regency research...regency research monday february 15, 2021 the importance of inflation in our...

REGENCY RESEARCH

Monday February 15, 2021

The Importance of Inflation in our Economy Recently the Monetary Policy Council of the Central Bank of Nigeria (CBN) concluded its two-day meeting by leaving its key policy rate unchanged at 11.50%. After two cuts during 2020 that demonstrated the CBN's resolve to deal with recession0, the announcement was not a surprise. And, as ex-pected, the official communique had plenty to say about inflation which reached 15.75% year-on-year in December. There is no doubt that inflation is damaging businesses and households: the key question is what is driving it and what can be done to alter its course over the coming months. Why inflation is important The Monetary Policy Council (MPC) of the CBN left its monetary policy rate (MPR) unchanged at 11.50%. This came against a background of uncertainty about the timing of Nigeria's exit from recession; and against a background of headline inflation (for December 2020) of 15.75% year-on-year (y/y). To have both high inflation and a recession is a painful combination, and the MPC's official communique acknowledged this with the statement that "the economy is currently in a stagflationary environment." To the question as to which to prioritize, price stability or growth, the communique's answer was, unequivocally, to "continue pursuing price stability in growing the econo-my," i.e. growth. The MPC cut its policy rate as the economy went into recession. But its work in reducing market interest rates both preceded the recession (and the onset of the COVID-19 pandemic) and was much more dramatic. The yield on a 1-year T-bill fell from 5.40% in January 2020 to 0.15% in early December (and the dramatic downtrend started in October 2019). Bank credit grew strongly in 2020, having flat lined during the first half of 2019. This suggests a large flow of liquidity into a contracting economy. The MPC's communique, to be fair, includes some optimistic statements about inflation, notably that it expects it to decline in the near term "as the economy's negative output gap closes." Nevertheless, there has already been considerable damage done to company balance sheets (erosion of equity through inflation) and household finances. A resumption of GDP growth cannot come too soon. On the subject of managing inflation, the MPC is undoubtedly right to in-clude monetary factors among its causes, and most people would agree that structural factors are critical, too, especially during times of insecurity. De-preciation of exchange rates is also an important factor. Another argument against putting a lot of emphasis on monetary factors is that the financial sector in Nigeria is small relative to the economy as a whole, with outstand-ing commercial bank credit at around 10.0% of GDP. Therefore, an expansion in credit may not have the same inflationary effect in Nigeria as it would in an economy where credit is much more widespread to begin with. On the other hand, bank credit to the private sector has been rising at the same time as inflation has been going up. Commercial bank credit to the private sector did not grow in the first half of 2019, then rose as the loan-to-deposit ratio (which stipulates the percentage of customer deposits that banks must reach in terms of loans) was imposed from mid-2019 onwards. The LDR was originally set at 60.0% and was later raised to 65.0%. As market interest rates fell during 2020 it became easier to expand credit and companies that were hit by the recession were eager to take it. It is true to say that the LDR policy has worked, and fair to argue that a combination of the LDR policy and falling interest rates likely prevented the recession being worse that it has been. However, it would also be reasonable to think that credit expan-sion has been a contributory factor in inflation. If this is the case, then the current environment of rising market interest rates may slow the growth of credit over the coming months and, possibly, inflation may then moderate with a lag of between two to three months. Capital Market Summary .

Analysis of the market activity in the week ended February 12, 2021

shows a continued bearish sentiment on the Nigerian Stock Market

as the market witnessed another sales of stock bargain in most of

the sectors of the market. The Nigerian Stock Market thereby

closed on a negative note with All Share Index and market capitali-

zation of listed equities depreciating by 3.04% each from the open-

ing figures of 41,709.09 and N21,819 trillion to close at 40,439.85

and N21,156 trillion respectively. Its year to date (YTD) return

stands at +0.42%.

