The top 10 largest companies by market capitalization listed on the Nigerian Stock Exchange are set to earn a combined N1.021 trillion in profits by year end 2018 according to data compiled by BusinessDay.
“The outlook for business is more positive this year than in previous years. This year, the economy is going to grow at its fastest rate since 2015 so it’s not such a big surprise that we are seeing these companies hit the N1 trillion mark in profits. The economic recovery has remained fragile but with oil prices recovering from its lows, exchange rate becoming stable and treasury yields rising, it is only expected that companies will have a strong financial performance this year,” said Tochukwu Okafor, lecturer in Banking and Finance department at Covenant University.
BusinessDay analysis of the consensus projected profits to be earned after taxes by the ten companies showed Dangote Cement (N158b as at Q3) leading the pack in terms of profits.
Africa’s largest cement maker was closely followed by the usual suspects, Zenith Bank (N144b as at Q3) and GTBank (N142b as at Q3). These three firms accounted for 56 percent of the total profits earned by the ten largest companies on the local bourse as at Q3 with a combined profit of N444.63 billion.
The trend was projected to continue by the end of the year with an additional N146.7 billion expected to be added to the bottom-line of these companies in the last quarter of the year.
Banks made up six of the 10 largest companies on the Exchange showing how strong and profitable the banking sector is in Nigeria. The financial sector will contribute 70.3 percent of the N1 trillion at the end of the year with six companies projected to lead the industry with combined earnings of over N734 billion.
Ecobank, UBA, Stanbic IBTC Holdings and First Bank are the banks that complete the list with projected earnings of N101 billion, N81 billion, N79 billion and N59 billion respectively.
“Banks have enjoyed the high yield environment especially this year. With deposit interest rates remaining flat and risk-free rate rising, banks are making large spreads without needing to take the risk of lending to the real sector in a slow growth economy. It is very possible that we will see a similar strong performance for banks next year since we expect very little to change in the economic performance,” Okafor added.
In 2017, the combined earnings of these companies was N70 billion short of hitting the trillion naira mark.
Analysts are of the view that the top ten firms are to grow by 9 percent to make up for the needed funds to hit the mark. Ecobank, First Bank and Stanbic IBTC Holdings are the companies poised to champion the 9 percent increase with the three firms projected to grow earnings by an average of 50 percent.
With the N1 trillion projected earnings and current price of these companies, we arrived at a forward price to earnings multiple of 8.13x as opposed to the market P/E of 10.67 at the end of 2018.
IFEANYI JOHN
