• Saturday, June 22, 2024
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BusinessDay

Recession looms with 47.15% of NSE 30 firms in decline

nigeria-recession

There are indications that a second recession in five years is inevitable, as profits of nearly half of the largest companies on the Nigerian bourse slumped as coronavirus headwinds dented the economy.

The economic fallout from the coronavirus pandemic and the sudden crash in oil price have unprecedented financial and social disruptions.

Also, the lockdown imposed by government to curb the spread of the virus has dealt a great blow on sales and supply chain, and the devaluation of the currency could balloon foreign debt in the capital structure of some entities, putting further pressure on earnings.

For the first six months through June 2020, the combined net income of Nigerian Stock Exchange (NSE) 30 firms – the most liquid and capitalised companies – reduced by 10.12 percent to N745.12 billion from N829.89 billion the previous year, according to data gathered by BusinessDay.

“As long as macro indicators are not showing any sign of improvement, companies that operate in the country will be affected directly or indirectly,” Gbolahan Ologunro, an equity research analyst at CSL Stockbrokers, said.
“Even aside corporate performance, series of data so far shows the country is at the verge of recession. Even sectors such as banks and telecoms would also feel the pinch,” Ologunro said.

Interestingly, Seplat, Unilever, Guinness, Total Oil Nigeria, International Breweries, and Julius Berger posted combined losses of N63.11 billion as at June 2020.

Nigeria’s biggest banks are not spared the pang of the headwinds as they posted their slowest profit growth in five years on the back of rising bad loans.

Net income of the 10 largest lenders on the NSE 30 increased by a mere 1.87 percent to N408.64 billion in June 2020, but Zenith Bank, First City Monument Bank (FCMB), FirstBank Holdings, Stanbic IBTC Holdings, and Fidelity Bank bucked the trend as they recorded double digit growth in at the bottom line (profit).

Nigeria’s economy contracted the most in at least a decade in the second quarter, as Gross Domestic Product shrank 6.1 percent in the three months through June from a year earlier, compared with growth of 1.87 percent in the previous quarter, according to a recent data by the National Bureau of Statistics (NBS).

The jobless rate rose to 27.1 percent in the second quarter, the highest in at least a decade, according to the Bureau. That compares with 23.1 percent in the third quarter of 2018.

The Monetary Fund (IMF) has announced that the Nigerian economy would witness a deeper contraction of 5.4 percent and not the 3.4 percent it projected in April 2020.

IMF says the forecast is influenced by the larger than expected storms to global value chains due to the coronavirus, affecting global demand for goods and services.

According to the foreign trade in goods statistics released by the NBS, the total value of Nigeria’s merchandise trade declined by 27 percent to N6.2 trillion in the second quarter (Q2 2020) from N8.6 trillion in the first quarter in (Q1 2020).

The outbreak of Covid-19 compounded the woes of most consumer goods players as the lockdown as the lockdown in key revenue-generating and industrial states (Lagos, Abuja, and Ogun states) as well as the ban on inter-state movement depressed performance in the period under review.

The cumulative net income of the largest consumer goods firms quoted on the NSE reduced by 60.73 percent to N23.07 billion as at June 2020, according to data gathered by BusinessDay.

Despite a slowdown in construction activities as sites were abandoned by workers due to lockdown measures and delay in the passage of the budget, operators in the Industrial Goods Industry saw a 15.94 percent increase in net income to N181.94 billion.

The growth in profit was majorly driven by a 159.19 percent surge in Lafarge Africa’s net income as the cement maker’s deleveraging exercise paid off.