The Nigeria Exchange Group (NGX) 50 companies with the most cash are sitting on over one trillion naira that they could either give back to owners or retain the large chunk for future expansion.
Just 8 non-financial companies in the NGX 50 (most liquid and capitalised firms), including MTN Nigeria, Dangote Cement, BUA Cement, Nestle Nigeria, Lafarge Africa, Nigeria Breweries, International Breweries and Transnational Corporation,), are sitting on cash and investments of more than a N1 trillion, according to data gathered by MoneyCentral.
This massive cash pile accounts for nearly 93 percent of the N1.69 trillion held by all of the companies in the NGX 50.
In 2020 these 8 companies were sitting on N1.22 trillion cash, which is 89.12 percent of the total figure of NGX 50 as the period of lock down accelerated cash hoarding because there were no expansion plans and capital projects were suspended.
Now that business activities have been animated on the back of successful rollout of vaccines and relaxation of the social distancing rules, shareholders will be expecting a big slice of the cake.
Companies use cash to finance the payment of dividend, which is being paid from distributable profit, and investors perceive a firm that pays steady dividend as being in good financial health and the share price of such an entity appreciates.
However, a company in its growth phase may decide to plunge nearly all of its profit back into the business to fund expansion plans.
Some do pay out all of their earnings as dividend and borrow from either the debt or equity market to pursue investment opportunities.
Earlier this year, MTN Nigeria disclosed in a statement on the website of the Nigerian Stock Exchange that it would likely use part of the N100 billion bond issuance to pay dividend. It generated N709.37 billion from cash from operating activities, which is 29.67 percent higher than 2020’s N546.96 billion.
The largest telecommunication firm paid N120.09 billion dividends in 2020 to its owners, and declared N92.59 billion interim dividends in 2021, according to data from its website.
Nestle Nigeria, one of the largest consumer goods firms in Nigeria, declared a dividend of N55.48 billion in 2020, which exceeded net income of N39.21 billion as it scooped from after tax retained earnings to reward its owners.
Nigerian Breweries Plc gave shareholders N14.54 billion from distributable profit in 2020; cash from operating activities were up 72.55 percent to N112.37 billion as at September 2021.
Dangote Cement, the largest producer of the building material and the most capitalised firm in the country, approved the repurchase of 10 percent of its issued shares from the shareholders.
While International Breweries has a cash balance of N41.15 billion as at September 2021, it will not be paying dividend because it has accumulated losses or negative retained earnings.
An industry expert who spoke to MoneyCentral on the condition of anonymity said firms are hoarding cash because they want to see clarity in the economy.
“They don’t jump into investment because there are not many investment opportunities,” said the analyst.
While the third quarter earnings report showed the majority of bellwether firms record profit growth as the country exited a coronavirus virus induced recession, foreign investors are not optimistic of an accelerated economic recovery as country is beset by lack of transformation policies, deteriorating household income due to Covid-19 and severe insecurity threatens food securities.
The World Bank says the general increase in food prices which occurred between June 2020 and June 2021 may have increased the percentage of Nigerians living below the national poverty line from 40.1 per cent to 42.8 per cent.
The Nigerian economy grew by 4.04 percent year on year (yoy) in the third quarter (Q3) 2021, according to recent data from the National Bureau of Statistics (NBS).