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Thursday, March 30, 2023

Banks Underperform as NGX 30 Profit Rises 32.43% to N2.05trillion

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For the first time in over a decade, the majority of banks are at the bottom of the NGX 30 Index profit growth pyramid as energy, Agric, and industrial goods firms emerge as star performers.

The most capitalized and liquid thirty firms otherwise known as the NGX 30 Index collectively grew net income by 32.43 percent to N2.05 trillion in December 2021 from N1.54 trillion as at December 2020, according to data gathered by MoneyCentral.

Interestingly, the earnings growth spurt was largely driven by the reopening of the economy or relaxation of social distancing measures put in place by the government to curb the spread of the coronavirus pandemic propelled business activities that strengthened crude oil price.

Firms who wanted to pass on rising input to consumers hiked the price of key products, but there are concerns that inflationary pressures squeezing consumer wallets may hinder companies from carrying out another round of increments.

The Nigerian economy grew by 3.98 percent year on year (yoy) in the last quarter of 2021, according to the latest data from the National Bureau of Statistics (NBS).

It is worthy to note that manufacturers benefitted from the low base in the prior year and a boom in local demand and the continued interventions given to critical sectors of the economy by the monetary authority.

As expected, analysis of the Q4 2021 GDP report showed the manufacturing sector real GDP closed the year positive, rising by 3.35% y/y in 2021 from a contraction of 2.75% y/y in 2020.

Oil prices rebounded from trough levels of $22.7/bbl in Mar-2020 to above $100.0/bbl in Mar-2022, as the war in east Europe and the ensuing sanctions by the Europe, the United States on Russia over its invasion of Ukraine spurred a rally in commodity prices and grains.

Seplat Energy Plc, the largest upstream oil and gas firm by market capitalization, posted a profit of N46.93 billion in December 2o21 from a loss of N77.64 billion the previous year.

The Oil and Gas Index has returned 2.7.50 percent, outperforming the NGXASI Index of 10 percent as energy stocks are expected to be winners in the first quarter earnings season, thanks to the rally in crude oil price since February 24, the day Russian launched an onslaught on Ukraine.

Dangote Cement, Lafarge Africa, and BUA Cement collectively grew net income by 33.73 percent to N507.18 billion in December 2o21.

Analysts at CSL Stock Broker said the resilient demand for cement despite the significant increase in prices was the major theme that distinguished 2021 from recent years.

“Unlike in 2020, where volume was the major driver of revenue performance, the double whammy of inflationary pressures and FX depreciation in 2021 created the opportunity for the Nigerian cement players to increase prices, which helped them to deliver robust earnings,” said the analysts.

The Industrial goods index has gained 5.10 percent since the start of the year, which beat the 10 percent year to date gains of the NGXASI .

In the last seven years, the government policies have been a boon for the two largest palm producers Okomu and Presco as they saw combined profit surged by 183.56 percent to N21.30 billion as at December 2021.

However, there are concerns that the reopening of land borders by the government might stoke intense competition and spur smuggling that undermines the earnings of palm oil producers.

The consumer goods firms saw combined net income increase by 23.38 percent to N89.41 billion in December 2021 from N74.27 billion the previous year.

However, International Breweries’ posted a net loss of N17.65 billion as it capitulated to rising cost of product and spiraling interest expense. despite an uptick in revenue driven by a price hike.

The consumer goods index recorded a -6.50 percent year to date , which underperformed the NGXASI index of 10 percent.

Banks who are stuck in a low interest rate environment have seen slow growth in profit, depressed interest margins and deteriorating return on average equity.

Guaranty Trust Holding Company or GTCO saw a 13 percent reduction in net income, FirstBank Holdings, -16.15 percent (*9months) Stanbic IBTC, -31.50 percent.

While Zenith Bank and United Bank for Africa or UBA recorded single digit growth of 6.10 percent, 8.70 percent in profit, Fidelity Bank, Ecobank Transnational Incorporation (ETI), and Access Bank saw net income grow by 43.10 percent, 333.70 percent, and 51.10 percent respectively.

Also, no bank made it to the first 15 in terms of revenue growth ranking in 2021, but Access Bank, which a lot of analysts have placed Buy rating on stocks, emerged the fastest growing lender by revenue.

The NGX Banking index has a year to date gain of 5.20 percent.

Analysts say foreign investors are not interested in banking stocks for because of capital controls imposed by the regulator, the high cash reserve ratio, and the normalization of interest rate in advanced economies.

There are indications the energy crisis that created scarcity of diesel whose price spiked, increase in electricity tariffs, and the Russian-Ukraine war will deal a blow on the profit margins of companies.

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