Week Ahead: Profits in the time of COVID-19 and an app to decongest Apapa

More of the same?
Last week, Nigeria’s largest brewer, Nigerian Breweries, reported a 56 percent decline in profit after tax (N7 billion) in the whole of 2020 despite a 4 percent rise in revenues to N337 billion. The profit decline was driven primarily by higher cost of sales which surged 14 percent to N218 billion.

With more companies expected to release their financial results this week, the picture of how companies weathered the COVID-19 storm last year will get clearer.

For the companies to have released their scorecards, it has revealed a mixture of low revenues and higher operation costs. Profitability was expectedly battered last year in the thick of the pandemic. Roughly 50 percent of the companies to have published their financial scorecards for 2020 have posted a decline in profitability or an outright loss.

With more companies set to publish their results this week, analysts are expecting more of the same.

Read Also: Naira ends week with marginal appreciation after CBN sold $100m

Oil reprieve for naira?
The Naira weakened by 130 basis points against the US dollar last week to close at N410/$ at the CBN’s investors and exporters window.
Analysts say the CBN may have allowed a technical devaluation at the I&E window ahead of OTC FX futures contracts maturing in February and March.

The value of the maturities is estimated at $3.3 billion, which represents 48 prevent of the total OTC FX futures in 2021. The CBN might have made such an adjustment to encourage foreign investors to rollover maturities and ease FX demand pressures.

The Naira however depreciated against the US dollar at the parallel market by 105bps to $1/N478.00 due to limited FX supply in the parallel market. External reserves fell by -0.79% to $35.47 billion from $35.75 billion in the previous week.

In the coming week, however, the Naira is likely to regain some strength as oil prices continue to rally and reflect in external reserves.

Another big bank dominance?
Nigeria’s All-share index fell for the third consecutive week by 0.67% last week to 40,186.70 points. Year to date return and market capitalisation settled at -0.21% and N21.02 trillion, respectively.

For last week, much of the decline witnessed was driven by selling pressure in tier-1 banks as well as other bellwether tickers in the cement and telco space.

Volume and value traded declined by 42.57% and 22.93%, respectively. The most traded stocks by volume and value were again dominated by the big banks. The most traded by volume were First Bank Nigeria Holdings (314.64 million units), Guaranty Trust (122.03 million units) and Zenith Bank (116.78 million units). The same banks also dominated the value charts. Guaranty Trust led with N3.74 billion, followed by Zenith Bank (N2.88 billion) and First Bank (N2.29 billion).

Nigeria’s surprise exit from recession brought no reprieve for stocks and as financial scorecards continue to trickle in this week, some investors may decide to edit their positions in some stocks.

It is important to note however that the decline in the stock market opens bargain hunting opportunities for savvy investors especially in the banking sector.

Interbank rates to decline
Funding rates spiked at the close of last week on the back of regulatory debit as well as the settlement for the Bond and OMO auction which mopped up liquidity as anticipated.

Financial System liquidity, according to market sources is estimated to be N207.60 billion currently. The Open Buy Back (OBB), and Overnight (OVN) rates rose by 1550bps and 1575bps week-on-week to 20.00% and 20.50%, respectively.

Analysts expect interbank rates to decline next week on the back of inflows from FAAC allocation and N472.42 billion OMO maturities.

An app for Apapa gridlock
The Nigeria Port Authority will on 27 February, launch Eto, an app for its electronic truck call-up system to end the gridlock in and around the ports.

Trucks heading for the port will remain at designated parks until they are called up on the app. The system will improve how trucks move to and from the Apapa and Tin Can Island ports, and ease the congestion it has become notorious for. Inefficiency and corruption make the cost of clearing cargo in Lagos one of the most expensive in the world. Both ports accounted for over half of the ships that berthed in Nigeria in 2020.

Sceptics wonder if the new call-up system will resolve the traffic gridlock in and around Apapa area. Those who profit from the current chaos may resist change. The Eto app will succeed the Special Traffic Management Team, set up by Lagos state to replace the Presidential Task Force.