By Peter Egwuatu
Nigeria’s leading companies quoted on the Nigerian Stock Exchange, NSE, have dented the picture of a recovering economy as painted by several macroeconomic performance indicators released by key financial and economy authorities.
While the National Bureau of Statistics, NBS, have consistently reported steady reversal of recessionary numbers since second half of 2017, with the Central Bank of Nigeria, CBN’s Purchasing Managers’ Index , PMI indicating expansions in the level of economic activities across sectors month-on-month since last year, corporate performance in the first half, H1’18, have shown a significant push-back with gross earnings growing by mere 9.4 percent as against 20.3 percent recorded in the corresponding period of 2017, and profitability rising sluggishly by 15.8 percent as against 60.6 percent recorded in the corresponding period of 2017.
The companies’ gross earnings also underperformed the country’s headline inflation figures which, though on consistent decline for 18 months, stood at 11.23 percent as at end H1’18, far ahead corporate earnings for the period.
Investment analysts expressed disappointment in the performance of these entities as they failed to meet their various growth projections.
Financial Vanguard review of the corporate results of these companies for the HI’18 show that the 119 companies under study recorded a total gross earnings of N4.2 trillion, representing a growth of 9.4 percent from N3.8 trillion recorded in H1’17.
Similarly, the 119 companies recorded a total of N716 billion Profit Before Tax, PBT, for the H1’18, representing an increase of 15.8 percent from N618.3 billion recorded in HI’17.
Meanwhile, analysts and stakeholders have attributed the tepid performance of equities in the stock market to the weak corporate earnings adding that worries about political risk in the run-up to next year’s presidential election have added to the woes of the companies’shares.
The H1’18 earnings and profitability have been mixed, with most banks posting declines in loan growth, citing a weak economy, while several consumer goods companies and other sectors have recorded lower earnings and profits.
They noted that the election jittery, slow pace of economic recovery and insecurity in some parts of Nigeria have constrained business expansion while contraction in yields from the federal government’s debt instruments have affected income in banks.
Gross earnings review
A breakdown of the performance of these corporates in terms of gross earnings on sectoral performance show that the Banking sector maintained leadership, raking N1.531 trillion in HI’18, thus contributing about 36.4 percent to total earnings recorded by the 119 companies. However, the Banking sector underperformed its H1’17 recorded with a marginal decline of one percent to N1.531 trillion from N 1.547 trillion recorded in H1’17.
Out of the 10 banks under study, Ecobank Group recorded the highest earnings in absolute value with N384.588 billion, followed by Zenith Bank with N322.201 billion, while GTBank occupied third position with N226.632 billion.
Trailing the Banking sector is Oil & Gas sector recording a total of N999 billion, thus accounting for 23.7 percent of the total gross earnings of the 119 companies.
The sector gross earnings represented a 32.3 percent growth over N755.619 recorded in H1’17. The improved performance could be attributed to the continuous upsurge in the price of crude oil for the upstream operators while the downstream operators benefited from the relatively stable product supply.
Out of the 10 companies in the sector Eterna Plc led the chart, recording N172.979 billion gross earnings, thus accounting for 17.3 percent of the sector’s gross earnings. It was followed by Total Nigeria Plc which recorded N156.269 billion, thus accounting for 15.6 percent of the sector’s earnings, while Seplat Petroleum Development Company Plc occupied the third position recording N104.794 billion and accounted for 10.5 percent of the sector’s total gross earnings.
The third position on sectoral performance went to Industrial Goods sector recording a total sum of N694 billion gross earnings. The sector appreciated by 32.2 percent to N694 billion gross earnings from N755.619 billion recorded in HI’17.
Out of the 14 companies captured in the sector in this review, Dangote Cement took the lion’s share recording N482.439 billion gross earnings, thus accounting for 69.5 percent of the sector’s gross earnings. It was followed at a long distance by Lafarge Africa Plc which recorded N162.291 billion and contributed 23.4 percent of the sector’s gross earnings, while Beta Glass trailed far behind in third position recording N13.138 billion gross earnings and accounted for just 1.9 percent of the sector’s earnings. The remaining 11 companies in the sector are paper-weights accounting for barely 4percent cumulatively of the sector’s gross earnings.
A review of the PBT shows that the Banking sector also topped the chat recording N350 billion in H1’18, thus accounting for 48.9 percent of the 199 companies’ total earnings of N716.2 billion. The Banking sector grew by 15.8 percent to N350.9 billion from N304 billion in H1’17.
Out of the 10 companies captured in the review, Guaranty Trust Bank, GTBank Plc led the sector recording N109.632 profit and accounting for 31.3 percent of the sector’s PBT.
It was followed by Zenith Bank recording N107.358 billion and accounting for 30.6 percent of the sector’s PBT, while Ecobank Group recorded N65.099 billion, thus accounted for 18.6 percent of the sector’s PBT.
The Industrial Goods sector occupied the second position on sectoral performance in PBT recording a total of N188.6 billion and accounting for 26.3 percent of the profit recorded by the 119 companies in HI’18. Topping the Industrial Goods sector was Dangote Cement recording N185.538 billion PBT and accounting for 98.4 percent of the sector’s PBT, followed by Cement Company of Northern Nigeria recording N3.659 billion and accounting for a paltry 1.9 percent of the sector’s PBT, while Beta Glass occupied the third position recording N3.522 billion, thus accounting for 1.8 percent of the sector’s PBT.
