a deeper contraction of -8.89% y/y in FY’20 (FY’19 growth: 4.59% y/y). More specifically, the sector tanked by – 19.76% y/y (Q3’20: -13.89% y/y) in Q4’20, driven by OPEC production cuts and production downtime at export terminals (Qua Iboe and Brass River terminals).

As a result, production levels averaged 1.78mb/d in FY’20, compared with FY’16 (1.81 mb/d), when the country experienced a similar recessionary episode. Thus, the sector’s contribution to GDP fell from 8.78% in FY’19 to 8.16% in FY’20.

The global disruption in supply chains contributed to the slump in trade (FY’20: -8.49% y/y) for the fifth consecutive year, as the sector continued to reel from an exacerbated impact of restrictive trade policies.

Also directly impacted by the pandemic is the transport sector, which fell sharply by 22.26% y/y in FY’20 (Q4’20: -5.95% y/y), due to movement restrictions, curfews and higher fuel prices.

Elsewhere, the real estate sector (FY’20: -9.22% y/y) remained in the woods, as the pandemic and its butterfly effects further pressured income levels limiting consumers’ abilities to spend on big-ticket items.

Meanwhile, the financial services sector maintained its resilience, growing by 9.37% y/y in FY’20. Notably, the financial services sector – unlike other sectors – has grown at a faster pace every year, since the 2016 recession. However, due to the previous year’s high base effect, the sector slipped by -3.63% y/y in Q4’20.

Oil drags tangible output

The tangible sector – which includes the agriculture, mining, manufacturing and construction sectors – outperformed the broader economy with a -1.60% y/y slump in FY’20.

The resilience of the agricultural sector (FY’20: 2.17% y/y) moderated the downturn from both the mining (FY’20: -8.54% y/y) and construction (FY’20: -7.68% y/y) sectors, while the manufacturing sector relapsed by -2.75% y/y in FY’20.

The agricultural sector maintained a clean sheet in 2020, supported by intervention efforts of the Federal Government and the development finance activities of the Central Bank.

This was despite the interruptions to farming activities and food transportation, caused by floods and lockdown measures respectively experienced during the year. In addition, border closure measures boosted production, as the lid on food supply supported investments in the sector.

Thus, the sector contributed 55.76% to tangible output growth in FY’20, compared to 53.70% in FY’19.

The mining sector faced a major drawback, as both obligatory and non-obligatory factors culminated in a slump in production levels. The collapse in external demand, that made the country even struggle to find buyers, coupled with the breakdown in OPEC+ agreements culminated in oil prices tanking to record lows.

Thus, the country had to deepen its production cuts, in line with the cartel’s efforts, to support recovery in prices, amid weak external demand. Despite the eventual pick-up in demand in H2’20, subsequent production downtime combined with compensatory production cuts for earlier overproduction contributed to further contraction in the sector.

Thus, the mining sector recorded a -8.54% y/y contraction in FY’20, contributing lesser (FY’20: 17.68%) to tangible output than it did in 2019 (FY’19: 19.02%).

Although the construction sector grew by 1.21% q/q in Q4’20, the pandemic scars of the mid-quarters of the year held the sector down by -7.68% y/y (FY’19: 1.81% y/y) in 2020.

Despite recovering sharply during the reopening phase, the sector was held back by lower infrastructure spending, devaluation of the naira and weak consumer demand. Thus, the sector contributed 7.44% to tangible output in FY’20, compared to 7.93% a year earlier.

On the receiving end of business climate hostilities is the manufacturing sector, which tanked by -2.75% y/y in FY’20 (FY’19: 0.77%), driven by increased costs of doing business.

From the dual devaluation of the naira to the deregulation in the downstream sector, the operating environment became tough for manufacturers. 9 out of 13 sub-sectors contracted, with the textile sector being the most affected.

Meanwhile, the cement sector outperformed with a 3.88% y/y growth, attributed to exclusions of key players from the border closure policy, as players could access their export markets through the land borders.

Overall, the performance of the manufacturing sector trailed the underwhelming manufacturing purchasing managers’ index outcomes for 2020.

Base effect supports recovery

Following a bumpy 2020, the economy is on course to recover in 2021, riding on the previous year’s low base. Barring the return of hard lockdown measures, we expect higher growth outcomes in 2021 especially in the mid-quarters (Q2 & Q3), which were the most hit by the pandemic in the previous year.

Consequently, we expect the economy to bounce back by 3.47% y/y in FY’21. However, an unfavourable base from Q1’20 could limit the pace of recovery in the quarter to 0.75% y/y.

The agricultural sector could maintain its positive performance despite the reopening of the borders. The inclusion of key agricultural products in the exclusive list – under the AfCFTA arrangement – could support investments within the sector.

However, adequate measures are required to prevent herder-farmer clashes, ethnic conflicts, and adverse weather conditions from underwhelming agriculture output.

Meanwhile, the ICT sector could continually drive overall GDP growth in the years to come. With a rising demand for technology solutions, the ICT sector could sustain the growth momentum.

We recall media reports of the acquisition of Paystack in Q4’20, which showed the potentials of the sector as a hub of foreign direct investments. However, we note the possible downside risks posed by wanton regulations, which could delay the influx of investments into the sector.

In the financial services sector, we anticipate a milder growth outcome, given the spate of loan restructurings in 2020. A gradual return to business activity could spur the creation of risk assets. However, a cautious lending approach may be prevalent, as banks consider the operating environment of businesses, given the country’s FX conundrum and energy situation.

More specifically, the continued erosion of consumer’s purchasing power – amid rising inflation and Naira pressures – could extend the recession in both the trade and real estate sectors to 2021. The manufacturing sector could recover from pandemic-lows supported by the 2020 low base.

