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Consumer Goods Firms Back on Track, With Second Best Performance on NGX

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Consumer goods firms who posted record profits even amid a challenging environment are back on track as the sector is the second best performer on the Nigeria Stock Exchange.

The NGX consumer goods index, which was a laggard last year, has gained 13.34 percent so far in 2023, outperforming the NGXASI index which is up 8.89 percent.

Some analysts attribute the positive year to date to impressive corporate earnings and attractive dividend yield as investors are reacting to dividend declarations.

Despite the scorching operating environment, the combined net income of the largest listed consumer goods firms spiked by 33.42 percent to N244.96 billion as at December 2022, according to data gathered by MoneyCentral.

They collectively saw revenue rise by 33.42 percent to N3.39 trillion as at December 2022 from N2.59 trillion the previous year.

The average industry net profit margin moved to 7.92 percent in the period under review from 7.75 percent as a lot of they had hiked price of key products.

The earnings growth and stock performance so far underscores the resilient nature of industry players and investors’ optimism that the sector remains lucrative even amid monumental operating challenges.

Of course, the sector is still beset by challenges including devaluation of the currency that exacerbated challenges on production costs as the industry is unable to easily pass on rising input costs on consumers who are already whose purchasing powers have been squeezed by inflation and spiraling utility bills.

Additionally, Russia and Ukraine contributed to a spike in the price of grains such as maize, wheat, and corn and the expectation of a rate hike by the central bank who seeks to tame inflation have stoked mixed reaction from analysts about the outlook for the consumer goods players (Sector).

The annual inflation rate in Nigeria accelerated to 21.82% in January 2023, the highest since September 2005, from 21.34% in the prior month, against market expectations of a further slowdown to 21.3%.

The Nigerian economy grew by 3.10% year on year (yoy) in 2022, slower than the 3.40% growth recorded in 2021.The fourth quarter (Q4) 2022 GDP growth was 3.52% yoy, stronger than the 2.25% yoy growth in the third quarter (Q3) 2022, but below the Q3-2022 growth of 3.98% yoy.

Analysts at Afrinvest Securities in a recent report said that the tough and unpredictable macroeconomic environment compelled players to re-evaluate business strategies by focusing on product resizing or “sachetisation” and driving digital sales.

“The impact of the price increase has been majorly felt by import-dependent countries like Nigeria, following trade restrictions by major grain shippers,” said analysts at Afrinvest Securities.

“FX sourcing, logistics and structural issues in the agricultural sector compounded woes for Nigerian manufacturers,” said the analysts.

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