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Thursday, March 30, 2023

Nigerian Stocks in Bull Run That Defies Global Slump

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As gloomy as the global headlines have been, they have yet to enact any appreciable harm Nigerian stocks or the NGX All-Share Index (ASI) 30 earnings.

In a year rife with headwinds such as the Russian-Ukraine war to supply chain bottlenecks, inflationary pressures, electricity/diesel price hike to foreign exchange shortages, it’s record earnings per share that has kept the bulls case intact.

Rather than fall, as negative headline risks climb and the gradual economic recovery comes under increasingly worrisome threat, the estimated net income of the thirty largest and most liquid firms or NGX-30 jumped by 20.18 percent to N883.13 billion in March 2022 from N734.81 billion the previous year.

Their combined revenues spiked by 30.25 percent to N3.75 trillion as at March 2022, according to data gathered by MoneyCentral.

Interestingly, the stock market has been reacting positively to the stellar performance of bellwether firms.

Nigerian stocks represented by the broad NGX-All Share Index has gained 19.24 percent so far this year while the NGX 30 index has year to date gains of 11.89 percent.

On the other side of the world, U.S Stocks lost ground in choppy trading on Friday as investors struggled to find a floor after a dramatic week that saw the Dow Jones Industrial Average post both its best and worst days since 2020.

The S&P 500 shed 0.57% to close at 4,123.34, while the Nasdaq Composite fell 1.40% to settle at 12,144.66. The Dow shed 98.60 points, or 0.30%, to finish at 32,899.37. The losses on Friday clinched a losing week for all three major indexes despite starting off the period with three straight positive sessions.

The moves came after stocks sold off sharply on Thursday. The Dow lost more than 1,000 points, and the tech-heavy Nasdaq Composite fell nearly 5%. Both indexes notched their worst single-day drops since 2020. The S&P 500 fell 3.56%, its second-worst day of the year.

Thursday’s losses erased Wednesday’s big post-Federal Reserve meeting rally.

Nigerian stocks beat analysts’ estimates as investors had feared that lack of transformative policies by the government and deteriorating consumer purchasing power would significantly undermine earnings.

There were improvements in profit margins across sectors with the consumer goods firms who felt the pang of the coronavirus pandemic that tipped the country into a recession in 2020 emerging star performers.

Analysts attribute the impressive performance to savvy managers who are nimble enough to have put in place cost control measures and price adjustments.

The Oil and Gas index has been outperforming the Index since the beginning of the year as the war in Eastern Europe combined with the sanctions by European blocks and the United States on Russia added impetus to the crude oil rally.

For the first three months through March 2022, the largest consumer goods firms collectively grew net income by 68.60 percent to N86.06 billion from N51.04 billion the previous year.

Their combined profit margins rose to 7.60 percent in March 2022 from 4.65 percent the previous year, thanks to price increments.

Dangote Cement, BUA Cement, and Lafarge Africa, saw cumulative net income rise by 29.15 percent to N156.55 billion as at March 2022.

The average profit margin of the largest producers of the building materials moved to 26.39 percent in the period under review from 25.43 percent the previous year.

The Industrial Goods index has gained 17.55 percent this year, however, it underperforms the All Share Index.

Drilling down the numbers shows the most liquid and most capitalised banks collectively grew net income by 10 percent to N276.78 billion as they benefitted from a gradual rise in both short- and long-term government securities, revaluation gains, and increased creation of risk assets that buoyed their loans books.

Okomu Oil, the largest palm oil producer, has reported a 63 percent increase in revenues in the first quarter (Q1) of 2022 as Palm oil prices continue to rise on tight global supplies.

It reported revenues of N20.485 billion for the period compared to N12.554 billion a year ago. Profit after tax for Q1, 2022 rose to N9.498 billion, up from N5.27 billion in 2021.

Analysts are not optimistic that companies will maintain the growth momentum given political risk associated with the 2023 elections and the inability of manufacturers to pass on rising input cost in the form of higher prices to consumers whose pockets are already squeezed.

Banks operate in the punitive regulatory environment as a high cash reserve ratio and investor apathy towards shares of sector players combined with higher effective tax rate are downside risk.

“Since 2012, the Nigerian consumers have come under severe pressure. From partial fuel subsidy removal to the free fall in naira in recent years, to the imprint left by the border closure to security in food processing region, and more recently, the supply chain caused by the Russian-Ukraine war, all these have contributed to inflationary pressures,” said analysts at CSL Stockbrokers Limited.

“In response, the average Nigerian consumer has been trading down on the value chain, switching to cheaper alternatives as the cost of living rises in the face of generally low income levels,” summed the analysts.

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