• Friday, March 29, 2024
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Consumer goods sell off is a golden opportunity to Buy these stocks

Consumer goods

While the consumer goods industry is the hardest hit by a harsh and unpredictable macroeconomic environment, the broader market selloff has created an opportunity for many stocks.

Tremendous opportunity arises whenever stock sell off arises, but investors with weak stomach for volatility are advised to sit on the side-lines and watch.

Investment House Cordros Securities Limited have a Buy ratings on  Dangote  Sugar (DANGSUGAR), Flour Mills of Nigeria (FLOURMILL), NASCON Allied  Industries  (NASCON)  and  PZ  Cussons  Nigeria  (PZ), while we have ‘HOLD’ ratings on Nestle Nigeria (NESTLE) and Unilever Nigeria (UNILEVER).

Dangote Sugar’s shares traded at 7.67 times earnings while share price closed at N10.35 as of 2:00 pm Lagos-July 16 2019-; revenue for the first three months through March 2019 dipped by 7.24 percent.

The valuation trend of the producer of the sweetener  shows revenue fell by 26.44 percent in December 2018 as price to earnings stood at 6.58 times, and the share price closed at N21.80 as of March 20 2018.

As of March 20 2017, Dangote Sugar shares traded at N6.50, while P/E ratio was 5.41 times earnings; revenue grew by 20.44 percent as at December 2017. As of March 20 2016, its shares traded at N5.70 as revenue spiked by 67.95 percent; P/E ratio stood at 6.12 times in the period under review; Revenue in that period was up 6.53 percent in December 2016.

NASCON Allied Industries shares closed at N15.50 as of 2:00 pm in Lagos-July 16 2019- while the shares traded at 9.80 times earnings; sales for the first quarter of 2019 were flat.  The company’s P/E ratio stood at 10.39 times earnings in 2018 while shares closed at N21.70 as of March 20 2018; revenue as at December 2018 fell by 4.80 percent.   

As of March 20 2017, the company shares closed at N7 while P/E ratio stood at 7.61 times; Sales for December 2017 increased by 47.95 percent. In 2016, its shares traded at 8.25 times earnings while shares closed at N6.52 times as of March 20 2016; sales as at December 2016 were up 13.11 percent.

P.Z Cussons’ shares price closed at N6.30 as of 2:00 pm-July 16 2019- as P/E ratio was Nil. As of March 20 2018, P/E ratio stood at 26.25 times earnings as shares closed at N22.05b in the period under review; revenue was down 47.82 percent for year ended 2018.

As of March 20 2017, P/E Ratio stood at 29.83 times as shares closed at N14 in the period under review. Shares trade at N22.79 as of March 20 2016 while P/E ratio stood at 22.34 times; revenue was up 73.65 percent as at the year ended 2017.

Unilever Nigeria’s shares closed at N33- July 16 2019-as of 2:00 pm in Lagos, while the shares traded at 18.40 times earnings; revenue for the first three months through March fell by 20.83 percent.

As of March 20 2018, Unilever’s shares traded at 30.89 times earnings as shares closed at N55 in the period under review; Sales were up 9.05 percent as at December 2018. Its shares touched at N31.85 as of March 20 2017 as P/E ratio stood at 39.29 times; sales was up 30.01 percent as at December 2017.

Shares traded at N28.12 as of March 20 2016 while P/E ratio stood at 87.87 times in the period under review; revenue was up 17.81 percent in December 2016.

Nestle Nigeria’s shares closed N1250-July 16 2019-m as of 2:00 pm while the shares traded at 20.97 times earnings; Sales were up 5.19 percent as at March 2019. As of March 20 2018, its shares closed at N1380 as P/E ratio stood at 17.62 times; revenue grew by 9 percent as at December 2018.

As of March 2017, Nestle Nigeria shares closed at N750 while P/E ratio trades at 75 times; revenue was up by 34 percent as at December 2017.

The company’s shares traded at 23.37 times earnings as at March 20 2016 while shares closed at N700 in the period under review; revenue was up 20 percent as at December 2016.

Subdued consumer spending due to Naira devaluation and fuel price hike has undermined revenue and margins of companies.

Companies had hiked the price of key products in order to fend off the effect of dollar scarcity and spiralling inflation rate, and they are finding it practically difficult to pass on the cost on struggling shoppers.

Nigeria’s economic growth slowed in the first quarter after the oil sector, the country’s biggest foreign-exchange earner, contracted.

Gross domestic product expanded by 2.01 percent in the three months through March from a year earlier. That compares with 2.4% expansion in the fourth quarter.

The country’s inflation stood at 11.20 percent as at June 2019, a figure that is higher than the 6 percent and 9 percent CBN target range.

Over the rest of 2019, economic growth is expected to gather some pace, but the impact will be negligible,” analysts at Cordros Securities

“We estimate 2.21 percent in 2019; high inflationary pressures are also expected to persist – we estimate c.10.6 percent by the end of the year; and finally, unemployment is expected to remain above 23 percent, keeping consumer spending in check.

  Also, consumer sentiments remain weak, with the CBN’s Consumer Expectations Survey showing that respondents were less optimistic about the future.

Analysts at Cordros Securities say going forward, the potential headwinds for consumers include: higher energy prices – petrol and electricity, and (2) higher VAT rate, which could potentially partially erode the effects of the minimum wage increase.

Data gathered by BusinessDay shows that the cumulative sales of 10 largest consumer goods companies quoted on the floor of the bourse reduced by 3.64 percent to N419.14 billon in March 2019 from N435 billion the previous year.

Combined net income dipped by 11.17 percent to N33.02 billion in the period under review from N37.17 billion the previous year.

Expenses of Nigerian companies are growing faster than an uptick in revenue as cumulative net profit margin fell to 7.19 percent in March 2019 from 9.53 percent as at March 2018.

Some consumer goods firms have put some measures in place to avoid further deterioration in margins.

For instance, it is expected that the NASCON Allied’s earnings will get a boost with the resumption of previously mothballed vegetable oil and tomato paste business.

Flour Mills Nigeria’s deleveraging strategy is expected to add impetus to margin and help deliver higher returns to shareholders.

Nestle, the most profitable Nigerian consumer goods firm will continue to introduce variations of the Maggi brand, launching Maggi Signature powder in the second quarter of the year to compete in the premium seasoning segment.

 

BALA AUGIE