Author - Yahya Abdulrahman

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Global Economic Roundup

Oil Prices Are Set To Rise Throughout 2023

Crude oil prices started last week with a loss. The reason for that initial weekly loss came down to overall global economic growth pessimism and expectations that the U.S. Federal Reserve will continue raising interest rates, making the dollar more expensive and sapping demand for dollar-priced crude. But by the end of Monday, oil prices had rebounded and were trading higher. The reason is that comments from attendees at the Cambridge Energy Research Associates Week (CERAWeeek) industry conference suggested that supply will tighten before too long. Just another week in oil, some would say, and indeed, oil prices fluctuate constantly, to such an extent it is extremely difficult to predict them with any accuracy, especially over a shorter period of time. Yet it does bear pointing out that most forecasters seem to expect higher prices for oil later this year. There appears to be broad consensus on this. Some, such as Forbes’ Bill Sarubbi, note the technical data of oil trading to suggest prices are going to go higher. In a recent story, Sarubbi said that historical data shows oil prices tend to rise between March and May most of the time, so it makes sense to expect them to rise this year as well. Others, such as Refinitiv, the data analytics firm, single out two factors that will drive prices on the supply and demand sides, respectively: Russia and China. And Refinitiv expects Brent crude to rise above $100 per barrel by the end of the year and average $90 for the full year 2023.

Eurozone Economy Stalled in Q4

The Eurozone economy failed to grow in the final quarter of 2022, compared with preliminary estimates of 0.1% growth and upwardly revised 0.4% expansion in the previous three-month period. Household consumption slumped by 0.9% and gross fixed capital formation tumbled 3.6%, as stubbornly high inflation, rising borrowing costs, and supply chain bottlenecks hit activity and demand. Meanwhile, government spending rose by 0.7% and net external demand contributed positively to the GDP as exports inched 0.1% higher and imports were 1.9% lower. Inventory changes have also added 0.1pp to the GDP. Amongst the bloc’s largest economies, the GDP grew in the Netherlands, Spain, and France, but contracted in Germany and Italy.

CBN’s Open Banking Could Spur Tighter Competition 

In a recent circular, the Central Bank of Nigeria issued operational guidelines for open banking in Nigeria. The new policy allows financial service providers to access the banking history of prospective customers with other banks. This would be through application programming interfaces (APIs), and with the explicit consent of the customers. It basically allows customers to share their banking data with other financial service providers, enabling them to access a wider range of products and services. Analysts say the initiative would further ensure the deepening and stability in the nation’s financial system. Through the Open Banking Registry which the CBN would establish and manage, the regulatory oversight would be enhanced. The most important gain derivable from the new data-sharing policy is the degree of competition and a greater level of efficiency that would be promoted among banks. While the recent circular on Open banking has generated interest among fintech entrepreneurs nevertheless, for open banking to function well, developers will need to find solutions to integration issues that may make it impossible to communicate financial data securely and seamlessly.

Some of our recommended stocks are mentioned below;

FIDSON:

Fidson FY 2022 results showed an increase in revenue by 31.67% from N30.86bn in FY 2021 to N40.63bn in FY 2022. Operating profit advanced from N5.86 bn in FY 2021 to N7.38bn in FY 2022, reflecting an increase of 25.93%. Profit before tax went up by 20.45% from N4.71bn FY 2021 to N5.68bn in the current period. Profit after tax grew by 18.65% from N6.09bn in FY 2021 to N7.22bn in FY 2022. EPS grew by 1.69% to N1.81 in FY 2022 from N1.78 in FY 2021. Fidson has a BVPS of N7.34, P/BV of 1.34x, and P/E ratio of 5.44x.

MAY & BAKER:

May & Baker FY 2022 results showed an increase in revenue by 20.39% from N11.90bn in FY 2021 to N14.32bn in FY 2022. Operating profit advanced from N1.70bn in FY 2021 to N2.26bn in FY 2022, reflecting an increase of 32.86%. Finance cost increased by 23.92% to N330 million in FY 2022 from N266 million and interest income increased by 332.03% from N59million in FY 2021 to N256 million in FY 2022. PBT went up by 48.03% from N1.46bn in FY 2021 to N2.16bn in the current period. PAT grew by 64.90% from N1.04 billion in FY 2021 to N1.73 billion in FY 2022, despite a 4.94% surge in taxes. EPS grew by 63.93% to N1.00 in FY 2022 from N0.61 in FY 2021. May & Baker has a BVPS of N4.74, P/BV ratio of 0.95x and P/E ratio of 4.5x.