However, the devaluation of the Naira and deregulation in the downstream sector could be pressure points for the sector. The construction sector could record stellar recovery, driven by the early passage of the budget, improved infrastructure spend and 2020 favourable base.

Finally, we anticipate a recovery in the oil sector, driven by improved CAPEX spend; possible easing of output cuts as oil prices extend recovery; the possible passage of the Petroleum Industry Governance Bill (PIGB), which could attract investments in the sector; alongside deregulation in the downstream sector.

Meanwhile, the slower-than-expected pace of negotiations between the U.S. and Iran could further cushion oil prices and possibly induce more capex spend among major oil producers.

Q4’2020 GDP: Positive Surprise as Economy Exits Recession

WSTC Research
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Q4’2020 GDP: Positive Surprise as Economy Exits Recession

The Nigerian economy reported a positive surprise in its latest Q4’2020 GDP performance, as the economy exited recession. Real GDP grew by 0.11% YoY in Q4’2020, after an economic contraction in Q3’2020 (-3.62%) and Q2’2020 (-6.10%).

The consensus expectation was for the economy to exit recession in Q2’2021. Earlier in 2020, the coronavirus pandemic disrupted economic activities due to movement restrictions to contain the virus’ spread.

The downturn in economic activities that followed drove the economy into a recession for the second time in four years. However, unlike the previous recession cycle in 2016, when the economy contracted for five consecutive quarters, the economy declined two straight times before rebounding to growth in Q4’2020.

The growth drivers in Q4’2020 were the Agricultural and Services sectors, which grew by 3.42% YoY and 1.31% YoY, respectively. The Industrial sector declined by 7.30% YoY. Furthermore, Oil GDP declined by 19.76% YoY, while the Non- Oil GDP grew by 1.69% YoY.

CBN’s PMI report for Sept-2020 brandspurng A hint at recession
Photo by Cleyder Duque from Pexels

By sectoral breakdown, the Crop Production sector, Telecommunications sector, Real Estate sector, and Trade sector were the top performers in Q4’2020. On the other hand, the Crude Oil sector, Manufacturing sector, and Finance & Insurance sector were the major laggards.

Sectoral Analysis

Crop Production:

The Crop Production sector grew by 3.68% YoY in Q4’2020, representing the highest growth recorded over the last eight quarters. We note that a low base in Q4’2019 drove the growth in the Crop Production sector. On a quarter-on-quarter (QoQ) basis, the sector declined by 5.83%.

In our view, the QoQ output decline reflected the security and environmental challenges in the major food-producing regions of the economy. The Crop Production sector contributed 24% to the total GDP.

Telecommunications Sector:

The telecommunications sector rode on the positive momentum that was induced by the COVID-19 pandemic. Due to the movement restrictions and lockdown measures, digital services demand rose as households resorted to digital channels to carry out daily activities.

The rise in voice and data traffic drove the output growth in the telecoms sector. The telecoms GDP rose year-on-year by 17.64%, 17.36%, 18.10, and 9.71% in Q4’2020, Q3’2020, Q2’2020, and Q1’2020, respectively. The Telecommunications sector contributed 12% to the total GDP.

Real Estate Sector:

The Real Estate sector rebounded to growth in Q4’2020 after recording a contraction in the preceding six quarters since Q2’2019. In Q4’2020, the sector grew by 2.81% YoY. We attribute the rebound to the low-yield environment.

Based on our assessment, we posit that real estate demand improved as individuals and households sought alternative investments and leveraged the low-interest-rate environment. Typically, a negative relationship often exists between interest rates in the economy and real estate output. The Real Estate sector contributed 6% to the total GDP.

Trade Sector:

Although the trade sector contracted in Q4’2020, the output decline improved to 3.20% YoY, from an output contraction of 12.12% in Q3’2020. On a QoQ basis, the trade sector grew by 22%.

Crude Oil Sector:

The Crude Oil sector worsened in Q4’2020, majorly due to a 22% YoY decline in oil production from an average of 2.00mbpd in Q4’2019 to 1.56mbpd in Q4’2020. On a QoQ basis, daily production lowered by 6.59%.

We attribute the significant decline in oil production to the Organisation of Oil Exporting Countries (OPEC) and its allies’ decision to cut daily production to support the crude oil price.

The oil cut agreement implied a daily production estimate of 1.70mbpd; however, the daily 1.56mbpd output in Q4’2020 possibly suggests an extra cut to compensate for an overproduction Q2’2020.

Manufacturing Sector:

The manufacturing sector recorded a 1.51% output decline in Q4’2020, mainly due to a high base in Q4’2019. On a QoQ basis, the sector output grew by 5.61%. While subsectors within the Manufacturing sector such as cement and food manufacturing rose by 6.59% YoY and 2.15% YoY, respectively in Q4’2020, a 5.55% YoY decline in textile, apparel and footwear subsector dragged the overall Manufacturing sector performance.

Finance & Insurance Sector:

A high-base effect drove the Finance and Insurance sector’s 2.48% output decline in Q4’2020. On a QoQ basis, the sector grew by 26.07%, driven by the low-yield environment and regulatory stance towards boosting private sector credit growth.

On an annual basis, the Nigerian economy (real GDP) declined by 1.92% YoY, on the back of a weak level of economic activities induced by the coronavirus pandemic that took a toll across the economies of the world. Over the last six years between 2014 and 2020, the Nigerian economy real GDP CAGR stood at 0.70%.

Q4'2020 GDP brandspurng Positive Surprise as Economy Exits Recession
Source: NBS, WSTC Research

Implications for the Financial Markets

The Q4’2020 GDP outcome came as a positive surprise, given the consensus expectations of a negative economic growth till at least Q2’2021.

