President Muhammadu Buhari’s inability to formulate policies needed to propel economic growth is taking a toll on the profit of the Nigerian big corporates.
Analysts have turned more cautious on corporate earnings, as bottom line no longer supports valuation.
Profit of Nigerian Stock Exchange (NSE) 30 firms- the lists of the most liquid firms by market value- was flat at N395.12 billion as at March 2019, this compares with a 25.15 percent jump in 2018-17, and 35.15 percent increase in 2017-16 periods.
A breakdown of the figures shows consumer goods firms is responsible for the slow growth at the bottom lines as they continue to struggle with a weak consumer purchasing power, decrepit infrastructure, and multiple levies.
The largest consumer goods firms saw combined profit dip by 26.60 percent to N59.95 billion in March 2019 from N81.68 billion as at March 2018; however, Neslte, Unilever, and Dangote Sugar buck the trend as they recorded an uptick at the bottom line.
Combined profits of banks was up 15.26 percent to N249.33 billion as at March 2019, this compares to a 30.15 percent increase in 2018-17, and 40.25 percent uptick in 2017-16.
The new regulatory measures put in place the central bank to improve lending to the real sector of the economy could undermine lenders’ future margins and undermine asset quality, as the precipitous drop in short term government securities marks the end of free money.
The Apex Bank has mandated Deposit Money Banks (DMB) to maintain a minimum Loan to Deposit ratio (LDR) of 60.0 percent by September 2019, which will be subject to quarterly review.
In addition, lenders are to assign a weight of 150 peercent to loans to SMEs, retail, mortgage and consumer lending, when computing the LDRs.
Analysts at Chapel Hill Denham Limited in a recent note to client said Zenith Bank and United Bank for Africa will be the worst hit as
“UBA’s management disclosed that the bank will need to expand its loan book by N120bn, given that the LDR is at 54.7 percent after assigning the 150 percent weight to SME loans,” said analysts are Chapel Hill Denham.
The investment house estimates that that Zenith will require additional loans of N200 billion prior to September 2019 to meet the 60 percent minimum.
Analysts are of the view that lack of policy direction on the part of fiscal authorities has hindered foreign investors from investing money in Naira assets.
The All Share Index (ASI) fell below the 28000 psychological mark to settle at 277864.49 points. In addition, the rout at the local bourse appears to have worsened last week as Year to Date (YTD) loss widens to 11.30 percent.
According to data released by the Nigerian Stock Exchange (NSE) on Domestic and FPI Report for the month of May, foreign investor participation in the equities market slumped to 35 percent of total transactions from 52 percent recorded in April.
Foreign inflows also declined by 9.3 percent to N37.9 billion ($105.3m) while outflows grew by 12.0 pecent to N39.40 billion ($109.4 million) when compared to the month of April.
“While the Nigerian equities market is currently trading at a steep discount when compared to its peers in Emerging and Frontier markets given the ASI P/E of 6.91x vs. MSCI EM Index and MSCI FM Index P/E ratio of 13.01x and 12.36x respectively, we are not convinced of an imminent rebound in the stock market in the absence of bold policy pronouncements, particularly from the fiscal authorities to address the growth challenge,” said analysts at Chapel Hill Denham Limited.
BALA AUGIE
