30 October 2017

Nigeria: Update On Economic Recovery - Companies' Earnings Hit N5.2trn, Profit Rises to N1.1trn

Leading companies across the sub sectors on the Nigerian Stock Exchange, NSE, have turned in their financial performance in the first nine months of this year showing real economic recovery with high expectation for full year 2017 bumper returns.

Latest reports on key economic indicators show Gross Domestic Products, GDP, started second quarter 2017 with a return to growth at 0.55 percent from recessionary zone, while inflation is on steady downtrend since early this year and Manufacturing PMI on upwards trend month-on-month since second quarter this year.

Consequently, the first batch of the companies numbering about 64, posted a cumulative gross earnings of N5.239 trillion during the period, indicating a N901 billion increase or 21.6 percent rise from N4.286 trillion recorded in the corresponding period of 2016.

Also their total Profit Before Tax, PBT, rose by N366 billion, a whopping 50 percent jump to N1.098 trillion from N732.308 billion recorded in 2016.

The profitability rate indicated that the companies massively overshadowed the average inflationary rate of 15.98 percent during the period.

The 9-month '17 corporate results, according to capital market operators, confirmed recent macroeconomic performance indicators, which were all in positive territories.

The growth in the companies' fortune also confirmed the expansion in economic activities as reflected in the Central Bank of Nigeria, CBN, Purchasing Managers Index, PMI, which has been robust for six consecutive months to September, 2017. September manufacturing sector PMI expanded to 55.3 per cent, while the non-manufacturing sector composite PMI expanded for the sixth consecutive month to 55.4 per cent.

The PMI is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

"Economic growth in Nigeria is expected to recover slightly to 0.8 percent this year after the country slipped into its first recession in more than two decades last year," IMF said in the report.

However, the IMF, at the just concluded Annual General Meeting in Washington DC, listed policy implementation, foreign exchange market segmentation and banking system fragilities, as three major threats to sustained economic growth in Nigeria. Consequently, it warned that those threats to recovery remained elevated, and that the economy will not grow enough to reduce unemployment and poverty.

It also advised the Federal Government to pursue a policy of fiscal consolidation through higher non-oil revenues, to ensure stability in growth.

Nigeria slipped into a recession last year as low crude oil prices and production constraints slashed government revenues, causing foreign currency crises which in turn crippled the nation's economy.

Further analysis of the 64 corporate performances for the review period showed that N186 billion was paid as tax to the federal government, indicating a N27.79 billion or 17.52 percent growth from N158.587 billion in the corresponding quarter of 2016.

Sector performance

Breakdown of the corporate performances by sectors showed that the banking sector outshined others in gross earnings, profitability and tax payment.

The sector report covered 10 banks controlling over 80 percent of the financial market: United Bank for Africa (UBA), Guaranty Trust Bank (GTB), Zenith Bank Plc , Access Bank, First Bank, Ecobank, Fidelity Bank, Wema Bank Plc, Stanbic IBTC and Sterling Bank.

These banks recorded a total of N2.868 trillion gross earnings for 9M'17 to top other sectors and accounted for 54.7 percent of the combined companies' total earnings. It also recorded N648.908 billion PBT and accounted for 59.4 percent of the total profit recorded by the 64 companies, while the sector also recorded N186.377 billion as tax, thus accounting for 60.97 percent of the total tax paid by the 64 companies in the period under review.

Trailing the banking sector is the Industrial Goods sector, which comprises of six companies, including: Paint & Coating Manufacturers Plc, Lafarge Africa Plc, CAP Plc, Cement Company of Northern Nigeria, CCNN, Dangote Cement Plc, Premier Paints Plc, and Portland Paints Plc.

The companies in this sector recorded N849.218 billion gross earnings in 9-M'17, thus accounting for 16.2 percent of the combined 64 companies' gross earnings. They recorded N225.623 billion PBT, accounting for 20.66 percent of the 64 companies combined profit, and they paid N30.888 billion in tax, thus accounting for 16.57 percent the 64 companies combined tax.

