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Wednesday, September 27, 2023

NSE-30 Profit Recession Ends on Relaxation of Social Distancing

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Sixty percent of the largest companies that have reported first quarter (Q1) 2021, results recorded strong growth in earnings, a profit recovery that validates the country exiting its second recession in less than five years.

That would halt a streak of contracting profits that reached two quarters as a lockdown restriction imposed by the government to curtail the spread of the virus hobbled corporate Nigeria.

The thirty most capitalized and liquid firms otherwise known as “Nigerian Stock Exchange (NSE) 30” however saw combined net income spike by 35.13 percent to N695 billion in March 2021 from N514.86 billion as at March 2020, according to data gathered by MoneyCentral.

NSE 30 profits were down slightly by 3.50 percent in the last quarter (Q4) of 2020, while profits fell by 4.45 percent in the third quarter Q3 of 2020, according to data gathered by MoneyCentral.

The stellar performance that trounced estimates were largely driven by the relaxation of social distancing, gradual reopening of the economy, and the rollout of vaccines that underpinned crude oil prices.

“I expect earnings to be decent in the second quarter, but growth will be uneven across sectors. We saw very strong numbers from cement producers. And improved spending in capital expenditure by the government and investment in real estate are expected to propel growth,” said Gbolahan Ologunro, equity research analysts with Cordros Capital Securities Limited.

Ologunro also said the future is bright for banks because economic recovery will significantly reduce loan impairment charge while acceleration in electronic transactions will underpin fees and commission income.

“I expect strong growth for telecoms firms on the back of increased activities from the informal sector that strengthens voice data usage,” he adds.

Africa’s largest economy achieved economic growth of 0.11 percent in the last three months of 2020, the National Bureau of Statistics (NBS) said, following contractions in the second and third quarters.

Despite the whammy of exchange rate depreciation and double-digit inflation, the dominant producer of the building materials (Dangote Cement, BUA Cement, Lafarge Africa) collectively grew net income by 36.37 percent to N121.21 billion as at March 2021.

Analysts at Chapel Hill Denham Limited raised their 12-month target price (TP) for Dangote Cement to N246.30/share, from N223.24/share, and upgraded their rating to BUY, from HOLD previously.

The land border closure imposed by the government to curb smuggling and influx of cheap and substandard products was a boon for Dangote Sugar and flour millers, and their grandiose performance was the major driver of consumer goods sector earnings growth.

The combined net income of consumer goods firms spiked by 32.01 percent to N38.30 billion as at March 2021, thanks to 91.25 percent uptick for Flour Mills, Dangote Sugar, (+30.27 percent), and Nascon Allied Industries, (+15.20 percent), and Nestle Nigeria, (+10.76 percent).

However, the banks lagged other sectors for the first time in 7 years as a punitive regulatory environment as well as the coronavirus induced headwinds pressured earnings.

The regulator inadvertently ended free money when it barred individuals and local corporates from its Open Market Operations (OMO), sending net treasury yields crashing.

Combined net income of banks on the NSE 30 list dipped by 3.75 percent to N268.44 billion as at March 2021 from N258.72 billion the previous year. Their net interest margins are interestingly deteriorating, which underscores the low yield environment.

In April 2020, oil prices plunged into negative territory as the global coronavirus pandemic kept people at home and destroyed demand for transportation fuel.

That left oil majors with huge impairment charges that led to losses as they were forced to cut dividends and scale back on expansion plans.

However, the rebound in crude oil price since January on the back of relaxation of social distancing measures and successful rollout of vaccines made companies revert to the path of profitability.

Seplat Development Corporation Plc, the largest upstream oil and gas firm, reported $24.85 million in net income, its first quarterly profit since the advent of the virus in the first quarter of last year.

The earnings of Nigeria listed telecoms have proven to be resilient amid the shock of the pandemic.

Despite the macro weakness, MTN Nigeria (MTNN) and Airtel Africa (AIRTELAFRI) have both enjoyed strong subscriber growth, increased smartphone and data penetration, and higher 4G population coverage in Nigeria.

MTN Nigeria’s net income spiked by 42.53 percent to N73.74 billion as at March 2021 from N51.74 billion the previous year.

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