BusinessDay

Nigeria’s biggest firms earn most in seven years

...Slow reforms hurt stocks

Nigeria’s largest firms posted their biggest combined profit in seven years in 2021, but their share prices have barely budged this year.

Their managers must be wondering what they have to do to get the attention of stock investors.

The flat performance in the share prices of these big firms despite surging profits is due to the slow pace of economic reforms in Africa’s largest economy which has curbed investor appetite.

The firms, which include Dangote Cement Plc, MTN Nigeria Communications Plc, Zenith Bank Plc, Nestle Nigeria Plc and BUA Cement Plc, grew their combined profit by 26.4 percent in 2021 to N1.04 trillion from N822.57 billion in 2020, according to data collated by BusinessDay from their annual reports.

The five firms account for 51 percent of the total market capitalisation of listed companies on the Nigerian Exchange Limited. They also grew their combined revenue to a record N4.1 trillion, a 23.5 percent jump from N3.3 trillion in 2020.

The firms’ performance in 2021 is made more special by the fact that it is only a year after the brutal COVID-19 pandemic that still has some businesses reeling.

Despite the performance of the five companies, if an investor put money in all of them at the beginning of 2021, the value of his/her holdings will be down 8.9 percent.

That’s because the 12 percent decline in the share price of BUA Cement and the 10.6 percent decline in Nestle’s will be enough to wipe out the marginal gains in the others. Dangote Cement is up only six percent so far this year while MTN and Zenith have gained a paltry three percent and 4.5 percent as of Friday.

“If it wasn’t for the sluggish pace of reforms by the government, especially with FX, these companies would have done much better,” said Muda Yusuf, an economist and former director-general of the Lagos Chamber of Commerce and Industry, a private sector advocacy group.

“The reforms investors have yearned for in the economy are still pending, with exception to the passage of the Petroleum Industry Act, which many say came even too late,” Yusuf said.

Nigeria’s foreign exchange management system, which has left several foreign investors unable to access dollars, has spooked many away from the market and blocked new inflows.

Foreign investors used to be the most active traders of Nigerian stocks but that has changed since 2019, with domestic investors now in the driving seat.

Read also: NGX tasks investors on diversification of portfolios

Last year, foreign investors only traded N434 billion worth of Nigerian stocks, the lowest since 2011 and less than half of a peak of N1.5 trillion attained in 2014.

“The market is in dire need of triggers that can sway investor sentiment, particularly that of foreign investors who have deserted the market,” Ayodeji Ebo, head of retail investment at Chapel Hill Denham, said.
“The share performance of these companies is a reflection of a much deeper problem with the Nigerian economy,” he added.

Of the five firms, Dangote Cement posted the largest profit (N364.4 billion) as cement sales in Nigeria jumped to a record high.

MTN Nigeria, which is enjoying a surge in data revenues, recorded the second-largest profit with N298.6 billion while Zenith Bank, which grew loans and advances by 20.7 percent in 2021, had the third-largest profit with N244.6 billion.

BUA Cement and Nestle Nigeria recorded profits of N91.9 billion and N40 billion respectively.

With revenues of N1.65 trillion in the review period, MTN led the revenue chart, closely followed by Dangote Cement, whose revenue stood at N1.38 trillion. Both companies are the only trillion-naira revenue companies in the country.

combined revenue of Nigeria's top 5 firms
With revenues of N1.65 trillion in the review period, MTN led the revenue chart

Zenith Bank, Nestle and BUA posted N427.6 billion, N351.8 billion and N257.3 billion in revenues respectively.
While the majority are posting profits that stand at the highest since 2015, Nestle Nigeria has not fully recovered from the pandemic, with profit still lagging the numbers posted in 2019 and 2018.

Compared to the N40 billion profit made in 2021, a mere two percent growth from 2020, Nestle posted profits of N45.6 billion in 2019 and N43 billion in 2018. Nestle, like other fast-moving consumer goods companies, is reeling from lower consumer purchasing power and high inflation.

Nigeria’s economy may have grown by the most since 2015, when President Muhammadu Buhari was first voted into office, but the size of the economy has grown smaller since then and Nigerians are worse off.

The shrinking size of the economy means there is a smaller pie to share among Nigeria’s 200 million people, a painful squeeze for a country that is home to the world’s largest number of poor people.

The economy grew by 3.4 percent in 2021, according to the National Bureau of Statistics (NBS), marking the fastest growth rate in seven years. But the economy is valued at only $436.29 billion, 20 percent less than it was worth in 2014 ($546.67 billion), according to World Bank data.

The country’s economic performance in 2021, not significantly improved from the chaotic years since the recession in 2016, is made to look impressive by the impact of the ravaging pandemic in 2020 when the economy shrank by the most in over two decades.

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