Oil & Gas sector took the third position in sectorial performance indictors with seven companies namely : Forte Oil Plc, Total Nigeria Plc, MRS Oil Nigeria Plc , Caverton Offshore Support Group Plc , 11 Plc (formerly Mobil Oil) , Seplat Petroleum Plc, and BOC Gases Plc

The sector recorded N590.025 billion gross earnings in 9M'17, representing 11.3 percent of the combined 64 companies' earnings. The sector recorded N24.292 billion PBT, representing 2.2 percent of the combined 64 companies' profit, while N8.604 billion was paid as tax, thus accounting for 4.62 percent of the total tax paid by the 64 companies.

Following the Oil and Gas sector is Insurance sector, which comprises of Sovereign Trust Insurance Plc, Royal Exchange Plc, WAPIC Insurance Continental Re Insurance Plc, Guinea Insurance Plc, NEM Insurance Plc , Great Nigeria Insurance Plc and Equity Assurance Plc

This sector recorded N59.734 billion gross earnings, accounting for 1.13 per cent of the 64 companies' earnings in Q3'17; it recorded N7.4 billion PBT, accounting for 0.68 per cent of the 64 companies total profit, while N1.624 billion was recorded as tax for the review period, representing 0.87 per cent of the 64 companies taxes for the period.

The Pharmaceutical sector occupied the fifth position on the chart, recording N28.714 billion in Q3'17, thus accounting for 0.6 per cent of the 64 companies combined earnings; the sector recorded PBT of N0.714 billion, representing 0.07 per cent of the 64 companies combined profit, while N0.417 billion was recorded as tax in Q3'17, representing 0.22 per cent of the 64 companies combined taxes paid during the period under review.

Capital Market Stakeholders Reactions

Managing Director/CEO, High Cap Securities Plc, Mr. David Adonri, reacting to the corporate results stated: "Several Q3 results are impressive and outperformed previous quarters since economic indicators have largely been positive.

The business environment has become more conducive especially for banks to recommence import finance and other short term projects. The agric sector will also continue its impressive run since their protection by the Central Bank of Nigeria , CBN is still in force. Manufacturing has also improved due to availability of hard currency to import raw materials.

In aggregate, banks have outperformed the other sectors of the market. An efficient industry has operators of different sizes. It is our expectations that these companies will record higher returns on investment at the end of 2017."

Managing Director/CEO, APT Securities & Funds said: "The Q3 results come with surprises especially the manufacturing companies performing better especially Dangote Group, C & I Leasing, Cadbury, Fidson, while banks show much growth in income generation but less to the bottom line as in case of Access, First Bank, GTB and the few banks that have better increase in their net profit most of them provide less or no bad loans.

With the current results released, it did not show much dominance of the banks that is why most of them did not benefit increase in the prices of stocks as in case of manufacturing companies."

In his reaction, Moses Igbrude, spokes' person for Independent Shareholders Association of Nigeria, ISAN, said: " Q3 results were very impressive ; it shows that various managements have adjusted and adapted to the economy in recession and forex challenges. I pray it should translate to better returns to shareholders at the end of the year. The banking sector is an active sector that we shareholders look up to for consistency and constant payment of early dividends. Companies should be thinking about innovation and creativity to be able to attract customers and make profit.

It is about innovation and creativity. It is all about the consumers, what they want is what the market is made up. Treat the consumers with disdain soon you will be out of the market. Consumer is the king."

In his response, Alhaji Gwadebo Olatokunbo , former National Publicity Secretary, Nigerian Shareholders Solidarity Association, said : " The Q3 period represents the result of an economy that is getting out of recession and that of a new template being introduced.

It shows the direction of things to come, provided we remain focused and determined to grow our economy.The companies and citizens were redirecting, reinventing, rededicating, refocusing and, all things been equal, that we are getting out of the woods and ready to grow.

"We as shareholders expect good returns from our investment.

"It is not new that the banks are dominating, due to ways that our economy works. The banks have the money of both the government and the citizens as their banker; while cash/money in their vaults dictates the direction of the economy and until our values and our economy changes from cash to gold, the banks would continue to be the deciding factors on the economy."

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