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Global Economic Roundup

Shell Is Reviewing Its Plan To Reduce Oil Production This Decade

Shell’s plan to have its oil production decline by up to 2% each year this decade is currently under review, the new CEO Wael Sawan told The Times in an interview published on Friday, adding that he is a firm believer of the statement “don’t deny people energy.” Back in 2021, Shell said that its oil production peaked in 2019 and is set for a continual decline over the next three decades as it looks toward the renewables side of the business. However, the post-Covid rebound in oil and gas demand and the Russian invasion of Ukraine with the subsequent major dislocation of energy the trade has clearly shown “the fragility of the energy system when we starve it of the supply that is required,” Sawan told The Times. He said that he’s of a firm view that the world will need oil and gas for a long time to come. As such, cutting oil and gas production is not healthy.

2-year Treasury yield reaches highs not seen in more than a decade

U.S. Treasury yields climbed on Thursday as investors considered the prospect of further interest rate hikes by the Federal Reserve and awaited fresh economic data. The yield on the benchmark 10-year Treasury was up by 7 basis points to 4.066%. The 2-year Treasury yield was last trading at 4.889%. Earlier in the session, it traded at its highest level since July 2007. Investors considered the likelihood of further interest rate hikes and rates staying higher for longer. A surge in labor costs and a pullback in jobless claims reported early Thursday point to the likelihood that the Fed will raise its benchmark interest rate another 0.25 percentage point later this month. At its latest meeting, the central bank had hiked rates by 25 basis points. This marked a slowdown compared to the previous five increases which included four consecutive 75 basis point hikes followed by a 50 basis point hike. Many investors have been concerned about the pace of rate hikes dragging the U.S. economy into a recession.

Understanding the Tinubu Presidency Objectives and the Nigeria Question

Nigeria’s ruling party candidate, Bola Tinubu, was on Wednesday declared the winner of the presidential election, after defeating the candidates of the two main opposition parties. Analysts describe the poll as the most keenly contested since the country returned to Democratic rule in 1999. The announcement of final results by the Chairman of the Independent Nigerian Election Commission (INEC), Prof. Mahmud Yakubu early on Wednesday, has however been met with contestation by members of the opposition who had staged a workout from the National Collation Centre in Abuja after concerns of irregularities were unaddressed. But judging by his manifesto, Analysts say that the centerpiece of Tinubu’s fiscal and economic policy would be to bring about fast-growing, premised on industrialization and economic diversification. Tinubu’s administration seeks to address the country’s high unemployment and poverty by targeting an overly ambitious 12% annual growth rate given that the country’s long-run growth rate is only around 5%. While the new administration would deploy tax policies in line with the Trickle-down theory, Analysts believe this would raise big questions about the Federal Government’s (FG) ailing finances. Analysts recommend that the next administration must prioritize opening the capital account by offering opportunities for investment in the many redundant assets of the country as well as issuing new licenses for Greenfield investment in critical sectors. This way fiscal and external sector liquidity can improve significantly with positive knock-on effects on employment and domestic inflation.

Some of our recommended stocks are mentioned below;

MTNN:

MTNN Plc FY 2022 results showed an increase in revenue by 21.64% from ₦1.65 trn in FY 2021 to ₦2.01 trn in FY 2022. Operating profit advanced from ₦584.74bn in FY 2021 to ₦733.29bn in FY 2022, reflecting an increase of 25.40%. Profit before tax grew by 22.28% from ₦436.68bn in FY 2021 to ₦533.97bn in the current period, despite a 33.19% increase in finance costs. Profit after tax rose by 20.16% from ₦298.65bn in FY 2021 to ₦358.87bn in FY 2022. EPS increased by 21.27% to ₦17.79 in FY 2022 from ₦14.67 in FY 2021. MTNN has a BVPS of ₦9.14, P/BV of 26.81x, and P/E ratio of 13.71x.

ZENITH:

Zenithbank Plc is projected to have a FY 2022 revenue of N832.32bn, up by 19.51% from N696.45bn in FY 2021. Profit after tax is estimated to grow from N160.59bn in FY 2021 to N191.92bn in FY 2022 with an EPS of N6.11.

Zenithbank Plc’s Q3 2022 results showed that gross earnings advanced by 19.65% to ₦620.57 bn in Q3 2022 from ₦518.67 bn in Q3 2021. Net interest income grew by 20.52% from ₦234.75 bn in Q3 2021 to ₦282.91bn in Q3 2022, supported by a 26.52% rise in interest income. Profit before tax advanced by 12.65% from ₦179.81 bn recorded in Q3 2021 to ₦202.55 bn in the current period. This is attributable to the 0.86% increase in trading income and 27.79% increase in net fees and commission income. Profit after tax went up by 8.55% from ₦160.59 bn in Q3 2021 to ₦174.33bn in Q3 2022 after a 46.85% increase in income tax expenses. Earnings per share advanced by 8.61% from ₦5.11 in Q3 2021 to ₦5.55 in the current period. Consequently, Zenith has a BVPS of ₦37.81, P/BV of 0.70x and P/E ratio of 3.59x.

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