Nonetheless, we note that the economic growth in Q4’2020 was fragile. There is a need to consolidate fiscal and monetary policies further to support the economy to higher growth levels.

In our view, we do not expect to see a material deviation in the financial markets. Although the GDP scorecard was above expectations, we believe that the economic recovery had been factored in the pricing of assets across the financial markets.

Also, we believe that the activities across the financial markets are influenced mainly by other macroeconomic variables such as interest rate and exchange rate. Therefore, we expect to see a muted reaction in the financial market.

Economy Slip Into Recession: Weak Oil Output Dampens Economic Growth Prospects
Economy Slip Into Recession: Weak Oil Output Dampens Economic Growth Prospects – www.wordpress-1516176-5827464.cloudwaysapps.com

Outlook

We revise our GDP estimates and now project a 2.80% GDP growth for FY’2021, from the previous 2.17% projection. We maintain our economic growth drivers to stem from the Information and Communication, Agricultural, and Trade sectors.

We are cautious about the Real Estate sector’s growth sustainability, and we expect to see the continued dampened output in the Manufacturing sector.

Nigeria’s Food Inflation Now 20.57% as Inflation Rate Hits 20.57%

Meristem
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Nigeria’s Food Inflation Now 20.57% as Inflation Rate Hits 20.57%

The National Bureau of Statistics (NBS) reported that consumer prices in the month of January increased by 16.47% YoY from 15.75% YoY in December 2020, slightly higher than our forecast of 16.10% YoY.

The uptrend continues to be sustained by increases in both the food and core indices. Food inflation for the month stood at 20.57%YoY (vs 19.56% in December 2020), while core inflation was at 11.85%YoY (vs 11.37% YoY in December 2020).

The NBS report highlighted increases in prices of Bread and cereals, Potatoes, yam and other tubers, Meat, Fruits, Vegetable, Fish and Oils and Fats as items that pushed the food index higher.

Nigeria: October 2020 Inflation Rate Rises to 14.23% as Food Inflation Jumps to 17.38%

Also, prices of passenger transport by air, Medical services, Hospital services, Passenger transport by road, and Pharmaceutical products were among the top drivers of the core index.

The report corroborates our expectation for inflation trajectory and its drivers, where we highlighted the risks to food and core inflation. We expect this to influence premiums demanded by investors on fixed income instruments.

Food Index Continues Upward Trajectory

As we explained in our inflation expectation report, the rate of consumer price increase has been at worrisome levels, especially for economic growth.

While this should have triggered a policy reaction by the MPC, we note the committee has preferred to focus on supporting economic recovery from the effect of the COVID-19 pandemic. We can clearly see the negative impact of the lingering security challenges in the country’s food-producing regions, as well as structural agricultural value chain bottlenecks, on food prices.

Although the land borders were re-opened in December 2020, the restriction on the importation of certain food items (such as rice and poultry produce), was instrumental in ensuring the uptrend in food prices continued.

Nonetheless, some respite could be expected with clear rules of origin guiding the AfCFTA (especially as it concerns food items) in the event critical food items are favoured for free trade.

A Mix of Factors Keep Core Inflation North

Since the outbreak of the pandemic, transport costs, prices of healthcare services and Pharmaceutical products have been the usual suspects to drive core inflation higher.

However, going forward, airfare charge should see notable moderation following the Federal Government’s exemption of commercial flight tickets from VAT. We also cannot deny the impact of FX liquidity challenges which has kept the prices of production inputs elevated and how the pandemic has impacted the prices of healthcare services and products.

Barring significant FX policy changes, we expect core inflation to keep up the uptrend.

Flour Mills of Nigeria: Impressive Performance across the Business Segments

Brand Spur
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Flour Mills of Nigeria: Impressive Performance across the Business Segments

PAN RESEARCH – Flour Mills of Nigeria (FMN) has been consistently benefiting from the closure of the land borders since August 2019. However, in the middle of December 2020, the Federal Government of Nigeria opened the land borders at Seme, Illela, Maigatari and Mfun.

As expected, the re-opening of the land borders had no adverse impact on the turnover of FMN as revenue increased by 31.14% to ₦555.34 billion in 9M’20/21 (vs. ₦423.48 billion in 9M’19/20).

The improvement in the top-line may be attributed to the benefit derived from the border closure and improved Christmas demand, as all the business segments of the company grew by 25% plus.

Flour Mills Shows an Impressive Topline Performance…Revenue Up by 31.15% Brandspurng1

Mainly as a result of higher sales during the period, the cost of sales increased by 28.55% to ₦482.90 billion (vs. ₦375.65 billion in the corresponding period of the previous year), and this translated to a lower cost-to-sales ratio of 86.95% (vs. 88.71% 9M’19/20).

Mainly as a result of higher salaries, wages and other staff costs, the administrative expenses of the company rose by 6.28% to ₦18.35 billion in 9M’20/21 (vs. ₦17.26 billion reported in 9M’19/20). With the impressive operating performance, EBITDA improved by 64.84% to ₦66.08 billion in 9M’20/21 (vs. ₦40.09 billion in 9M’19/20).

In nine-month to December 2020/21, Flour Mills of Nigeria further optimised the cost of financing and debt levels as net finance costs declined by 6.36% to ₦11.60 billion (vs. ₦12.39 billion in 9M’19/20). With the impressive operating and non-operating performance, profit before tax improved significantly by 92.06% to ₦23.61 billion in 9M’20/21 (vs.

₦12.29 billion in 9M’19/20). However, the company made a higher provision of ₦8.03 billion for tax in 9M’20/21 (vs. ₦4.13 billion in 9M’19/20).

