Naira depreciates further by 7.7%
Petroleum stocks bounce back
Money market yields in mixed reaction
Financial markets across segments have reacted to the quantum increase in the price of petrol with foreign exchange rate and petroleum stocks in the upbeat while money market rates moved in mixed direction.
In the foreign exchange market the Naira extended its losses against the US Dollar on Friday following continued demand pressure which had started a day earlier on the heels of the pump price adjustment closing at N350/ USD1, bringing its total depreciation to 7.7 per cent in the first two trading days after the pump price adjustment.
Though analysts had also fingered the speculative spur arising from federal government’s hint that the official foreign exchange market would be overhauled for flexibility, currency traders said there has been sudden scarcity of the US Dollar, apparently due to sudden surge in demand coming from oil marketers setting out to import the products. Government had announced a liberalization of petroleum imports on Wednesday, directing fuel marketers to import products sourcing the foreign currency payments from sources other than the official foreign exchange market controlled by the Central Bank of Nigeria, CBN.
On the official market, the exchange rate is quoted at N197.50/ USD1, and with last Friday’s rate in the unofficial market segment the parallel market premium has now widened to over 72 per cent, about one of the highest in the world. Reacting to the development analysts at United Capital Plc, a Lagos based investment house, said “the autonomous dollar supply has always been available but the major bottle neck prior to now appears to be more around pricing with most holders preferring to sell at the parallel market rate, while buyers understandably favor the official window.
With oil marketers now forced to look at the parallel market, we believe potential supply at that market is robust enough to take-in increased demand at current price”. Consequently, the present sharp depreciation and the wide premium on parallel market, according to them, will be short-lived. Also reacting to the forex market developments on the heels of petroleum marketing liberalisation analysts at Vetiva Capital Limited, another Lagos based investment house, said “we are aware of the arrangement between oil marketing majors and related upstream companies but anticipate that as other independents enter the market, the currency could come under pressure outside of the official window and expect the premium between both markets to further widen.
“We liken this to a pseudo-devaluation or possibly, the takeoff of a formal two-tier foreign exchange market”.
In the stock market, investors swopped on the stocks of oil marketing companies leading to their domination of the top gainers chart. Aside Nestle Nigeria Plc the top five gainers in the Nigerian Stock Exchange as at last weekend were all major petroleum product marketers, with Mobil Oil Nigeria, Total Oil Nigeria, and Forte Oil, appreciating by N14.34, N10.40 and N4.50 to close at N175.00, N170.00 and N225.00 per share respectively.
The other top five gainer was Seplat Petroleum which is not into fuel marketing. Reviewing the impact of last week’s liberalization on the stocks of petroleum marketing sub-sector, analysts at Vetiva Capital said “for years, Downstream Majors had lobbied for the deregulation of the sector in a bid to rid themselves of huge subsidy receivables that had stifled profitability.
We think the liberalisation of the sector will allow Majors leverage economies of scale to dominate the fuel import market. “We note that in the revised pricing template of the Petroleum Products Pricing and Regulatory Agency, PPPRA, retailer, transporter and dealer margins were increased from N5.00, N3.05 and N1.95 to N6.00, N3.36 and N2.36 respectively.
“Following from this, we expect to make upward revisions to our coverage”.
Consequently Vetiva analysts recommended the following target stock prices: Total Oil (TP: N208.77 BUY), Mobile Oil (TP: N150.46 SELL) and OANDO (Under Review). Vetiva said it expects consensus ratings on stocks not covered by its ratings which include Forte Oil, Conoil and MRS, to be revised upward as well. In the money market attention was on fixed income segment where, in the Nigerian interbank treasury bills, true yields (NITTY) moved in mixed directions. Yields on 1 month and 3 months maturities increased to 4.63% and 8.16% respectively, while 6 months and 12 months yields fell to 10.04% and 12.97% respectively. Meanwhile, Nigerian interbank rates increased across all tenor buckets on sustained financial system liquidity strain. Nigerian Interbank Offer Rate, NIBOR, for overnight funds, 3 months and 6 months increased to 0.96%, 0.27% and 0.15% respectively. Analysts see yields likely to continue upwards in the near term.