• Tuesday, September 26, 2023
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Analysts upbeat on Q3 earnings amid coronavirus

Nigeria’s external reserves plunge to one-year low

There is cautious optimism that the worst of the coronavirus pandemic as it affects the economy is blowing over as the gradual easing of lockdowns and low interests environment is expected to add impetus to third-quarter earnings growth.

Analysts are upbeat that some entities that capitulated to the headwinds and recorded losses in the second quarter will revert to the path of profitability in the third quarter.

As a result of the Covid-19 pandemic and collapse in oil prices that damaged the demand and the supply side value chain, 26 listed companies posted a collective net loss of N84.03 billion as of June 2020, according to data gathered by BusinessDay.

A breakdown of the figures into sectors shows all the dominant players in the hotel and hospitality sector: Ikeja Hotel, Transcorp Hotels, Tourist Corp, and Capital Hotels recorded combined net losses of N8.98 billion as of June 2020.

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Across the globe, the hospitality industry is the hardest hit from the Covi9-19 crisis as flights were grounded for four months while lovers of pleasure could not hit the bar and hotels.

Before the advent of the pandemic, Nigerian companies had been reeling from weak consumer spending, currency volatility, poor government policies, and decrepit infrastructure.

PZ Cussons, International Breweries, Champion Breweries, and Unilever Nigeria, recorded combined losses of N29.18 billion. And there are concerns that the recent hike in electricity tariffs and subsidy removal could further exert more pressure on consumer wallets.

Seplat Petroleum, the largest listed upstream oil, and gas company recorded a loss of N37.15 billion, as oil majors embarked on the aggressive reduction of headcount to stay afloat.

Chevron Nigeria Limited said on Friday it would slash its workforce by 25 percent as it was reviewing its manpower requirements in the light of the changing business environment.

Nonetheless, analysts see the reopening of the economy to drive a sharp rebound in activities, and that the dovish monetary policy of the central bank and the multilateral supports will ease the deficit financing pressures on the government.

Johnson Chukwu, managing director and CEO of Cowry Asset Management Limited is optimistic that a lot of companies will cut back on losses.

“We should expect the economy to do better as there will be moderation in contraction in GDP. The Brewery industry will benefit from the gradual reopening of the economy,” said Chukwu.

A few days ago, P Z Cussons released its first-quarter 2020 results that showed net loss reduced to N212.58 million from N1.09 billion.

Real GDP contracted by 6.10 percent year on year (yoy) in the second quarter (Q2) 2020, according to recent data by the National Bureau of Statistics (NBS).

Analysts at Chapel Hill Denham Limited recently said GDP will contract by 3.0 percent.

The financial institutions and telecoms sectors will be the greatest beneficiary when the economy fully recovers given strong potentials.

Yinka, Ademuwagun equity research analysts is of the view that the current low-interest-rate environment will pave the way for companies to borrow money from banks to fund expansion plans.

The Nigerian equity market recovered significantly on the back of the surprise rate cut by the Apex bank as year to date (YTD) was up 6.70 percent as at October 7, 2020.

“This month, we expect that the positive sentiment in the equities market will be sustained as investors position for Q3-2020 earnings publications,” analysts at United Capital Limited.

Analysts have issued a rallying call to government to increase public investment by accelerating infrastructure spending that will help bolster aggregate demand.

There are concerns over the outlook country’s external reserve and exchange rate given worsening current account balance, decline in oil price, and risk aversion on the part of investors.

The central bank in its recently published Monetary Credit, Foreign Trade and Exchange Guidelines for Fiscal Years 2020-2021, estimates that the external reserves would be pressured lower to between $29.9 billion and $34.3 billion by the end of December 2020.