Consequently, Flour Mills of Nigeria’s profit after tax improved significantly by 90.94% to ₦15.58 billion (vs. ₦8.16 billion in 9M’19/20).

Based on the recent figures released, we upgrade our target price to ₦30.63 (from ₦28.50 previously recommended) and maintain a HOLD recommendation.

Fig. 1: Quarterly results highlights

Flour Mills of Nigeria Brandspurng Impressive Performance across the Business SegmentsSource: Bloomberg, PAC Research
Source: Bloomberg, PAC Research

Revenue rises by 31.14% year-on-year, driven by improved demand:

Fifteen days to the end of Flour Mills of Nigeria’s third quarter, the Federal Government of Nigeria opened the land border, and as expected, this had no impact on the turnover of the company as revenue improved significantly by 31.14% to ₦555.34 billion (vs. ₦423.48 billion in 9M’19/20).

The improvement in the top-line could be attributed to impressive performance across all the business segments. Revenue from the food segment improved significantly by 31.21% to ₦343.89 billion in 9M’20/21 (vs. ₦262.10 billion in 9M’19/20), due to improved volume growth in the B2C segment., which translated to 20% volume growth in Pasta and 27% volume growth in Semovita and Golden Vita during the period.

In addition, the revenue of the Sugar segment of the company increased by 33.41% to ₦90.21 billion in 9M’20/21 (vs. ₦67.62 billion in 9M’19/20), due to improved demand for local sugar.

Agro-allied segment improved its revenue by 29.86% to ₦105.59 billion in 9M’20/21 (vs. ₦81.31 billion in 9M’19/20), largely driven by higher volumes in fertilizers and oils & fats. It should be noted that the export revenue from the Agro-allied segment grew by 23% during the period and we expect this to improve the diversification of revenue sources and mitigate FX exposures.

The revenue of the Support segment rose by 25.63% to ₦15.65 billion in 9M’20/21 (vs. ₦12.46 billion in 9M’19/20), driven by strong demand in ABTL (Apapa Bulk Terminal Limited) and Bagco with the scarcity of imported packaging in the market.

We do not expect the re-opening of the land borders to have an adverse impact on the demand for the products of FMN in the next quarter due to restrictions on the importation of some goods into the country. Again, the company has positioned itself for the possible competition from outside the country.

Fig. 6: Revenue – 9M’20-12M’23F (Billion NGN)

Flour Mills of Nigeria Brandspurng Impressive Performance across the Business Segments1
Source: NSE, PAC Research

Cost of sales rises by 28.55% year-on-year due to higher production volumes:

From nine-month to December 20/21, the cost of sales rose significantly by 28.55% to ₦482.90 billion (vs. ₦375.60 billion in nine-month to December 2019/20), driven by higher production volumes.

The higher cost of sales during the period could be mainly attributed to higher material costs as it rose by 31.67% to ₦425.82 billion in 9M’20/21 (9M’19/20: ₦323.39 billion).

Although the cost of sales increased by 28.55%, the cost-to-sales margin declined to 86.95% in 9M’20/21 (9M’19/20: 88.71) and this showed an improvement in the cost minimization strategy of the company.

The improvement in the cost- to-sales margin may be attributed to improved participation of FMN in partnership with Flour Milling Association of Nigeria (FMAN), successful implementation of the various programs such as farmers centre program and seed production program, as well as improved farmer engagement (478 farmers) and pre-season training completed for 2,100 wheat farmers across 15 target LGAs in Kano, Jigawa and Kebbi.

We expect the partnership of Flour Mills of Nigeria with FMAN and farmers to continue to boost the country self-sufficiency in wheat production, thereby improving cost-margin going forward.

Mainly as a result of higher salaries, wages and other staff costs during the period, selling & distribution and administrative expenses increased by 5.53% and 6.28% to ₦6.76 billion (9M’19/20: ₦6.40 billion) and ₦18.35 billion (9M’19/20: ₦17.62 billion) respectively in 9M’20/21.

Fig. 7: Revenue, COS to Rev. and GP Margin – 9M’20 – 12M’23F

Flour Mills of Nigeria Brandspurng Impressive Performance across the Business Segments2
Source: NSE, PAC Research

With impressive performance across the board, PBT improves significantly by 92.06% year-on-year:

During the period under review, Flour Mills of Nigeria Plc reported impressive figures for non-operating activity as net finance costs fell by 6.36% to ₦11.60 billion (vs. ₦12.39 billion in the corresponding period of the previous year), as FMN continue to optimize the cost of financing and debt levels.

With an impressive performance in operating and non-operating activities of the company, profit before tax improved significantly by 92.06% to ₦23.61 billion in 9M’20/21 (vs. ₦12.29 billion in 9M’19/20).

However, Flour Mills of Nigeria made a higher provision of ₦8.03 billion for tax during the period (vs. ₦4.13 billion reported in the corresponding period of the previous year).

Consequently, profit after tax increased by 90.94% to ₦15.58 billion in 9M’20/21, from ₦8.16 billion recorded in 9M’19/20, and this translated to a trailing EPS of ₦4.58 during the period.

Fig. 8: PBT, PAT and Tax Margin – 9M’20-12M’23F

Flour Mills of Nigeria Brandspurng Impressive Performance across the Business Segments3
Source: NSE, PAC Research

Balance sheet remains strong and solid; Expectation of improved dividend in FY’21:

Flour Mills of Nigeria Plc continued with the impressive balance sheet in the third quarter of 20/21 as net assets increased by 7.43% to ₦165.66 billion (vs. ₦154.21 in the second quarter of 2019/20).

