Over 50 percent of the largest companies quoted on the Nigerian bourse recorded a reduction in profit in the second quarter of the year, a result that validates National Bureau of Statistics’ GDP report that shows a flagging economy.
For consumer corporate, those that reported falling profits include firms like Unilever, Dangote Sugar, Guinness Nigeria, Nigerian Breweries, PZ Cussons and Nascon Allied Industries.
For the financial services sector, First Bank Holdings, Stanbic IBTC Holdings and Sterling Bank recorded a reduction in profit. For the oil and gas industry, Mobil Nigeria, Total Nigeria, and Oando Oil Nigeria saw fall in profit.
Results of Okomu and Presco ( major players in the agric sector) were disappointing while conglomerate giant, Transnational Corporation (Transcorp), failed to impress.
However, profit of NSE 30 firms, the list of the most capitalised and liquid firms, increased by 9.18 percent to N661.12 billion as at June 2019, thanks to contributions of the big banks and dominant players in the building goods industry.
“An earnings recession is not unlikely, especially for the consumer goods firms. There will be continued pressure on margins. However, the banks can work around the challenges and surmount the headwinds,” said Ayodeji Ebo, managing director/ CEO, Afrinvest Securities Limited.
“Government needs to free up subsidies and channel the money for capital projects so that business activities can jump-start,” said Ebo.
The slow growth in profit validates the protracted stock market routs as lack of policy direction on the part of government and disappointing corporate results forced investors to dump shares and seek safe-haven assets.
“If your economy is not growing, foreign investors will dump risk assets to risk- free market,” said Kayode Tinuoye, fund Manager at United Capital Limited.
“No matter how cheap bank stocks, the weak sentiment will continue to depress shares,” said Tinuoye.
The NSE ASI has lost – 11.93 percent since the start of the year to close at a 247681.81 points.
However, valuations are cheap and attractive, an entry point for investors that wish to allot more securities to their portfolios.
The price to earnings ratio of NSE ASI Index is 7.19 times, while banks have the most attractive valuations.
Firstbank Holdings is trading at P/E ratio of 3.98, Zenith ( 3.51); Gtbank, ( 4.51); UBA, ( 2.70), and Access Bank ( 1.97). The economy has been growing sluggishly since it exited a recession in 2016.
The economy grew at a slower pace of 1.94 percent in the second quarter of 2019 (Q2) 2019, according to a recent report by the NBS; that compares with a growth rate of 2.10 percent in the first quarter.
More worrying, the manufacturing sector contracted by 0.13 percent from the 0.81 percent expansion in first quarter
(Q1)2019. The contraction contradicts evidence from manufacturing PMI data published by the Central of Bank Nigeria (CBN) in the period which suggested that activities continued to expand, albeit at a weaker pace.
“Purchasing power has been eroded while factory activities are slow. We are seeing reduced capacity utilization,” said Johnson Chukwu, managing director and CEO of Afrinvest Securities Limited.
Profit of the six largest consumer goods firms on the NSE 30 dipped by 22.77 percent to N48.91 billion as at June 2019, further compounding their woes is heavy levies imposed by federal government and menacing gridlock at the Apapa Ports.
While the cumulative net income of the largest banks increased by 11.20 percent in June 2019, it is lower than the 16.07 percent and 27.02 percent growth recorded in corresponding period of 2018 and 2017.
The rally in crude oil price and the decision of the Nigerian National Petroleum Corporation (NNPC) to be the sole importer of petroleum product deal a great blow on the earnings of downstream oil and gas firms.
Total Nigeria, Forte Oil Nigeria, and Mobil Nigeria saw cumulative net income dip by 15.10 percent to N9.75 billion as at June 2019, but Forte Oil bucked the trend as bottom line surged by 1,387 percent.
“There has been a lot of under recovery by the NNPC, a lot of them had to write- off. The industry is still weak, so to say,” said Oluwabusola Jeje research analyst at United Capital plc.
