Nigerian companies have surmounted the coronavirus (Covid-19) pandemic headwinds as they recorded strong earnings growth in the third quarter (Q3), and there are indications the stock market rally will continue in the month of November.
The Nigerian Stock Exchange (NSE) All-Share Index (ASI) surged 13.55 percent, thanks to the dovish stance of the central bank, which is responsible for low yield and system liquidity.
Analysts say the government’s decision to close the country’s land borders and prevent illicit imports of substantial and cheap goods is a blessing in disguise for firms such as Dangote Sugar, Flour Mills Nigeria, Okomu Oil, and Presco Nigeria plc.
This is because consumers are now forced to patronise the products of the aforementioned entities, but the prices of these products have skyrocketed since local producers cannot meet the demand of a population of 200 million people.
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Despite a weak consumer purchasing power, decrepit infrastructure, currency devaluation, and Covid-19 induced crisis, Dangote Sugar’s net income surged by 81.21 percent to N26.63 billion as at September 2020, and the best results in six years.
The largest producer of sweetener in Africa’s largest economy generated money from core operations as operating profit spiked by 21.70 percent to N26.62 billion as at September 2020.
Flour Mills Nigeria net income spiked by 68.30 percent to N9.93 billion in September, while operating profit increased by 41.08 percent to N23.73 billion.
Honeywell Nigeria net income was up 7.93 percent to N204 billion as at September 2020, as against N190 billion the previous year.
Okomu Oil net income was up 21.65 percent to N5.0 billion in the period under review as against N4.11 billion the previous year. Presco Oil net income surged by 56.69 percent to N5.03 billion as at September 2020.
The border closure helped the food and agro-allied firms maintain a strong margin, according to Johnson Chukwu, managing director/CEO of Cowry Asset Management Limited.
Nigerian companies weathered the Covid-19 headwinds more than their peers in other countries,” Chukwu said.
A slowing in construction activities on the back of lock-down policy imposed by the government to curb the spread of the virus did not hinder cement makers from recording strong earnings growth.
BUA Cement net income spiked by 23.83 percent to N53.56 billion in the period under review as against N43.25 billion as at September 2019.
Lafarge Africa leveraging strategy paid off as lower debt and higher sales led to a 37.01-percent increase in net income to N28.19 billion as at September 2020.
MTN Nigeria’s sales increased by 13.90 percent to N975.76 billion as at September 2020, thanks to increased data usage as people during the period of stay at home.
The combination of a punitive regulatory environment and coronavirus induced bad loans deal a great blow on the earnings of banks that have released third quarter results.
Fidelity Bank, a tier-2 and midsized bank, recorded a 7.08 percent reduction in net income to N20.40 billion, no thanks to an N11.05 billion impairment charge.
Analysts at United Capital Limited in a recent note said they continue to see further uptick in the share prices of the tier one, food processors, agro-allied companies, cement makers and the telcos.
“We advise investors to take cautious positions in the brewers, diversified consumer goods companies and tier-2 banks as they remain highly speculative,” said the analysts.
The consumer goods index has a negative year-to-data (YTD) of -20 percent, while stocks are unattractive and overvalued as evidenced in a price to earnings ratio of 149.15 times.
The outlook for the manufacturing sector is dim and unemployment rate is becoming increasingly worrisome in a country where over 50 percent of a population of 200 million live on less than $1.29 a day.
According to the manufacturing Purchasing Managers’ Index released by the central bank, the employment index stood at 46 points, indicating a contraction for the seventh consecutive month.
The banking stocks have attractive valuation as the industry price to earnings ratio stood at 3.60 times, but the tight regulatory environment remains a drag on earnings.
