The sluggish growth of Nigeria’s economy has thrown a large part of its population into a poverty trap while companies seem to be growing. A closer look at the profit of listed firms, however, suggests a different fate for Nigerian companies with growth limited.
On account of a rise in Consumer Price Index (CPI) – the weighted average of prices of a basket of consumer goods and services – which has grown at a faster pace since the recession in 2016, earnings of companies have been severely constrained in real terms.
This shows why investors insist on reforms to turn bullish on Nigerian stocks.
Among companies listed on the NSE30 index, a measure which tracks firms accounting for about 80 percent in the total market value of on the exchange, no firm is close to the reality of its nominal growth in earnings since 2015 when profit is adjusted for the effect of inflation, BusinessDay analysis show.
From 2015 to 2018, the general prices of goods and services rose by 52 percent from a CPI of 180 in 2015 to 274.6 in 2018, which forms the deflator in adjusting for the profit of listed companies during the same period.
BusinessDay analysis shows a more pronounced effect on the profit of Lenders on the NSE 30 index.
In the review period, Access bank – biggest lender by asset and customer base – which would have been proud of a 44 percent growth in Profit After Tax, when adjusted for inflation has plunged by 5 percent during the period.
Similarly, UBA despite growing its net income 32 percent in nominal terms has shed 14 percent in real terms in 5 years to 2018. The same goes for Union bank with nominal growth of 29 percent in net income but in real terms has declined by 15 percent.
Among peers in the banking industry, Sterling bank has declined the most, plummeting 40 percent in real terms against negative 8 percent in nominal terms.
Zenith Bank, Guaranty Trust Bank, First Bank of Nigeria Holdings, Fidelity Bank, and Ecobank International Incorporated are among lenders with positive real growth.
However, many lenders despite recording positive growth in net income in real terms, their nominal growth is just a dream would have wished were the reality.
This was a trend common with all companies listed on the index, however, consumer goods firms with the exemption of Nestle, NASCON, Dangote Sugar and Unilever, stood as the worst hit on the index with real growth plunging 102 percent on the average.
The Nigerian economy faces currently a wide array of challenges ranging from slow economic growth, upward inflation pressure, threat on debt sustainability, high debt levels, shrinking consumer wallets etc to mention but a few.
Latest Gross Domestic Product (GDP) figures show that Africa’s biggest economy has slowed for the third-straight quarter dragged by the non-oil sector. Manufacturing sector declined for the first time in more than five quarters.
Nigeria’s stock market is down some 12 percent year-to-date but analysts say it is hard to tell when the bearish market would bottom out.
Reforms to stimulate the real sector are a must, they say, if the interest of foreign investors, who have the big money, is to be reignited.
This has cast a gloom over Lagos bourse as a bearish run which began last year might linger into the coming year.
While there are hopes for market-friendly policies following the constitution of President Muhammadu Buhari’s cabinet, the big question in the words of Warren Buffett, chairman of Berkshire Hathaway, remains to be answered; “what is in the future for investors?”
David Ibidapo & Segun Adams
