FSDH Securities has prepared a thorough analysis of the Nigerian Stock Exchange performance in the last quarter and on what to expect in this 2nd quarter. Below is their summary:

- We maintain that we project a huge drop in the federally collectible revenue in 2009, leading to a drop in the amount of money to be shared through the Federation Accounts Allocation Committee (FAAC).

- We maintain our inflation forecast for the year in the range of 12.5%-14.5%, year-on –year.

- We believe the proposed deregulation of the down stream sector of the oil and gas industry in Nigeria is a good idea as should be supported. FSDH Research is confident that it will bring about a lower pricing regime for the petroleum products in the country.

- Bankers’ Committee decided to peg the maximum deposit and lending rates at 15% and 22% respectively with effect from April 1, 2009 until end of 2009. Although this is expected to have salutary effects on the real economy, we have our doubts whether this can be adhered to strictly as other determinants of high cost of running businesses in Nigeria such as power, have not been addressed.

- We reiterate our earlier suggestion that the CBN needs to inject money into the banking industry by way of buying special purpose 5-year corporate bond from banks. We hold that there is a limit to which the CBN can manage the foreign exchange rates in the face of increasing demand and dwindling supply.

- The determination of the CBN to maintain a band of +/-3% on the official exchange rate may be relaxed if the economy does not improve to generate adequate foreign exchange. We believe that urgent fiscal and monetary policies targeted at this important sector of the Nigerian economy will go a long way to make Nigeria achieve a sustainable growth.

- Learning from the experience of other countries of the world, we still believe that a veritable financial institution that the CBN can use to increase access to credit among the small and medium scale industry in Nigeria is the Micro Finance Banks. We maintain our GDP growth rate of between 4% and 5% in 2009 if the current economic management team can put in place strong economic framework that can support the Agriculture and the Manufacturing sector especially in the areas of improving infrastructure and access to cheap funds.

- As expected, the CBN has reduced MPR from 9.75% to 8%. We are of the opinion that the CBN will maintain the MPR at 8% throughout Q2, 2009.

- We still believe that the large fiscal deficits that the Federal Government and most of the state governments will run in 2009 will exert upward pressure on money market rates, notwithstanding the interest rate peg agreed by the Bankers’ Committee.

- We are of the opinion that the DMO will increase Bond issuance in Q2, 2009. We also expect re-opening of most of the existing bonds.

- We expect that the marginal rates that will be applied on bond in Q2 will be lower than the rates in Q1, 2009. We expect slight volatility in bond prices and yields in Q2, 2009.

Alarminly, only 12 stocks recorded gains in the 1st quarter. The best performing stock was PZ Cussons with a return of 40.57%. PZ Cussons (from N11.24 as at December 31, 2008 to N15.80 as at March 31, 2009). Other notable price gainers are Cement Company of Northern Nigeria (40.15%), Northern Nigeria Flour Mills (21.05%), Benue Cement (9.67%) and Cappa & D’Alberto (5.26%). 

Longman Publishing was the biggest loser witha total loss of 87.18% ( from N27.76k to N3.56k). Others on the worst performers list were: African Petroleum (-78.77%), MTI (–75.93%), Mobil Oil (–72.22%) and Ecobank Transnational Incorporated (-72.09%).

Read the full analysis here: FSDH - Q2 2009 Report (131)