The Nigerian stock market is gradually adjusting to the reality of highly anticipated weak second-quarter (Q2) earnings of listed companies.
From a fundamental perspective, July is an earnings reporting month that captures the financial performance of companies in the second-quarter (Q2) period of April to June.
In what signals the Q2 earnings season, more companies have either held or scheduled their Board meetings to consider and release their results for the period to June 30.
The Q2 results are expected to more precisely reflect the impact of Covid-19 pandemic-driven decline in economic activities with corresponding impact on many businesses.
This is evidenced in earnings warnings issued ahead of the scorecard releases.
Earlier this month, Guinness Nigeria plc, Nigeria’s second largest brewer, notified the regulators and the investing public about material circumstances with impact on its full-year financial results for financial year 2020.
The company said the adverse impact of the sharp contraction in economic activities and the knock-on effect of the Covid-19 lockdown took a toll on the on-trade segment of the business across all our markets. “Production and revenues have thus been negatively affected.
“Due to a combination of the impact of Covid-19 and the asset impairment, we expect the profitability of the Company for the Financial Year to June 30, 2020, to be impacted,” Guinness said.
“We expect many companies to report significantly weak numbers, save for Telecoms, Logistics, Pharmaceuticals and Food focused companies,” FSDH Research says in their recent note to investors.
The Nigerian stock market has gone farther into the bear zone with -10.15 percent decrease seen this year amid increasing sell pressure in the remote trading sessions.
More banking stocks are also seen on investors offer radar as they foresee reportage of increased non-performing loan (NPLs) due to Covid-19 lockdown.
“In our opinion, risks remain on the horizon due to a combination of the increasing number of Covid-19 cases in Nigeria and weak economic conditions,” note research analysts at Cordros Capital.
“We continue to advise investors to trade cautiously and seek trading opportunities in only fundamentally justified stocks,” the analysts say.
The current bearish trend that has thrown the market to a new low will not easily disappear despite the attractiveness of a number of fundamentally sound stocks.
The continued spread of Covid-19 and its negative impact on major global and domestic economic indicators remain a source of worry to analysts, investors and businesses.
“Equity market returns have not preserved capital for investors over the long term, even when adding back the generous dividends paid to investors.
“Nigerian investors are faced with difficult choices as interest rates have crashed. The alternatives are either to simply wait for rates to rise again in future, or to accept more risk in order to increase returns,” say analysts at Coronation Merchant Bank.
In response to the Covid-19 pandemic, the Federal Government through the Central Bank of Nigeria (CBN) announced some stimulus packages aimed at easing the overall negative impact of the pandemic on businesses.
“The quantum of the stimulus compared to the size of the Nigerian economy may mean there would only be a marginal impact,” according to Lagos-based analysts at United Capital.
Price of Brent crude, Nigeria’s major source of dollar revenue, has continued to fluctuate. It stood higher at $43.36 per barrel as at 1pm on Wednesday, July 15.
Oil prices rose on Wednesday after a sharp drop in US crude inventories, with the market waiting for more direction from meeting on the future level of production by OPEC and its allies.
In an effort to save pressured naira against the US dollar in the FX market, the CBN moved closer to unifying exchange rates in the official market and Investors and Exporters (I&E) window, as it devalued the naira to N380.5/$1 in the official market.
“The unification of the exchange rate could provide offshore investors with guidance on the value of the naira relative to the US dollar and possibly help attract much needed foreign direct investment (FDI) to the country, to spur economic growth,” research analysts at Vetiva Securities, say.
“With the continued spread of the coronavirus pandemic across countries and its severe impact on major global and domestic indicators, we envisage a persistently pressured market in the meantime, despite the attractiveness of a number of fundamentally sound stocks hence, a cautious trading strategy is advised,” Vetiva research analysts add.
