Based on the NGX 30 index constituent- the most liquid and capitalized firms- Dangote Cement is the largest firm by profit in the first quarter (Q1) of 2022, as Nigerian stocks are enjoying a bull run amid rising inflation.
Dangote Cement posted net income of N105.85 billion in the first quarter of 2022, and that’s higher than MTN Nigeria’s net income of N96.82 billion; Zenith Bank, (N58.19 billion); Access Bank, N57.40 billion; GTCO, N43.20 billion; United Bank for Africa (N41.49 billion).
Others are ETI at N38.32 billion, BUA Cement, (N33.14 billion); Okomu Oil, (N20.48 billion); Nestle Nigeria, (N17.98 billion).
The total net profit of the NGX 30 companies rose by 30.58 percent year on year (yoy) to N729.77 billion as at March 2022, according to data gathered by MoneyCentral.
There has been an improvement in the yield environment that strengthened banks’ earnings, while the consumer goods firms and cement makers benefitted from a hike in the price of products that helped compensate for rising inflation.
The rally in crude oil price on the back of the relaxation of the lockdown measures and the East Europe that elicited sanctions being imposed on Russia for the invasion of Ukraine is a boon for oil and gas firms whose shares have been rising since the start of the year.
So far this year, the NGX30 Index has gained 12.1% with Cadbury, Seplat, and Presco returning 101.14 percent, 98.38 percent, 84.51 percent respectively, as the best three stocks over the period.
It is important to note that corporate profit growth is concomitant with the gradual economic recovery as evidenced in the last GDP report published by the National Bureau of Statistics (NBS) that showed the economy expanded by 3.10 percent year on year (YOY).
The Q1-2022 GDP figures showed that the Nigerian economy expanded by 3.1 percent y/y in real terms in what was broadly a positive surprise as the growth print topped consensus expectation even amid unprecedented developments in the global economic environment including rising inflationary pressure, higher importation costs (due disruption in the global supply chain), and geo-political uncertainties.
However, there are concerns that corporate profit might slow down due to the hawkish stance of the central bank which hiked the monetary policy rate (MPR) to tame inflation; it must be noted that central banks across the globe are hiking interest rates to rein in on inflationary pressures brought on by rising commodity prices, supply chain issues, and the war in Eastern Europe.
Usually, when the central bank hikes interest rate, it undermines the expansion plans of companies who will be paying higher interest to service debt, which shrinks dividend distribution to shareholders as profit slumps.
In a high interest rate environment, the bond yield used in the calculation of cost of debt needed to arrive at the weighted average cost of capital (WACC) increases, which shrinks the value of a firm.
However, banks will be the winner in a high interest rate environment as net interest margin improves.
The Nigeria 10-year government bond has a 11.299 percent yield as at June 2022, according to data from World Government Bond.
Central banks’ monetary policy committee has increased the monetary policy rate from 11.50 percent to 13 percent.
There are indications that geopolitical tensions and rising inflation are beginning to manifest in the books of firms who have released results so far in the form of spiraling costs of production that deal a great blow on margins.
It is noteworthy that companies are groaning under huge raw material costs and some of them have decided to hedge against price increases by placing orders in advance. Obliviously, that resulted in a pile up of inventories and an uptick in receivables.