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Monday, March 27, 2023

Brewers, Telcos Lead as 93% of NGX-30 Firms Record Profit Growth

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Ninety three percent of the thirty most capitalised and liquid firms in Nigeria or NGX 30 recorded earnings growth, and the star-performers are the brewers, telecommunications firms, and Seplat Energies who rode on the wave of improved microenvironment.

This impressive performance across board was bolstered by price increases, volume growth, extended distribution networks, infrastructure spending by the government, sustained recovery in the real estate, gradual improvement in the yield environment, the introduction of new products by some entities, and an unprecedented rally in crude oil price.

Data gathered by MoneyCentral showed the largest 3o firms collectively grew net income by 28.65 percent to N1.33 trillion in June 2022 from N1.03 trillion as at June 2021.

Of course, companies are in a better position to reward their shareholders as they are efficient in converting sales into actual profits as the average net profit margin increased to 17.21 percent in June 2022 from 16.51 percent the previous year.

I expect earnings performance of most corporates in the basket to remain relatively strong, especially for the last quarter of the year,” said Rasaq Abiola, former analyst at United Bank for Africa (UBA) Plc.

“However, the odds and uncertainty of upcoming election and macro- challenges may subdue performance of these large-cap corporates in 2023,” said Abiola.

The earnings growth is concomitant with the rally in equities since the start of the year and it is expected that the bourse will sustain the positive momentum till the end of the year, but there are concerns over the uncertainties surrounding the 2023 elections, inflationary pressures, and foreign exchange woes.

The NGXASI Index has returned 15.75 percent so far, driven by impressive corporate earnings, dividend payments, market stimulating corporate actions, and robust system liquidity.

And the top 10 best performers of the year in terms of year-to-date returns are: Multiverse, (1325.23 percent), Meyer, (393.48 percent); WEMABank, (380.56 percent); Academy Press, (268 percent); Guinness, (125.38 percent); Airtel Africa, (109.42 percent); Seplat, (92.31 percent); NewGold, (84.21 percent); Entranzt, (69.31 percent), and SCOA, 68.27 percent.

The NGX oil and gas index is the best performer as its 47.63 percent year to date return outperformed the overall broad market as the Russia and Ukraine war lifted crude oil prices.

Brent Crude was up 0.55 percent to $90.32 a barrel while West Texas Intermediate gained 0.59 percent to touch down at $83.43 a barrel.

It is noteworthy that the major drivers of equities are the local investors as the foreign ones remained underweight the market mainly due to foreign exchange illiquidity and capital controls imposed by the regulator.

Nigeria’s economy grew 3.5 percent year-on-year in the three months through June, compared with 3.1 percent in the first quarter, according to a latest report by the National Bureau of Statistics (NBS).

Drilling down bottom-line numbers sector by sector shows consumer goods firms on the list (NGXASI) collectively grew net income by 61.27 percent to N268.76 billion as at June 2022.

Dangote Cement, BUA Cement, and Lafarge Africa, the most dominant producer of the building material saw combined net income rise by 29.15 percent to N156.55 billion as at June 2022.

Further analysis shows the combined profit of banks increased by 14.21 percent to N568.61 billion, thanks to an in-interest rate by the central bank that bolsters interest income as the policy maker seeks to tame red-hot inflation.

However, the NGX Banking index has lost 7.91 percent so far this year as a harsh regulatory environment and lack of transformation policy on the part of the government continues investors’ apathy towards bank shares.

The Nigeria 10-year government bond has a 12.808 percent yield, according to World Government Bonds.

The Monetary Policy Committee of the central bank hiked the policy rate to 14 percent from 13 percent, and there are indications the apex bank will cling to a hawkish tone as inflation expectations continue to rise.

It is not surprising that the headline inflation climbed to a new high of 20.52 per cent in August on a year–on–year basis. This was 3.52% points higher compared to the rate recorded in August 2021, which was (17.01%).

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