This was majorly boosted by the significant improvement in the total assets of the company, which improved by 21.75% to ₦493.16 billion in the third quarter of 2020/21 (vs. ₦405.04 billion in the second quarter of 2019/20).

The improvement in the total asset was mainly driven by a significant increase in cash & cash equivalents and inventories. The increase in cash & cash equivalents could be attributed to the issuance of the N30bn bond in December 2020.

However, the total liabilities of the company rose by 30.56% to ₦327.50 billion in Q3’20/21 (vs. ₦250.84 billion in Q2’19/20), due to a notable increase in the long term borrowing, customer deposits, trades & other payables, among others.

Consequently, the net assets per share (NAPS) improved to ₦40.40 in Q3’20/21 (vs. ₦37.61 in Q2’19/20). With the improved balance sheet and impressive operating performance, we expect improved dividend payment (see fig. 9) from the company in the full year of 2021.

Fig. 9: Dividend Per Share and Dividend Yield – FY’19-FY’23F

Flour Mills of Nigeria Brandspurng Impressive Performance across the Business Segments4
Source: NSE, PAC Research

Fig. 10: Total Liabilities Vs Net Asset in Q3’20/21

Flour Mills of Nigeria Brandspurng Impressive Performance across the Business Segments5
Source: NSE, PAC Research

Valuation

Our valuation puts the target price of the stock at ₦30.63, representing an increase of 4.70% from the current market price of ₦29.25. In arriving at the target price, we employed a discounted free cash flow methodology.

Consequently, we maintain a HOLD recommendation on the stock of the company. Our valuation and forecasts considered several factors (both quantitative and qualitative) among which are; the previous financial reports of the company, the current figures released by the company and the outlook from the management.

Fig. 11: Share Price History

Flour Mills of Nigeria Brandspurng Impressive Performance across the Business Segments6
Source: NSE, PAC Research

Naira Weakens Against Greenback at I&E Window, BDC and Parallel Markets…

Cowry Research
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Naira Weakens Against Greenback at I&E Window, BDC and Parallel Markets…

In the just concluded week, Naira shed weight against the USD at the Investors and Exporters window, Bureau De Change market and the parallel (‘black’) market by 1.32%, 1.50% and 1.06% to close at N410.00/USD, N474.00/USD and N478.00/USD respectively.

However, NGN/USD exchange rate closed flat at N380.69/USD at the Interbank Foreign Exchange market amid weekly injections of USD210 million by CBN into the forex market: USD100 million was allocated to Wholesale Secondary Market Intervention Sales (SMIS), USD55 million was allocated to Small and Medium Scale Enterprises and USD55 million was sold for invisible.

Naira Gains against the USD at the Bureau De Change, Parallel (“black”) Markets Brandspurng
Afolabi Sotunde Illustration Naira

Meanwhile, despite the sustained rise in Brent crude oil prices, the external reserves fell w-o-w by 0.92% to USD35.47 billion as of Thursday, February 18, 2021.

Hence, the Naira/USD exchange rate weakened for all of the foreign exchange forward contracts: 1 month, 2 months, 3 months, 6 months and 12 months rates rose by 1.50%, 1.59%, 1.42% and 0.96% and 0.27% respectively to close at N413.96/USD, N418.21/USD, N421.12/USD, N429.29/USD and N443.14/USD. Meanwhile, the spot rate remained flattish at N379.00/USD.

In the new week, in spite of CBN’s attempt to re-engage foreign portfolio investors by higher interest rates, we expect Naira/USD to depreciate further at the I&E FX Window given the pressure on the external reserves and with forwarding fx rates being priced higher.

Nigeria Exits Recession by 0.11% Rise in Q4 ‘20 Real GDP; Records 16.47% Inflation in Jan ‘21…

Cowry Research
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Nigeria Exits Recession by 0.11% Rise in Q4 ‘20 Real GDP; Records 16.47% Inflation in Jan ‘21…

In the just concluded week, freshly released data from the National Bureau of Statistics showed Nigeria exited recession in the last quarter of 2020 having printed a year-on-year (y-o-y) real output growth rate of 0.11% to N19.55 trillion (or USD122.44 billion) as lockdown measures were significantly eased, allowing households and business to resume economic activities; and in spite of the anti-SARS protests in several parts of the country.

This is in addition to the several billions of Naira in economic stimulus packages provided by the monetary and fiscal authorities to help households and businesses cope with the ravaging effect of COVID-19.

Traders' Voice… A Recession, For How Long Brandspurng

Sector-wise, the exit was propelled essentially by a 1.69% growth in the non-oil sector; with the Information & Communication, Agricultural and Real Estate sectors registering the biggest growth rates of 14.95%, 3.42% and 2.81% respectively.

The oil & gas sector, however, saw a 19.76% y-o-y decline in real output to N1.15 trillion (or USD7.63 billion) as average daily oil production fell quarter-on-quarter (q-o-q) by 6.6% to 1.56 million barrels per day (mbpd) amid production cuts imposed by Opec+.

Nigeria Exits Recession by 0.11% Rise in Q4 ‘20 Real GDP; Records 16.47% Inflation in Jan ‘21 brandspurng
Source: NBS, US EIA, Cowry Research

For full-year 2020, real GDP declined y-o-y by 1.92% to N70.01 trillion (or USD465.85 billion); with the non-oil sector moderating by 1.25% to N64.30 trillion (or USD427.82 billion) and the oil & gas sector plunging by 8.89% to N5.7 trillion (or USD38.01 billion).

Information & Communication and Financial services sectors saw the biggest annual growth rates of 13.18% and 9.37% respectively while the Agricultural sector, the biggest contributor to real GDP at 26.31%, grew by 2.17%.