Regency Research | Weekly Market Report

Source: Central Bank of Nigeria (CBN)

Source: Nigerian Stock Exchange (NSE) & Regency Research


WEEKLY MARKET REPORT

MACROECONOMIC INDICATORS

ALL SHARE INDEX & MKT. CAP

PERFORMANCE OF THE NSE INDICES

Committed to grow your wealth 1

GDP Growth Rate -3.62% September 30. , 2020

Un-employment Rate 27.10% September 30, 2020

Broad Money Supply (M2) N31,763,941.95 rn September 30, 2020

Money Supply (M1) N11,587,048.45rn September 30, 2020

Consumer Price Index (YOY) 15.75% January 13, 2021

Monetary Policy Rate (MPR) 11.50% November 24, 2020

Cash Reserve Ratio (CRR) 27.50% November 24,, 2020

Nigeria’s Bonny Light Crude Oil US$61.34/Bar February 11, 2021

Nigeria’s Gross External Re-

serves

US$36.304Bn January 14, 2021


Domestic Market Review

GAINERS FOR THE WEEK

Sixteen stocks appreciated in price during the

week, as against Twenty two stocks in pre-

ceding week. The top ten price gainers dur-

ing the week were:

LOSERS FOR THE WEEK

Fifty Five Stocks depreciated in price during

the week as against Sixty stocks recorded in

the preceding week. The top ten price losers

during the week were:

EXCHANGE TRADED PRODUCTS (ETP)

A total of 1,393,820 units of Exchange Traded

Products valued at n5,162,578,398.90 in 36

deals were traded during the week com-

pared with 238,481 units of Exchange Traded

Products valued at N1,799,180,055.30 traded

last week in 38 deals.

BOND MARKET

A total of 46,721 units of FGN Bond valued

at N60,054,064.77 in 77 deals were taded

during the week compared with 8,002 units

of FGN Bond valued at N8,171,276.82 trad-

ed last week in 7 deals

Regency Research | Weekly Market Report 2


MARKET SUMMARY

TOP TEN GAINERS

TOP TEN LOSERS

STOCK MARKET REPORT

Committed to grow your wealth

Curr. Week Previous

week

% Change

Volume 2,683 2,767 -3.04

Value N= N=23,662 B N=29,685 B -20.29

Total Gain 16 22 -27.27

Total Loss 55 60 8.33

Deals 27,844 31,380 -11.27

All Share Index 40,439.85 41,709.09 -3.04%

Market Cap. N=21,156

Trillion

N=21,819

Trillion

-3.04%


Domestic Market Review

OUTLOOK AND STOCK RECOMMENDATION FOR THE WEEK

15/02/21-19/02/2021)

Activities on the Nigerian Stock Market continued with the

bearish sentiment during the week under review. The NSE ASI

depreciated by 3.04% during the week compared with 1.66%

depreciation in the previous week. We expect that the bearish

trend will reverse in the coming week, as the year has ended,

corporate organizations have started releasing their year end

results. Also, the stock prices are still within lower level and are

attractive. Furthermore, the retaining of policy parameters by

MPC , and the limited opportunities for high yields in other as-

set classes due to macroeconomic challenges may sustain the

bullish trend. We expect investor sentiment and market

breadth to continue to remain positive in the equities market.