The Consumer Goods sector took the third position on sectoral chart, recording a total of N69.870 billion PBT and accounting for 9.8 percent of the 119 companies’ PBT in H1’18.
Topping the sector was Nestle Nigeria Plc recording N31.872 billion and accounting 45.6 percent of the sector’s PBT, followed by Dangote Sugar Refinery recording N19.904 billion and accounting for 28.5 percent of the sector’s PBT, while Nigeria Breweries occupied third position recording N12.299 billion, thus accounting for 17.6 percent of the sector’s PBT.
Market analysts and stakeholders reaction
Analyst at Capital Bancorp Plc , Mr. Victor Chiazor, while reacting to the corporate performance in HI’18 said : “2018 half year results have so far not been as impressive as we would have expected, though a few companies have managed to surprise investors with significantly improved numbers and as you know, the market will continue to react positively to good numbers and also react with a sell down when your earnings fail to impress.
“Half year earnings for most of the consumer goods companies have remained uninspiring except for the likes of Nestle and Unilever, both of which posted improved top and bottom line positions. This performance shows that consumer disposable income may not have recovered or significantly improved given the fact that most consumer goods company failed to grow their revenue base though other factors also contributed to the drop in revenue for the period.
“Most of the banks have also impressed for the period with the likes of FCMB, Sterling Bank and FBNH coming out with improved profits.
“For the Oil and Gas sector, the blue chip players in that sector have continued to grow profits while we continue to favour the likes of Total and 11 Plc to continue to grow profit for the period, we believe that Seplat should report the highest growth in both revenue and profits for the year as we estimate oil prices to remain high and project that pipeline vandalization would be minimal for the remaining part of the year.
“Despite most analyst expectation of rising inflation for the third quarter of the year, we do not expect to see any significant surge in inflation figures like what was witnessed in 2016. Hence, a slight rise in inflation should not affect the performance of the companies.
“The third quarter of 2018 should witness increased market participation especially in the month of August, as half year numbers continue to be released to the market as well as investors taking position ahead of interim dividends from most of the tier-1 banks.
“However, with the country closing in on the general election season, we may not see much activity in the market after major half year results are released to the market as I don’t trust that the nine months results for the companies would be significant enough to drive market activities as the focus will be more on the upcoming general elections and most investor may decide to sit on the sideline and play safe.
“Going forward, investors are advised to take positions in blue chip companies once the market starts to show signs of bearish activities as the entire aim of investing is to buy low and sell high.”
Analysts at Vetiva Capital have said: “Recent declines in share prices of companies on the Exchange in recent time have been concentrated on a few large-cap stocks as earnings from these companies did not meet investors’ expectation.
“Pressure on Nigerian Breweries may be on the back of slightly disappointing H1’18 earnings, but Dangote Cement numbers were in line with expectations.
“Despite Purchasing Managers’ Index numbers indicating steady economic momentum at the start of the quarter, July brought early warning signs of the challenges the Nigerian economy could face in the rest of the year.”
Reacting as well, the Managing Director of Sofunix Investment & Communications and a Chartered Stockbroker , Mr. Sola Oni, said: “Half year results are mixed grill but on the average, some companies have posted good earnings while a couple of them recorded higher than expected results. The financial services sector has all it takes to lead profitability pack. The sector comprises seven sub-sectors of which banks control more than half. Portfolio performance of financial services sector is largely driven by earnings of other sectors. This puts the sector at an advantageous position.
“I think inflation has been consistently managed by the Central Bank of Nigeria in the last two years. The apex bank’s target is a single digit. We do not think that inflation will increase. A rise in inflation can trigger volatility of equity prices while corporate earnings and investors’ Return On Investment (ROI) shall be vulnerable to negative real return.
So in the remaining half of the year, equity markets have upside potential as growth momentum is expected to increase. Market fundamentals remain strong.”
Also commenting, the spokesperson for Independent Shareholders Association of Nigeria, ISAN, Mr. Moses Igbrude said: “The half year results released by companies so far are not too bad except for few companies that are trying to maximize their resources to bring the best out of hard and hash economic situation.
“One cannot predict which sector that will perform greatly than the other as some big companies are yet to release their results. Also, the late signing of the 2018 budget and the political uncertainty as well are likely to affect companies performance. Earnings and profitability of companies will depend on how individual company manage the situation in the country to its advantage. Inflation affects the purchasing power of the consumers. So increase in inflation will affect the market, especially the manufacturing companies.
“The political situation is likely to fuel inflation which will affect companies’ performance in the second half of the year.
In his reaction, Chairman, Proactive Shareholders Association of Nigeria, PROSAN , Mr Oderinde Taiwo, said : “ We can see that some of the companies’ half year results did not meet our expectation when you compare it with inflation rate and all the government said it has been doing to expand the economy. Only few companies met my expectation so far, although some companies are yet to release their results which I don’t think will be fantastic because they also operate in line with the happenings in the economy.
“So far we can see that the stock market has been reacting positively to good numbers and also react with a sell down when companies did not impress. “Half year earnings for most of the consumer goods companies have remained uninspiring except for the likes of Nestle and Unilever, both of which posted improved top and bottom line positions.”
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