The hardest hit from a sluggish economy are the Fast Moving and Consumer Goods (FMCGs) firms.
Low consumer purchasing power, gridlock at the Apapa port, and unreliable power supply are increasingly undermining growth, casting a pall on the future of the industry.
Sales are receding whilst margins are shrinking, as experts fret that companies could results to downsizing workforce to stay afloat, a bad omen for a country where the vast majority of people are without a job.
Nigerian unemployment rate has hit 23.10 percent as of the third of 2018, according to a recent by the National Bureau of Statistis (NBS); and Chris Ngige, minister for Labour and Productivity said the figure would reach 33.50 percent by 2020.
The largest consumer goods firms made N419.14 billion in March 2019, a 3.78 percent reduction from N435 billion realized in 2018, according to data gathered by BusinessDay.
Combined net profit dipped by 11.17 percent to N33.02 billion in the period under review.
Average net margins fell to 7.07 percent in March 2019, from 9.17 percent the previous year; this means they are finding difficult to turn each Naira generated in sales into higher profit.
Nigerian companies are also feeling the pinch of the tough and unpredictable macroeconomic environment as revenue increased by a mere 5.05 percent to N2.36 trillion in March 2019 from N2.48 trillion as at March 2018.
Combined net margins followed the same slow growth trajectory as it jumped by 4.65 percent to N362.35 billion in the period under review, from N379.22 billion a year ago.
Samuel Adewale, a Lagos-based Stockbroker said the 5% growth in total revenue means some companies actually grew volumes instead of prices and even those who raised prices only did marginally.
“This could translate into an improvement in the GDP figures when it is released next week,” he said.
On the net profit that grew 4.65% at a slower rate to revenue, this suggests that costs either in the form of cost of sales, administrative expenses or finance cost grew during the period.
According to Adewale, many companies have complained bitterly about the cost of doing business in Nigeria ranging from the cost of raw materials, the notorious Apapa gridlock, which is also reflective in their net margin which remained flat for the period.
The PE ratio at a decade low of 7.14x implies that prices of stocks relative to the earnings they are churning is very low. The NSE ASI also declined 8% despite a relatively stable macro-economic environment and stable crude oil prices and stable exchange rate.
“Admittedly the market responded to pre-election jitters, however, it has been two months after the election and the market has not improved,” he said.
Morgan Stanley Index is extremely low at 5.40x significantly below frontier index of 10.65x.
“A huge claims expense can erode all the gains in subsequent quarters of the year for insurance players,” he said.
“Companies in the Energy sector are still not profitable some make N200bn-N300bn as revenue and report less than 10bn as PAT, a margin of just 3-5%,” he said.
Experts say the President Muhammadu Buhar led administration should formulate policies that will reflate the economy. Also, copious infrastructure bottlenecks hindering companies from thriving should be removed.
Nigeria’s economic growth slowed in the first quarter after the oil sector, the country’s biggest foreign-exchange earner, contracted.
Gross domestic product in Africa’s largest oil producer expanded by 2.01% in the three months through March from a year earlier, the Abuja-based National Bureau of Statistics said in a report published on its website Monday. That compares with 2.4% expansion in the fourth quarter. The median estimate of five economists surveyed by Bloomberg was for growth of 2.6%.
BALA AUGIE
