While analysts say the Nigerian Stock market would remain largely bearish for the rest of the year, half-a-dozen stocks in the underperforming consumer goods sector are still expected to appreciate by year’s end.
Analysts at Lagos-based investment bank, United Capital say overall outlook for consumer goods firms remains bleak, but their valuation favours a price gain in Nestle, Unilever, Nigerian Breweries, Flour Mills of Nigeria, Dangote Sugar and International Breweries.
Since the start of the year, the consumer goods-a measure of the sector’s price movement- has plunged 31.69 percent compared to the 15.5 percent decline seen in the broad market.
Leading the pack, Nestle is expected to gain 15.8 percent to N1,407 per share, the most among the consumer goods stocks in their analysis.
The popular consumer goods brand has defied odds and shown resilience amid stiffer competition and in spite of a weak recovering economy that has pressured price point of consumer goods.
“Of all the FMCGs under our watch, only NESTLE was able to grow both its top-line and bottom-line numbers in H1-19,” United Capital said. “This was as the management continued to innovate to stay competitive in terms of pricing.”
The investment bank noted that Nestle’s Milo Ready-To-Drink pack and the recently launched Maggi powder seasoning continued to gain widespread acceptance in the marketplace while buoying revenue for both the food and beverage segments, and as a result, total revenue was up 4.9 percent year-on-year to N141.9bn in H1 2019.
Nestle also benefited from local sourcing of raw materials and is taking advantage of lower interest rate environment to improve operation.
Another consumer goods firm, Unilever is estimated to see an upside of 14.2 percent to N30.5 per share although the company’s performance failed to impress as analysts at the bank.
United Capital noted revenue decline across key product segments as both Food business and Home and Personal Care (HPC) business faltered leading to 11.4 percent year-on-year decline in H1 2019.
The analysts said the sharp decline in the HPC segment can be attributed to consumers’ rotation to cheaper unlisted/imported alternatives given weak wallets while the Food business seems to reel from sterner competition which suppressed volumes.
“Consumers have constantly adopted affordability as the key factor in consumption decisions, thus Unilever’s premium brands continue to lag,” the report stated.
The third biggest upside has been estimated to be seen in Nigerian Breweries which has an expected return of 11.1 percent to N51.1 per share.
Nigerian Breweries has been able to regain some of the market shares it lost to intense rivalry in the beer industry, Heineken N.V, the parent company was quoted to have said.
“As expressed in our FY-18 earnings analysis, our outlook for the Brewer remains modestly positive,” said United Capital analysts.
Flour Mills of Nigeria, Dangote Sugar and International Breweries are also expected to gain 9.8 percent, 7.8 percent and 4.8 percent respectively.
“NESTLE remains our top pick for the sector,” United Capital said in the report. “However, in the brewery space, we expect NB to continue to weather the storm from INTBREW and GUINNESS.”
For the millers, United Capital says, broad economic challenges are expected to continue to bite deeper on their bottom-line performance.
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