In a related development, headline inflation rose to 16.47% in January 2021 (higher than 15.75% printed in December 2020). The increase in the inflation rate was caused by a persistent increase in average food prices and non-food prices.

Food inflation spiked to 20.57% (from 19.56% in December) driven by rising in prices of bread, cereals, potatoes, yams and other tubers, meat, fruits among others.

Imported food index also upped to 16.70% (higher than 16.64% in December) despite the appreciation of the Naira at the parallel market – specifically, two months moving average foreign exchange rates at the Parallel market fell y-o-y by 0.02% to N474.70/USD in January 2021.

Core inflation climbed to 11.85% (from 11.37% in December) as healthcare and transport costs continued to surge at their fastest annual rates in short term sequence to 14.55% and 13.55% respectively amid the rising cost of medical services, hospital services, pharmaceutical products and paramedical services as well as fuel costs for passenger transport.

Urban and rural annual inflation rates rose higher to 17.03% and 15.92% respectively.

On a monthly basis, headline inflation moderated to 1.49% in January (from 1.61% in December) driven by a slower increase in food inflation to 1.83% (from 2.05% in December) as the yuletide seasonal effect came to an end in January and as the land borders were re-opened.

However, Core inflation rose to 1.26% ( from 1.10%) amid a monthly increase cost of petrol and healthcare services.

We believe Nigeria’s economy remains well on track to see a convincing recovery amid a return to economic activities, the administration of the COVID-19 vaccine, strong crude oil prices and the numerous stimulus packages. We nevertheless expect the Nigerian authorities to take necessary measures to strengthen the fragile recovery.
Meanwhile, we expect the general price level to increase further in the next few months as the sowing season begins when food stockpiles are expected to decline even amid the disruptive insecurity in food-producing parts of Northern Nigeria.
Also, core inflation is expected to continue its ascent, driven by higher pump prices given the sustained rally in crude oil prices.

Inflation crosses 16.4% to a 4-yr high

FDC
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Inflation crosses 16.4% to a 4-yr high

Once again, Nigeria’s headline inflation data came in higher than expected, rising to record levels. January’s headline inflation increased by 0.72% to 16.47%, from December’s figure (15.75%) and 0.27% above our forecast (16.2%).

This is the 17th consecutive monthly increase and the highest level in nearly four years.

The monthly inflation rate slowed to 1.49% (annualized at 19.59%) from 1.61% (annualized at 21.11%) in December. Typically, in January, consumer prices fall due to a reduced level of liquidity in the system.

Inflation crosses 16.4% to a 4-yr high brandspurng

This coupled with a low purchasing power, arising from the post covid effect, has affected consumers’ real purchasing power. In addition, the reopening of four land borders helped to boost the supply of commodities.

Inflation Breakdown

Food Inflation Crosses 20% – The Major Culprit

A further breakdown of the report showed that food inflation increased at a faster pace of 1.01% to 20.57% compared to core inflation which increased by 0.48% to 11.85%. This was driven by an increase in imported food inflation, which increased to 16.7% from 16.64% in December.

Headline inflation rate jumps to 13.71% yy in September-2020 Brandspurng
Photo by Eva Blue

However, when compared to the pace of increase in December (1.26%), the gradient seems to be flattening for the food index. This corroborates the price decline recorded in key commodities such as tomatoes, pepper, and rice.

According to the NBS, the commodities that recorded the highest price increases were bread and cereals, potatoes, yam and other tubers.

Core inflation curve getting steeper on increased transport fares and health expenses

Unlike the food index, the gradient for the core inflation is getting steeper, as the sub-index increased at a faster pace of 0.48% compared to the 0.32% recorded in December. The sharper rate of increase in the core index was driven by higher prices of passenger transport by air, medical services, hospital services and passenger transport by road.

This is not surprising given the increase in demand for transport, as more businesses and schools have reopened. In addition, the increase in confirmed covid cases in Nigeria (146,928 as of February 15) has spurred the demand for more medical services.

With oil prices trading above $60pb and the convergence of the exchange rate around the Investors & Exporters (IE) window towards N410/$, we expect an increase in the landing cost of refined petrol products.

This will lead to a further increase in petrol prices. Already queues are forming at the petrol stations, as fuel marketers hoard their petrol products in anticipation of a petrol price hike. The current price of fuel is N165/litre.

Urban and rural sub-indices maintain the upward trend

The urban and rural indices also increased, moving in tandem with the headline inflation. The urban sub-index increased to 17.03% from 16.33%, while the rural sub-index increased to 15.92% from 15.2% in December.

Month on month, both sub-indices increased at a slower pace of 1.52% (urban) and 1.46% (rural) compared to 1.65% and 1.58% respectively in December.

State-by-State Analysis

The states with the highest inflation rates were Kogi (21.38%), Oyo (20.17%) and Bauchi (19.52%) while the states with the lowest inflation rates were Kwara (13.96%), Abuja (12.96%) and Cross River (12.22%). Kogi state has been a victim of logistics problems of bad roads and disruption to the supply chain.

Inflation crosses 16.4% to a 4-yr high brandspurng1

SSA Regional Trend

A review of some of Nigeria’s African peers showed a mixed trend in the inflation numbers. Of the 7 countries in the table below, four recorded an increase in their January inflation numbers, due to higher food prices.

Two recorded a decline, while South Africa, whose January numbers are not out, also recorded a decline in its December figure. All the countries maintained the status quo at their first MPC meeting of the year.

Inflation crosses 16.4% to a 4-yr high brandspurng2

Outlook

The rate of inflation is expected to slow as interest rates rise and consumption declines. Also, the securitization of the FGN debt, estimated at N11trn, will reduce liquidity in the financial system.

