Nigeria’s biggest paint makers see worst nine months profit in 8 years

Chemical and Allied Paints Plc is a leading paints and coatings company in Nigeria

Three of the biggest players in the Nigerian paint and coating industry, suffered a combined drop in profit in the first nine month period of 2020, worse than what have been recorded in the last eight years of business.

These leaders of the paint industry recorded a combined profit slump of 45.8 percent to N835 million from N1.54 billion in the same period of 2019. This was also two times worse than the decline in profit recorded in 2016 what the economy slipped into a recession.

In terms of market capitalisation, the three biggest players in the paint industry are Chemical & Allied Products (CAP) plc with a market cap of N15.6 billion, Portland paints at N2.36 billion, and lastly Berger paints at N1.94 billion.

The players also reported a combined revenue dropped to N7.2 billion from N10.2 billion for the same period of the previous year.

The paint industry has reeled severely from the knock-on-effect of the COVID-19 pandemic as well as the measures put in place to curtail the virus.

despite the decline in profit, the combined cost of production for the paint makers increased by 3.6 percent in the first nine months of 2020 to N5.8 billion from N5.6 billion recorded in the previous year, for the same period.

“The paint industry is highly correlated with the real estate and construction sector, once these sectors are not doing well, the paint industry would be negatively affected,” said Abiola Gbemisola, Consumer goods Analyst at Chapel Hill Denham.

In the second quarter of 2020, Nigeria’s Gross Domestic Product (GDP) contracted by 6.1 percent and the growth of Nigeria’s real estate fell sharply to -21.99 percent, the lowest since the 2016 recession.

The second quarter was, therefore, a tough period for paint makers and this went on to greatly affect the combined nine months profit of the paint makers.

“The steepest decline for most paint makers was in the second quarter of 2020 as a result of the lockdown in March,” said Ayorinde Akinloye, research analyst at CSL Stockbrokers hence, we expect the third-quarter performance to be better for paint makers as the economy is more open and construction activities have continued”.

In the third quarter of 2020, the combined profit of the biggest three players in the paint industry climbed 290 percent to N333.9 million from the low of N85 million recorded in the second quarter of 2020.

The improved sales of paint as a result of the resumption of construction activities due to the eased lockdown boosted the third quarter combined revenue by 64 percent to N3.8 billion from the second quarter’s N2.3 billion.

Combined cost of production in the third quarter of 2020 however worsened by 64 percent as it rose to N2.3 billion from N1.4 billion in the second quarter of 2020.

Players in Nigeria’s property and construction industry who have been gripped by the uncertainty created by the pandemic and forced to adopt the wait-and-see option are not excited about how the sector is faring.

Remi Ademilua, CEO, Demil Realties said “the pandemic has really affected real estate in terms of construction, timeline to get documents signed, investors not showing much interest, as well as buyers who are putting their money elsewhere.”