Nigerian companies that conserved cash during the downturn of 2016 are beginning to loosen their purse strings as evidenced in the improvement in capital expenditure (Capex) spending in Q3 2018, although it is still below 2015 levels.
Corporate Nigeria has been reluctant to spend aggressively since the recession of 2016- brought on by a precipitous drop in crude oil prices, which stoked a severe dollar scarcity.
However, the relative peace in the Niger Delta region combined with a rebound in crude oil price and production and the introduction of Investors and Exporters windows helped the country exit its first recession in the second quarter of 2017.
That gave firms the leeway to source foreign exchange and import raw materials and equipment to meet production and pursue expansion plans.
The capital expenditure spending of 40 non-financial companies that have released third quarter 2018 results increased by 20.86 percent to N226.16 billion from N187.12 billion in the September 2017 period.
This compares with a drop of 38.17 percent to N187.12 billion in the 2017 period from N304.52 billion in 2016 and a decline of 41.27 percent to N304.52 billion in September 2016 from N522.68 billion as at September 2015.
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“They have been trying to expand by increasing their capacity to meet new demand following the economic slowdown of 2017 and 2016,” said Ayodeji Ebo, managing director/CEO of Afrinvest Securities Ltd.
The consumer goods, and energy firms drove much of the growth in capital expenditure.
Oando Nigeria Plc, an oil and gas major, saw investment in property plant and equipment surge by 212.94 percent to N21.38 billion as at September 2018, while it revenue grew by 31.13 percent to N505.13 billion in the period under review.
For the consumer goods firms, Guinness was more aggressive in using cash stock piles to fund infrastructure as investment in property plant and equipment surged by 876.10 percent to N4.07 billion as at September 2017.
However Nigerian Breweries hasn’t been investing in capital expenditure as investment in property plant and equipment has been falling in the last five years.
Julius Berger Nigeria Plc, the largest construction company by market capitalization saw investment in property plant and equipment surge by 814.80 percent to N1.56 billion as at September 2018; the last time the company acquired assets was in 2015.
Industrial goods stocks could get a boost from the country’s housing deficit and government’s proposed infrastructure spend.
“The capital expenditure spending will continue to increase after the election when people feel more comfortable. These are issues that make firms nervous about investing,” according to Bismarck Rewane, managing director/CEO of Financial Derivatives Company Limited, a Lagos based investment house.
“For the oil and gas firms we have to take the exchange rate into considerations since what they owe has increased,” said Rewane.
Any improvement from capex tailwind could help cushion some investors’ concerns about equity valuation, which is at their lowest since 2013.
The Nigerian Stock Exchange 30- list of the most liquid firms- 12 months price to earnings ratio is now 7.44 percent, compared with 14.97 percent as at June 6 2017, according to data from the Bloomberg terminal.
The Manufacturing Purchasing Managers Index in the month of September stood at 56.2 index points, indicating expansion in the country’s manufacturing sector for the 18th consecutive month, according to the Central Bank of Nigeria (CBN) Purchasing Managers Index Survey report.
A composite PMI above 50 points indicates that the manufacturing/non-
“It should be expected because Seplat has been spending on gas assets for some time,” said Jubril Kareem Energy Research Analyst at EcoBank.