Already, short-term interest rates are on the increase, trading at an average of 8.53% (OMO bills4). This trend is likely to continue especially with the convergence of the naira at the IEFX rate towards N410/$, which would further reduce the excess liquidity in the system.

However, inflation-stoking factors persist. Petrol prices are likely to increase further towards N200/litre on higher oil prices. In addition, as we gradually enter the planting season, this coupled with rising insecurity across the country, will lead to supply shortages and keep food prices elevated.

We expect the DMO and CBN to persist with nudging interest rates higher, squeezing liquidity out of the system. This will help dampen demand and keep prices flat in the near term.

IITA seeks to build the next generation of female scientists and leaders

Esan Bolaji
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IITA seeks to build the next generation of female scientists and leaders

19 February 2021 – On 11 February, the Women in Research and Science (WIRES) held a 13-hour marathon webinar to celebrate the International Day of Women and Girls in Science.

The event themed “CGIAR Women in Science: Shaping the world through science and innovation,” assembled CGIAR centres to each give an hour presentation. Besides hearing about some cutting-edge science, participants engaged directly with some of CGIAR’s finest women scientists and speakers.

IITA seeks to build the next generation of female scientists and leaders brandspurng
The IITA power hour featured women scientists from different Institute hubs and stations across Africa. | www.wordpress-1516176-5827464.cloudwaysapps.com

IITA joined WIRES to showcase how CGIAR women scientists are transforming how we look at food, land, and water systems worldwide. Apart from celebrating its female scientists, IITA also sought to train and attract young girls into science through programs like IITA Youth Agripreneurs (IYA) and Start Them Early Program (STEP).

IITA Women’s Group also partners in the Raising Girls Ambition (RAGA) program to sponsor young girls in science careers.

Director R4D, Central Africa and Natural Resource Management, Bernard Vanlauwe, gave the keynote address during the IITA power hour, moderated by Sylvia Oyinlola, Head Administration of Western Africa Hub.

Vanlauwe focused on the importance of diversity and highlighted three points—first, diversity in research leads to diverse science solutions; hence, both men and women scientists are important and needed.

Secondly, he stressed the need for every centre to promote gender diversity starting within their organization. Finally, Vanlauwe stated that science careers could be very rewarding for women, looking at female scientists within and outside IITA.

Speaking on the contribution of women scientists to agriculture through IITA, Leena Tripathi, Plant Biotechnologist, looked at the potentials biotechnology has to transform agriculture.

She emphasized that genome editing tools are becoming popular molecular tools of choice for crop improvement and that her team in Kenya has trained quite a number of women and men researchers on the technology.

Mercy Diebiru-Ojo, Assistant Specialist in Cassava Seed Systems, shared IITA’s innovations to aid the rapid multiplication of clonal crops, including Semi-Autotrophic Hydroponics (SAH) for cassava and aeroponics for yam. “Food security is majorly dependent on seed systems, but there is the challenge of getting planting materials,” she said.

Delphine Amah, Regional Breeding Manager, spoke on how IITA has turned challenges in plantain breeding into opportunities. “Our contribution in resolving the challenges of pests and diseases in plantain production has improved food security in Africa,” she noted.

Busie Maziya-Dixon, Food and Nutrition Scientist, explained the importance of knowing the types and amounts of food consumed in different locations of Africa, stating that most diseases are related to diet. “Because we are what we eat, knowing what people eat, the quantity and nutritional quality of the food, will help us have the right interventions,” she said.

Emphasizing the significance of mentorship to building a career in science, Valentine Nakato, a Postdoctoral fellow in Plant Pathology, spoke on how to fit the puzzle pieces together in the world of plant science research.

She mentioned the need to be mentored by senior scientists and mentoring upcoming scientists. “I have an ongoing research project where I am being mentored by senior scientists and I am also mentoring the young scientist within my team. So I am both a mentor and a mentee,” she said.

Juliet Akello, Plant Pathologist, recalled how the hunger she experienced in the 90s fueled her passion to find a solution to hunger and malnutrition in Africa. She highlighted how the experience also inspired her to mentor young girls to build a career in science. “I encourage senior scientists also to take up the challenge to nurture young scientists.”

Also, Sika Gbegbelegbe, Agricultural Economist (Foresight Modeler), looked at what the future holds and how science can help. According to her, “The food security in Africa can be improved by nurturing young people, including girls, to take up a science career.”

Wrapping up the presentations, Elizabeth Parkes, HarvestPlus Cassava Breeder, handled the question and answer session while Gundula Fischer, Social Scientist and Gender Expert, gave the closing remarks.

Fischer mentioned that women scientists network to use the best talent and achieve development goals, but there is still a long way to go to include more women and girls in science, and building their interest and mentoring them to improve and sustain inclusion and diversity.

NSE-ASI Closes The Week In Red, Market Declines by 0.06%

PFI Capital
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NSE-ASI Closes The Week In Red, Market Declines by 0.06%

This week closed with the NSE in the red. The All-Share Index further declined from yesterday’s close, from 40,212.19 to 40,186.70, recording a change of 0.06%. The market capitalisation sits at 21.03 trillion naira. This marks a 3.19% decline from last week’s figures. Year-to-date the market is down by 0.21%.

The Banking and Consumer Goods sectors recorded growth in today’s trading session, while the Insurance, Oil & Gas, and Industrial sectors declined. Banking was up by 1.95%, with price growth in stocks like FIDELITYBK (5.53%) and UBA (3.75%), while the Consumer Goods sector increased by 0.01%.

Meanwhile, the Insurance sector declined by 1.83%, while the Oil & Gas and Industrial sectors declined by 1.82% and 0.15% respectively.

