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Monday, March 27, 2023

Corporate Earnings Set to Surpass 2021 Levels

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Despite shattering inflation, global geopolitical tensions stoking commodity prices, analysts at CSL Stockbrokers are optimistic that corporate earnings will surpass 2021.

The resilient consumer demand specifically in the consumer goods and industrial sectors, despite the increase in prices is a testament that the companies can get away with price increases, with little impact on volumes, according to analysts at CSL Stockbrokers.

The three largest producers of building materials: Dangote Cement, BUA Cement, and Lafarge Africa collectively grew net income by 29.15 percent to N156.55 billion as at March 2022,  according to data gathered by MoneyCentral.

Okomu Oils and Presco Oil who are the giants in the Agric sector saw combined net income surge by 69.49 percent to N24.32 billion in March 2022 from N14.35 billion as at March 2o21.

The cumulative net income of the largest consumer goods firms spiked by 68.60 percent to N86.06 billion in March 2022 from 51.04 billion the previous year.

The average profit margin of NGXASI 3o (most liquid and capitalized firms) increased to 143.27 percent in the period under review from 89.82m percent the previous year, according to MoneyCentral calculations.

Earnings growth as concomitant with GDP expansion that was supported by the rebound in crude oil price and relaxation of lockdown measures.

The national accounts for the first quarter (Q1) ‘22 by the National Bureau of Statistics (NBS) show that GDP grew by 3.1 percent year on year (y/y) compared with the 3.9 percent y/y recorded in the last quarter (Q4) ’21.

It is worth noting that impressive corporate results by bellwether firms and attractive dividend payment helped sustain the positive momentum in the equity market.

At the end of June (HI), the local bourse posted year to date returns (YTD) of 21.3 percent as of June 30, 2022, according to data from CSL Stockbroker Limited.

“Unsurprisingly, activities in H1 2022 mirrored those of H2 2021, as the factors which supported gains in the last half of 2021 played out (even stronger) over the first half of 2022 (H1 2022).Today’s quote YTD and sectors,” said analysts at CSL Stockbrokers.

The NGXASI Index gained 21.69 percent so far this year. International Breweries, Linkage Assurance, NEM Insurance were among the top gainers at 2:00 pm on Friday in Lagos.

However, there are indications that a consistent rate hike by the central bank who seeks to curb stubbornly rising inflation may put a brake on corporate earnings growth because rising borrowing costs eat deep into earnings and it also slows down companies’ expansion plans.

Nigeria’s inflation rate in the month of June 2022 increased to 18.60 percent on a year-on-year basis.

Already, companies are struggling with a dearth of foreign exchange and rising diesel costs brought on by the war in Ukraine as the product is unregulated.

This means there will be pressure on input cost which casts a pall to profit margins and that is on top of the uncertainties surrounding the 2023 elections as foreign investors maintain apathy towards Naira assets.

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