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Eighty-eight percent of Nigeria corporate profits via the NGX-30 last year came from ten banks as investors were willing to pay up generously for these earnings machines while procrastinators see a sluggish economic growth depress future incomes.
Just 10 stocks, Zenith Bank Plc, Access Corporation Plc, Guaranty Trust Holdings (GTCO) Plc, FBHN Plc, United Bank for Africa (UBA) Plc, Stanbic IBTC Holdings Plc, Zenith Bank Plc, Fidelity Bank Plc Ecobank Transnational Incorporation Plc, First City Monument Bank Plc, and Sterling Bank Plc, collectively posted profit after tax or net income of N3.29 trillion that is 88.28 percent of the entire NGX 30 firms’ net income of N3.73 trillion as at December 2023, according to data gathered by MoneyCentral.
The NGX 30 profit – the list of the most liquid and capitalised firms- jumped 32.98 percent in the period under review as non-financial companies are groaning under the new bold reforms of the new administration.
However, the new reforms have bolstered investors’ confidence in the equity market as the NGXASI 30 index has a year to date (YTD) of 28.35 percent.
Of course, the positive performance of banks was supported by robust foreign exchange revaluation gains, elevated yields in the debt market, and the easing of the Ghana crisis.
Lenders stocks were the second best performer in the equity market in 2023 as expectations of bumper dividend, the removal of central bank governor Godwin Emefiele, and the announcement of recapitalisation by the new central bank governor Yemisi Cardoso spurred a rally.
The Bank index had a YTD of 114.98 percent to close last year, however, there has been a selloff in bank stock this year as it has lost -12.21 percent as of April 17, 2023.
Seplat Energy Plc, the largest upstream oil and gas firm, benefitted from the continued rally in crude oil price as its net income surged by 83.04 percent to N81.33 billion as at December 2023.
A rally in crude oil price has been underpinned by the Russia and Ukraine war, geopolitical tension in the Middle East, and an aggressive output cut by OPEC + to lift price.
Brent Crude Oil touched down at $89 a barrel while the West Texas Intermediate (WTI) stood at $84.10 a barrel. Analysts are sanguine that the price will reach $100 on the back of heightened bedlam between Israel and Iran.
It is important to note that the majority of non-financial firms capitulated to a challenging macroeconomic environment, especially manufacturers and telecommunication firms that booked huge foreign exchange losses that tipped them over the hedge.
The continuous hike in interest rate by the regulator who seeks to curb stubborn inflation has balloon finance costs in the books of firms which undermines the bottom-line (profit).
Analysts are of the view that the removal of subsidies on fuel and foreign exchange liberalization will crimp economic growth.
“The economy will struggle for the rest of the year and that will affect earnings,” said Johnson Chukwu, managing director and CEO of Cowry Asset Management Limited.
“Unless we see the same kind of devaluation, banks will not make money this year as they did last year. Rising inflation affects their operating expenses which is deleterious to profit growth,” said Chukwu.
Nigeria’s inflation rate rose to 33.20 percent in March 2024 — up from 31.70 percent in February.
The central bank has raised the Monetary Policy Rate (MPR) by 200 basis points from 22.75 to 24.75 percent.
The Nigeria 10 year government bond has a 19.717 percent yield. 10 Years vs 2 Years bond spread is -27.5 bp, according to data from World Government Bonds.
Guinness Nigeria, Dangote Sugar, Nigerian Breweries, Nestle Nigeria, and International Breweries posted a combined net loss of N324.42 billion foreign exchange loss, according to data gathered by MoneyCentral.
“Growth in the manufacturing sector was subdued throughout the year, primarily due to the unfavourable operating conditions experienced by manufacturers,” said analysts at Meristem Securities Limited.
Some firms have exited the country due to the menacing bold economic reform while others are restructuring their operations to stay afloat.
Nigerian Breweries Plc has indicated plans for a company-wide reorganisation aimed at securing a resilient and sustainable future for its stakeholders.
The consumer goods giant’s Business Recovery Plan includes a Rights Issue; a review of the Company’s current organisational structure and size as agreed with the Industry Union; the temporary suspension of operations in two of its nine breweries and an optimisation of production capacity in the other seven breweries, some of which have received significant capital investment in recent years.
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