Ninety-five firms have released first quarter (Q1), 2019 results as at May 10, 2019 and the data showing slow revenue growth and flat profit margins signals that firms cannot escape what ails the wider Nigerian economy.
The unpredictable macroeconomic environment means revenues are growing at a slow pace while rising operating costs are eroding profitability. Total revenue for the 95 firms increased by a mere 5.05 percent to N2.48 trillion in March 2019, from N2.36 trillion as at March 2018.
Combined net profit followed the same slow growth trajectory as it rose by 4.65 percent to N379.22 billion, from N362.35 billion a year ago. Expectedly, cumulative average margins were flat at 15.73 percent, which means firms are beleaguered by operating inefficiency. Challenges bedevilling firms differ from sectors.
A sector by sector analysis shows the listed banks in the country saw cumulative gross earnings grow by a mere 3.74 percent to N1.16 trillion in the period under review, as a drop in yields on short-term government securities undermined interest income on loans and advances. However, the combined net income jumped by 15.81 percent to N260 billion as of March 2019, thanks to a reduction in impairment charges and improved efficiency or cost controls. Consumer goods firms recorded their worst results in five years as decrepit infrastructure like bad roads and gridlock at Apapa ports, energy costs due to unreliable power supply from the grid, low consumer purchasing power, and double taxation continue to undermine growth. Combined revenue fell by 1.21 percent to N340 billion in the period under review, while profit after tax fell by 14.45 percent to N30 billion.
Only Nestle and Cadbury recorded margin expansion in the first quarter. While the industrial sector that includes Dangote Cement and Cement Company of Northern Nigeria saw an 18.56 percent increase in profit to N420 billion in the period under review, profit after tax fell by 15.19 percent to N70 billion. Energy and utility firms were underachievers in the first quarter as cumulative revenue increased by a mere 1.34 percent to N480 billion as at March 2019 while profit after tax reduced by 1 percent to N20 billion in the period under review. Samuel Adewale, a Lagos-based stockbroker, said the 5 percent growth in total revenue means some companies actually grew volumes instead of prices and even those who raised prices only did so marginally.
“This could translate into an improvement in the GDP figures when they are released next week,” he said. On the firms’ net profits that grew 4.65 percent, a slower rate than revenue, this suggests that costs either in the form of cost of sales, administrative expenses or finance cost grew during the period. According to Adewale, many companies have complained bitterly about the cost of doing business in Nigeria ranging from the cost of raw materials, the notorious Apapa gridlock, which is also reflective in their net margin which remained flat for the period. The PE ratio at a decade low of 7.14xs implies that prices of stocks relative to the earnings they are churning are very low. The NSE ASI also declined 8 percent this year despite a relatively stable macro-economic environment and stable crude oil prices and stable exchange rate. “Admittedly, the market responded to pre-election jitters. However, it has been two months after the election and the market has not improved,” he said.
BALA AUGIE & OLUFIKAYO OWOEYE
