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Wednesday, November 30, 2022

NSE 30 firms’ Profit Shrinks on Seplat’s Huge Loss, COVID-19

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Every sector of the economy is feeling the pang of an economic downturn caused by a sudden drop in crude oil price and the coronavirus pandemic that forced government to impose a lockdown policy.

The net income of the largest and most capitalized companies on the Nigerian Stock Exchange (NSE) or NSE-30 reduced by 9.02 percent to N392.63 billion as at march 2020, the first slump in 5 years, as the negative impact of the stay at home order is gradually showing face in the books of companies.

The reduction at the bottom line (profit) was largely driven by the huge loss suffered by independent indigenous Nigerian upstream exploration and production, Seplat Petroleum Development Corporation Plc.

Just like oil majors across the globe that were forced to suspend dividend payment and cut capital expansion plans due to huge losses and rising impairments, Seplat recorded a loss after tax of N34.62 billion as at March 2020.

Interestingly, the company’s impairment loss of N47.27 billion exceeded revenue of N42.40 billion, that’s on top of the N42.04 billion total expenses.

The coronavirus pandemic disrupted the demand and supply side of the market, resulting in loss of jobs, and many retailers were unable to operate just as rising inflation continues to erode the purchasing power of consumers.

The Fast Moving Consumer Goods Sector did not fare better in the first quarter, and the hardest hit by headwinds are the brewers, since bars and restaurants were shut.

The combined net income for the largest brewers quoted on the bourse fell 19.75 percent to N28.68 billion in the period under review.

“We believe the deterioration in the sector is a fallout of the effect of subdued economic activities and continued adoption of social distancing measures which hindered the free movement of people and patronage of entertainment or recreational centres,” said analysts at CSL Stock Brokers Limited.

“Despite the partial easing of the lockdown measures and stimulus measures from the monetary authority, we expect activities to remain soft in the short term due to weak demand which will continue to weigh,” said the analysts.

The industrial goods industry is reeling from slow construction activities and budget impasse, while federal government capital expenditure cut has a cast a pall on future earnings.

However, the three largest dominant players (Dangote Cement, BUA Cement, and Lafarge Africa), saw combined net income increase by 7.55 percent to N88.44 million as at March 2020.

The Manufacturing PMI in the month of June 2020 stood at 41.1, indicating contraction in the manufacturing sector for the second time this year.

A composite PMI above 50 points indicates that the manufacturing/non-manufacturing economy is generally expanding, 50 points indicates no change and below 50 points indicates that it is generally contracting.

In a pessimistic scenario, The World Bank expects the spread of the virus and a slump in the crude oil price to plunge Nigerian economy into a severe recession.

The Bank said the economy will likely contract 3.20 percent this year.

“While the long-term economic impact of the global pandemic is uncertain, the effectiveness of government’s response is important to determine the speed, quality, and suitability of Nigerian economy,” said Shubham Chaudhuri, Country Director of the World Bank.

Nigeria’s largest banks saw combined net income increase by 6.03 percent to N234.06 billion as at March 2020, as a harsh regulatory environment means future earnings will take a beating.

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