Nigerian consumer stocks are struggling through a “lost year” as a slump in oil prices buffets Africa’s largest economy, according to Renaissance Capital Ltd, reports Bloomberg.
Fuel shortages are making it harder to distribute goods as companies including Guinness Nigeria Plc, Nestle Nigeria Plc, and Unilever Nigeria Plc grapple with a slowing economy and weaker local currency, said Benjamin Samuels, head of equities at the Moscow-based investment bank that focuses on emerging markets. Investors will also shun the country’s banks until there’s more clarity on how they’re responding to the risk of higher defaults because of lower crude prices, he said.
“Some see 2015 as a lost year for growth and margins” in consumer stocks, he said in an interview in Lagos on May 18. “The cost of imports has gone through the roof with the decline of the naira,” Samuels said. Companies are facing “challenges around distribution and weaker sales,” he said.
Growth slowed to 4 percent in the first quarter from 5.9 percent in the last three months of 2014. Africa’s biggest crude producer, which derives 90 percent of export earnings from oil, has been hit by the Brent variety’s 40 percent drop since June. The naira has depreciated 19 percent against the dollar over the past 12 months.
Nigerians have faced long queues for fuel in recent weeks in a country that relies on imports to meet more than 70 percent of domestic needs. While the government guarantees cheaper fuel by subsidising gasoline, it’s struggling to pay marketers the difference between the landing price of refined oil and the fixed domestic rate as low crude prices deplete revenue.
Nestle’s net income fell 51 percent to N2.95 billion ($15 million) in the first quarter from a year earlier. The stock has lost 18 percent in the last 12 months, while Guinness’s shares are down 11 percent and Unilever’s 8.2 percent.
Consumer stocks still look expensive compared with the rest of the Nigerian Stock Exchange All Share Index, Samuels said.
“Some consumer names are trading at 20 to 30 times earnings,” he said. “They’re not cheap. If you’re buying a stock with a high price to earnings ratio, you’re likely taking a bet on 2016 and 2017.”
The benchmark index fell 0.2 percent by 1:05 p.m. in Lagos, bringing its decline over the past year to 12 percent. International investors are wary about banks’ loan books, Samuels said. Oil companies accounted for 25 percent of lending in Nigeria last year, Lagos-based Vetiva Capital Management Ltd.