Here is a list of all Microfinance Banks’ USSD Codes in Nigeria. MTN Nigeria & 14 others led local bourse to sustain previous positive sentiment, gains 0.38%

Investors’ sentiment was negative today but slightly improved from yesterday. Market breadth was 0.90x, up from yesterday’s 0.33x, as only 18 while 20 stocks declined.

Fixed Income Market

FGN Bond yields generally trended upwards. The yield of the FGN-APR-2023 bond increased by 31 bps to 7.7%, while the yield of the FGN-JAN-2026 remained at 9.60%, and the FGN-JUL-2030 bond yield increased by 19 bps to 10.79%.

Treasury bills yields remain unchanged across 92-day, 182-day and 364-day tenors at 0.76%, 1.96% and 2.07% respectively.

NSE-ASI Closes The Week In Red, Market Declines by 0.06% Brandspurng

MARKET SNAPSHOT

  • NSE-ASI Closes The Week In Red, Market Declines by 0.06%
  • Upward Trend in FGN Bond Yileds
  • Dollar Weakens For a Second Day Versus Most Major Currencies
  • Crude Slips With Texas Oil Wells Seen Restarting Output
  • Naira remains stable at N480/$

Oil Prices Fall Back Below $60

Esan Bolaji
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Oil Prices Fall Back Below $60

Oil prices – February 19th, 2021 – The Texas electricity crisis is easing, but the outages, damage, and human toll were historic. As of Friday morning, Texas grid operator ERCOT said that it would be emerging from “emergency conditions” later in the day. After a crazy week, WTI fell just a bit but held onto gains close to $60, a price not seen since January 2020. 

Texas outage eases. As of Tuesday, around 45 gigawatts of electricity generation from renewables, coal, and natural gas were offline. More than 4 million people lost power. By Friday, most of those people saw power restored.

Energy Stocks Soar And Oil Prices Climb

The crisis has once again focused attention on several grid policy questions – the lack of weatherization at Texas power generation assets, the lack of a capacity market, and the state grid’s isolation from the rest of the country.

U.S. oil production impacted. Around 4 mb/d of U.S. oil production was sidelined due to power outages, wellhead freeze overs, and other equipment failures. Most of the outages were in the Permian Basin. Restarting frozen or shuttered wells is not necessarily straightforward, and some restarts could take weeks.

Texas bans shipment of natural gas out of state. Texas Governor Greg Abbott took the drastic move of banning the export of natural gas from the state in order to conserve supply.

The move is highly controversial and potentially illegal, although most analysts note that any legal challenges would be moot because the order will have expired by the time a judge reviews them. The Governor also personally sent requests to several LNG exporters to halt operations.

LNG cargoes cancelled. At least 10 LNG cargoes were cancelled because of the grid crisis, according to Bloomberg.

Refinery restarts could take weeks. Four of Texas’ largest oil refineries saw widespread damage from the cold snap and could take weeks to repair, according to Bloomberg. The outages could reduce demand for crude, but cut the supply of refined products.

The four refineries include ExxonMobil’s (NYSE: XOM) Baytown and Beaumont plants, Marathon Petroleum’s (NYSE: MPC) Galveston Bay refinery, and Total’s (NYSE: TOT) Port Arthur facility. The result could be $3-per-gallon gasoline by May.

The U.S. wants to reopen talks with Iran. The U.S. government said it would accept an invitation from the EU to hold talks with Iran. Iran did not exactly jump at the news, saying it would “immediately reverse” recent actions on its nuclear program, but only after the U.S. lifted sanctions.

Gas companies hit “jackpot” on Texas deep freeze. While Texans are struggling to keep the lights and the heating on, gas producers in the Lone Star state, or at least those whose wellheads did not freeze, are having a blast.

Saudi Arabia to increase output. Saudi Arabia is poised to reverse its 1-mb/d voluntary production cut in the coming weeks, according to the Wall Street Journal, with the returned barrels hitting the market in April.

“A Saudi increase in production…makes perfect sense given the tightness that is starting to emerge in the market,” Ole Hansen, head of the commodity strategy at London-based Saxo Bank, told the WSJ. “The market will probably take it quite well.”

Shell to sell Alberta assets for $900 million. Royal Dutch Shell (NYSE: RDS.A) will sell its Duvernay shale assets in Alberta for $900 million to Crescent Point Energy Corp. (TSE: CPG).

Maersk plans carbon-neutral shipping containers. Shipping giant A.P. Moller Maersk A/S is accelerating plans to transition to carbon-neutral operations, including plans to add the first container ship running on biofuels.

U.S. shale sticks with restraint, for now. With WTI surging to $60 per barrel, the U.S. shale industry could be in a better financial position than previously expected. Recent comments from shale executives suggest that drillers won’t return to aggressive spending plans, instead of focusing on cash generation.

Canadian gas drilling on the rise. Canadian shale gas drilling has increased rapidly this year, and Canadian gas exports to the U.S. is also on the rise. Canada’s drillers are hoping to capture more market share as U.S. drillers have cut back.

Texas freeze raises the cost of charging a Tesla to $900. The electricity shortage in Texas amid the cold snap has sent spot electricity prices soaring so much that the surge in power prices equals a cost of $900 for charging a Tesla.

$100 oil possible on commodity supercycle. Several investment bank analysts say that oil could spike to $100 per barrel because we could be at the beginning of a new commodity supercycle.

Egypt to restart a second LNG plant. Egypt is close to restarting a second LNG facility after being closed for eight years. The restart boosts Egypt’s hopes of developing a major natural gas hub and LNG export industry.

Shell’s Nigerian accounts frozen in a court dispute. A Nigerian court restricted Royal Dutch Shell’s (NYSE: RDS.A) access to its bank accounts in the country over a years-long legal dispute.

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