We advise investors to trade in only fundamentally justified

stocks as the weak macro environment remains a significant

headwind for listed companies. In the light of above we recom-

mend for purchase during the week. The stocks are: FLOUR

MILLS PLC, ZENITH BANK, UBA, GLAXOSMITHKLINE BEECHAM,

LARFAGE, FIDELITY, UACN and FBNH



STOCK MARKET REPORT

FINANCIAL HIGHLIGHTS OF RECOMMENDED STOCKS

RECOMMENDED STOCKS TO BUY


Company Result Turnover PAT

Current

N=bill

Last yr

N=bil

Current

N=bill Last yr N=bil Curr EPS Last Div. Paid FIDELITY PLC 3rd Qter

30/06/2020 49.28 59.40 9.10 10.56 N0.31

N0.15 pd as final

div. in 2019 FY

LARFAGE

WAPCO

3rd qter

30/09/2020 179.877 163.067 28.20 120.19 N1.75

N1 div. was paid in

2019 FY

FBNH PLC 3rd Qter

30/06/2020 439 395 68.16 51.74 N1.87

N0.38 pd as final

dividend in 2019 FY

GLAXO PLC 3rd Qter

30/9/2020 16.45 15.92 0.434 0.427 N0.36

N0.50 div. paid in

2019FY

FLOUR

MILLS PLC 3RD QTER

31/12/2020 555.34 423.48 15.58 8.16 N3.85

N1.40 div. pd in

2020 year end

ZENITH

BANK 3rd Qter 308.98 662.25 159.32 208.84 N5.07

N2.50 div. pd in

2019 FY

UBA

3rd Qter 454 77.13 81.63 N2.16

N0.80 div. pd in

2019 FY Year

Stocks Current

Price

Max. entry

Price

N=

6-mths

Target

price

%

Change

ZENITH 25.00 27.00 30.00 20.00

UBA 8.20 9.00 12.00 46.34

FLOUR

MILLS

30.00 35.00 40.00 33.33

GLAXO 6.95 8.00 10.00 43.88

LARFAGE 24.75 30.00 40.00 61.62

FBNH 7.25 10.00 12.00 65.52

FIDELITY 2.40 3.00 4.00 66.67

UACN 7.80 8.00 10 28.21




STOCK MARKET REPORT

INVESTMENT BASICS


MARKET DEVELOPMENTS (LAST WEEK )

At the Annual General Meeting (AGM) of II PLC held on the 14th of October, 2020, where a resolution was passed

amongst other business of the day, in favour of the proposal to delist the total of 360,595,262 ordinary shares of 11 Plc

listed on the Nigerian Stock Exchange (the "Transaction"). The purpose of delisting is to enable the Company explore

strategic opportunities, alliances and collaborations that can bolster earnings and/or provide synergized benefits with

little or no regulatory obligations. Shareholders who disapprove the delisting, can indicate their dissent through the regis-

trar for appropriate consideration as stated below. The interest of dissenting shareholders shall be bought by the Compa-

ny for a consideration of N213.90 (Two Hundred and Thirteen Naira, Ninety Kobo Only) per ordinary share, being the

highest price at which 11 Plc shares have traded, six (6) months preceding the notice of the AGM at which the resolution

to delist was deliberated, as provided by the rules of the Nigerian Stock Exchange. The Financial Advisers and the Board,

therefore consider this price fair and reasonable. Following the conclusion of the delisting process, 11 Plc will become an

Unlisted Public Liability Company (PLC). Shareholders that intend to remain members of an unlisted 11 Plc shall be free to

remain and there is no obligation to receive the exit Consideration.

How to Achieve your Financial Goal Are you ready to start looking ahead and create a new financial goal for 2021? This step-by-step guide will help you to cultivate a saving habit towards meeting your short and long-term financial obligations for the new year. 1. You Need to Know How Much You Spend The first step to start saving money is to figure out how much you spend. There is a need to keep track of all your expenses – that means you must know how much you spend on all household items, transport as well as every other item that make up your monthly expenses. 2. Know Where Your Money Goes. Now that you know how much you spend; it is important to know where your money goes. Start by jotting down everything you think you spent money on last month. Be sure to note everything you bought and how much it cost. Once you see exactly how you spend your money each month, you probably will notice areas where small amounts of money seem to disappear. These are called spending leaks. 3.Get Organized. Once you have an idea of what you spend your money on in a month, you can then begin to organize your recorded expenses in order of their importance. This will enable you to come up with a monthly budget that is expected to outline how your expenses measure up to your income – so that you can plan your spending and limit overspending. Be sure to factor in expenses that occur regularly but not every month, such as car maintenance. 4. Shop Smarter. Plugging spending leaks free up some cash for you, then you can now start focusing on turning your dreams into reality. Another way to “have” more money to spend without actually making more is to make smarter spending deci-sions. If you go shopping, shop smarter. Some of the following tips could be incorporated into your spending going forward: Avoid impulse buying by making a list for every shopping trip and sticking to it. Take only cash on shopping trips and do not spend more than you have with you. Compare prices. Look for sales and off-season bargains. By large quantities of things use often. 5.Save for Your Future Saving money is not easy, but it is essential to achieving financial well-being and securing your future. One of the best and easiest ways to save money to meet your future financial obligations is to pay yourself first. Every time you receive your salary or any income, save a certain percentage of it before spending money on anything else. It is advisable to automate your savings so that a certain amount will be deducted from your account and credit to your savings plan each month or any preferable periodic interval. This way, the money never hits your pocket, so you do not miss any savings. 6.Set Financial Goals. Perhaps you would like to replace your car in two years’ time or go on a vacation to any destination of your choice with your family, or maybe you hope to go back to school next four years for an advanced degree; it may also be to pay for your children next school fees. Whatever your goal might be, you have a better chance of achieving them if you write them down. As you list your goals, ensure that they are specific, measurable, achievable, realistic, and time-bound (SMART). 7.Create a Spending Plan. Putting your financial goals in writing can make them more concrete and achievable. One of the best ways to ensure that your daily spending habits do not overwhelm your goals is to create a spending plan. A spending plan is not meant to be a strict budget. Instead, it guides you to take control of your financial future and, ultimately, reach your goals.

