Investors who staked at least a million naira in the stocks of Nigeria’s consumer goods firms five years ago, have seen the value of their holdings decline by almost 70 percent.
Read More : FMCGs: Improved earnings fail to entice investors
Stocks of Fast Moving Consumer Goods ( FMCGS) have suffered about 70 percent erosion in market value, with some of the companies flirting with their 5-year lows.
An analysis of the share price movement of six FMCGS (UAC, Cadbury, Flour Mill, Honeywell, Unilever, and PZ Cussons) since 2014 show an erosion of N670.8 billion in market value.
UAC stood as the worst hit losing N152.35 billion in the last five years, represent a 90.76 percent market value loss. Coming closely is Cadbury with -84.46 percent decline in value, losing N95.03 billion during the same period.
Others include PZ cussons (-83.14%, N114.13bn), Fl o u r m i l l (-77.84%, N199.66bn), Honeywell (- 73.62%, N24.5bn) and Unilever (- 33.30%, N87.11bn).
Disappointed investors who had bet that the ever- increasing Nigeria population should improve FMCG’S sales while they built capacity to annex presented opportunities, sold off as consumer goods recorded shrinking margins on revenue decline, however with the exemption of Nestle.
With quoted companies coming to terms with reality, UAC announced its agreement to Imperial logistics move to increase stakes in MDS logistics limited, a leading logistic firm in Nigeria on Tuesday amid customers switch to value brands of unquoted companies like Dufil whose route-to-market (logistics) gives it a cost advantage which saw Kellogs invest in it eight years ago.
Kellogg a US based cereal maker acquired half of Multi Pro, a subsidiary of Tolarams, for $450m with an option to buy shares in Tolaram, relying on Tolarams extensive marketing, supply chain and distribution network.
According to UAC’S report, imperial logistics propose to increase its holdings in MDS logistics limited to 57 percent from 49 percent by acquiring additional 8 percent shareholding from UAC which is subject to relevant regulatory approvals.
According to a research by Coronation, revealed unquoted companies producing fast moving consumer goods in the food category get a bigger share of the consumer’s food baskets than the big quoted companies. Some of which were Boulos, Daraju, Limex, Olam, Sankin, and Tolaram.
With route- to- market of quoted firms becoming critical, the main issue remains how logistics gives an edge in a market like Nigeria where infrastructure is an obstacle to doing business.
“Despite challenges in infrastructure, I think it is a positive for UACN to improve their service deliveries,” Gbolahan Ologunro, analyst at CSL stockbroker told Businessday, “Imperial logistics have a strong competence and proven track record in area of logistics.”
Analysts therefore anticipate a blurry outlook for listed FMCG’S on the back of recurring revenue decline, “if these FMCGS hadn’t raised prices in 2017 to preserve margin, we would have seen the effect of low disposable income on their topline,” Ologunro said.
Over the last five years, consumers expenditure has been weak due to stagnant disposable income, worsened with significant devaluation in the currency making consumers poorer in the face of high living cost and stagnant income levels.
Affecting significantly FMCGS’ margins coupled with consumers weak spending is the high cost of production incurred as business environment still remain unfavourable.
“if we begin to see changes in business environment especially in power and government making tariffs more cost reflective, this should help FMCGS improve margins
“However, for consumer spending we are likely to see any significant growth in the medium term, hence affecting further sales volume going forward,” Ologunro concluded.
