The slow growth in the country’s GDP from the recent Q2 report that came out recently may be behind the apathy investors are showing towards consumer goods companies as half year earnings have shown.
The unimpressive results combined with sell of emerging market assets following a trade war between the two world economic power- China and the U.S- have seen firm’s stock price nose dive.
The Q2 report from the National Bureau of Statistics (NBS) showed that the country recorded national output of N16.58trillion, representing a growth of 1.50 percent in the second quarter (Q2) of the year. However, this marks the second consecutive quarter of a decline in the pace of economic growth in Nigeria as a decline in oil sector growth hurt the pace of economic expansion.
Faith Ogedengbe, research analyst, GDL Asset Management said that “The second quarter of this year was quite tumultuous for the national economy as several economic headwinds kept economic growth at bay. The delay in the passage of the budget along with increased political tensions hurt business confidence and slowed the decision making process in companies”.
Looking at the financials of 9 companies in the Nigerian Consumer Index, companies who have the same half year end on Nigerian Stock Exchange, it was seen that most of the companies’ earnings under observation declined except two. Nestle and Unilever were the only two companies who had an improvement when compare to the same period last year.
Moses Hammed a research analyst at Investment One financial limited told businessday that concerning the lower earnings that “Consumer Demand has not really picked up, which may be due to the backlog of salaries owed by states and this has affected the earnings of this company who cannot increase prices for fear of losing their customers”.
Their stock price has not also fared well year to date (YTD). Only one of the stocks Unilever has had a positive return with a 24 percent YTD return. It’s not also surprising to note that of all the other stocks on the decline, Nestle appears to have lost the least with a 3.5 percent decline in share price.
Other companies observed were McNichols whose earnings increased by 21.2 percent however the share price has fallen by 40 percent YTD. Champion breweries’ earnings’ decreased by 7 percent and YTD by 13.5 percent. Nigeria Breweries earnings fell by 22.4 percent and YTD, it is down by 25.9 percent. Dangote Sugar’s H1 earnings reduced by 26 percent and its share price YTD declined by 22.6 percent.
Dangote flour mills’ earnings fell by 43 percent and YTD down by 34.1 percent. Cadbury and International Breweries both had losses this year H1 which were higher than their last year losses. Their share prices fell by 35.6 and 38.1 percent.
On the outlook for these companies Hammed said that “Currently, market is in the bearish run which may extend till the end of Q3 largely because of negative sentiment against emerging markets. The election is still a major concern for investors, so these two issues may outweigh the effect of better performance of the companies in consumer goods, the two issues are systemic in nature”.
“The slow growth of 1.19 percent year on year in the agricultural sector at the end of Q2 2018 may be negative for food prices. This could cause inflation to spike with food sub index accounting for about 50 percent of the CPI. This could also increase the cost of the locally sourced agricultural products which are used by these companies”, Hammed added.
“However, we expect consumer spending to improve on the back of higher spending by the government as N9.12 trillion may be spent in the next one year for both capital and recurrent expenditure”. He concluded.