8. Invest Money to Reach Your Goals. Once your financial goals are set and you have been able to come up with a spending plan, it shows you now know what you are saving for and how much you will need to get there. To achieve a long-term goal, investing is one of the best ways to watch your money grow. When you invest, you watch your money work for you while you relax your mind and focus on other things. The best way to achieve this is by having money automatically de-ducted from your bank account (autosave) and put in the investment vehicle (or plan) of your choice.


Money Market

At the end of the week ended February 12, 2021 the

Nigerian Interbank Offer Rates (NIBOR) closed positive

for most of the tenors. The NIBOR rate appreciated by

27.75%,, 34.65% and 22.85% for one, three and six

months tenors to close at 1.80, 1.63 and 2.15 respec-

tively.

Treasury Bills

The Central Bank of Nigeria during the week sold

N12,761 million 91-day treasury bills @0.5%,

26,600million 182-day treasury bill @ 1% and

N193,000 million 364-day treasury bills @ 1.50% com-

pared with N10,000 million 91-day treasury bill

@0.04%, and N44,818 million 365-day treasury bill @

1.22% transacted during the previous week.

Foreign Currency (EXCHANGE RATE).

The Interbank rate for US Dollar closed at N380./$ dur-

ing the week under review same with N380.00 in the

previous week. The naira during the week depreciated

against some major currencies. It depreciated by

0.69%, 1.07% and 1.22% for pound sterling, Euro, and

Swiss Franc to close at N523.79, N460.14 and N425.72

respectively.

OIL PRICE

The Nigeria’s oil price (WTI) appreciated during the

week under review. According to the latest data given

by the NNPC, the oil price closed at $59.49 per barrel

during the week, compared with $52.27 recorded in

the previous week .


Disclaimer

This report was prepared, issued and approved by Regency Assets Management Limited (RAML). The report is based on infor-

mation from various sources that we believe are reliable. While due care has been taken in preparing it, investors are reminded that the stock prices fluctuate based on stock market forces.

This report is provided solely for the information of clients of RAML who are expected to make their own investment decisions.

Regency Assets Management Limited accepts neither responsibility nor liability whatsoever for any loss arising from the use of this report. All

opinions on this report constitute the authors best estimate judgment as of this date and are subject to change without notice

This report is for private circulation only. The report may not be reproduced distributed or published by any recipient for any

Source: Financial Markets Dealers Quotations (FMDQ)

Source: Central Bank of Nigeria (CBN)

Source: Financial Markets Dealers Quotations (FMDQ)

This Week (%)

Last

Week (%) % Change

Open-Buy-Back

(OBB) 4.50 17.50 -74.29%

Overnight (O/N) 4.75 18.00

-73.61%

FIXED INCOME MARKET REPORT

NIGERIAN INTER BANK OFFER RATE NIBOR

NAIRA EXCHANGE RATES

MONEY MARKET RATES


TREASURY BILLS RATES

regency research...regency research monday february 15, 2021 the importance of inflation in our...

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