The Nigerian Stock Exchange (NSE) 30 index is the big bad kahuna among domestic equity market indices, comprising the 30 biggest and most liquid stocks in a market with close to 170 stocks and Exchange Traded Funds (ETFs) listed.
Market capitalisation (the value of a company that is traded on the stock market, which is calculated by multiplying the total number of shares by the present share price), for NSE-30 firms was equivalent to N9.825 trillion as at Friday June 07, 2019, compared to N13.4 trillion for the entire market.
This means that NSE-30 firms now make up 73 percent of the market, down from as high as 95 percent before the MTN Nigeria listing. MTN Nigeria is yet to be added to the index.
A deeper look at the numbers show that all is not well with stocks that make up the index, which again could give a clue as to the state of the economy.
Market cap for the NSE-30 index comes in at about 7.5 percent of nominal GDP of N129 trillion (IMF estimates), at the end of 2018.
Combined net profits for the 30 firms in the first quarter (Q1) of 2019, came in at N361.14 billion (**), up some 4 percent from the N346.9 billion (**) recorded in Q1, 2018.
At first glance this looks decent, considering that the economy overall managed only 2.01 percent growth in Q1, 2019.
However when you back out the impact of Access Bank, which had a stellar quarter (after tax profits of N41.1 billion, up 86% year on year), following its merger with Diamond Bank, the picture becomes a little bit less cheery.
Ex- Access Bank, cumulative Q1, 2019 profits for the NSE-30 firms was down when compared to 2018, at N320 billion versus N325 billion in Q1, 2018.
Two firms made losses for the period (Dangote Flour Mills and Total), while a total of 12 firms had lower profits compared to the 2018 period.
These are Dangote Flour Mills, Dangote Cement, Unilever, Presco, PZ, Stanbic IBTC, Total, Transcorp, NASCON, Nigerian Breweries, Okomu Oil and Mobil Nigeria.
Industries these firms operate in range from, Consumer goods, industrial goods, Banking, downstream oil and gas, hospitality, Food and Beverage, and Agriculture.
These make up a broad spectrum of the Nigerian economy and if these firms are struggling it is a confirmation of the numbers coming from the National Bureau of Statistics (NBS) about the poor state of the wider economy.
When the performance of each NSE-30 member stock is looked at, one can see that investors have already priced in the poor performance and possibly written off their ability to turn things around this year, considering the lack of policy direction coming from Abuja.
Only 3 out of the 30 stocks have had positive returns in 2019 (year to date), with the rest mired in red.
These are Dangote Flour Mills (+139.42%), Sterling Bank (+28%) and Union Bank (+25%).
Source: Company Financials
The direction of stock prices (whether rising or falling) is important because stocks are largely priced based on the expectations that prospective investors have for the future earnings of the company.
Falling stocks prices therefore means investors are not confident of higher overall growth in the economy which will boost revenues and eventually profits of firms.
Lower stock prices also often affects the ability of firms to raise equity capital through initial public offerings IPOs or rights issues.
Often, long periods of sell-off in stocks could result in lower valuations and discourage prospective capital raising.
That the Nigerian economy is barely growing is probably not lost on investors.
Growth is forecast by the International Monetary Fund (IMF) to rise marginally to 2.1 percent in 2019 from 1.9 percent in 2018.
It is highly unlikely that firms can grow revenues by upper single digits or double digits from such low levels of expansion.
Looking at the numbers a lot of consumer goods firms have been particularly hit hard as disposable incomes remain largely stagnant.
Consumers are also bargain hunting which may be hurting the more established firms.
A recent report by coronation Merchant Bank suggests that upper middle-class earnings are falling in real terms in Nigeria and that there is downward pressure on private sector wages generally.
As such pricing has become the key battle ground and the energy and momentum in the food and Home /Personal Care industry appears to have shifted away from the large listed players (cue your Unilever’s, PZ, Nestles and Flour Mills)towards a number of low-cost, low-price point competitors and entrants
Dangote Flour, Dangote Sugar, PZ, NASCON, Nigerian Breweries, and Flour Mills all saw a drop in revenues in 2018, compared to 2017.
The Federal Government needs to unveil an economic blueprint for growth as soon as possible, to reduce unemployment which recently hit 23 percent as well as poverty, and return confidence and animal spirits to the Nigerian economy.
