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H1’19: Gloomy economy deflates corporate earnings, profits

•As 103 coys’ revenue in marginal growth
•Profit down by 4.5%
•Stakeholders predict lower dividend for banks in 2019

By Peter Egwuatu

THE sustained weak macroeconomic growth in the first quarter of the year, Q1’19, may have taken huge toll on businesses as financial results of leading companies quoted on the Nigerian Stock Exchange, NSE, in the first half 2019, HI’19, show abysmal performance in both earnings and profitability.

Figures obtained by Financial Vanguard from the Exchange show that total revenue of the first set of companies that turned in their results was N3.84 trillion in H1’19, up marginally by 3.6 percent from N3.71 trillion in H1’18.

But the companies recorded a total of N673.7billion in Profit Before Tax, PBT, during the period, representing a decline of 4.5 percent from N705.2 billion recorded in the corresponding period of H1’18, a situation attributed to a narrowing margin under a high operating cost environment. The companies were unable to pass the costs to consumers due to overstretched purchasing power.

Meanwhile, analysts and stakeholders have predicted that banks would declare lower dividend for their shareholders in the financial year 2019 in view of the expected increase in minimum capital requirements announced by the Central Bank of Nigeria, CBN.

They also projected that the performance of companies in the third quarter 2019, Q3’19, would follow the same pattern as in H1’19 in view of the late appointment of ministers whose policy actions and implementation would begin to manifest in the economy from the fourth quarter of the year, 2019

Sectoral performance

Analysis of the performance of the companies captured in this study show, however, that the Banking sector maintained its leading position in earnings in absolute term, recording N1.49 trillion in H1’19, up marginally by 2.1 percent from 1.46 trillion in H1’18, while in percentage terms, the Services sector top the chart, rising by 112.4 percent to N42.2 billion from N19.0 billion in HI’19.

Banking Sector

Within the Banking sector, Ecobank Group led earnings performance in absolute term recording N405.2 billion in H1’19 as against N384.6 billion in H1’18 , representing 5.4 percent growth, while in percentage term, Jaiz Bank topped the chart rising by 55.8 percent to N5.7 billion from N3.7 billion in H1’18.

Zenith Bank followed recording N331.6 billion in H1’19 as against N322.2 billion in H1’18, but this indicates a 2.9 percent decline, while Wema Bank came next in percentage term rising by 27.5 percent to N40.8billion in H1’19  from N32.03billion in H1’18.

In PBT, Zenith Bank led the chart in absolute term recording N111.7 billion in H1’19 as against N107. 4 billion in H1’18, while in percentage term, JAIZ Bank occupied top position rising by 292.6 percent to N0.907billion in H1’19 from N0.231billion in H1’18. GTBank occupied second position in PBT in absolute term posting N99.1billion in H1’19 as against N95.6 billion in H1’18.

In absolute term PBT, ETI came third position recording N73.4 billion as against N65.1 billion in H1’18, while  in percentage term, Wema Bank occupied third position in PBT rising 43.7percent to N2.6billion from N1.8 billion in H1’18.

Oil & Gas Sector

Trailing the Banking sector in absolute term was Oil and Gas sector recording N784 billion earnings, while in percentage term the Construction sector occupied the second position rising by 77.8 percent to N135.9 billion from N76.4 billion in H1’18.

Within the Oil & Gas sector, Oando Plc led in earnings in absolute term recording N315.4 billion in H1’19 as against N297.3 billion in H1’18, while in percentage term, Forte Oil occupied the first position rising by 33.9 percent to N82.8 billion in H1’19 from N61.8 billion in H1’18.

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Total Nigeria Plc followed in earnings occupying second position in absolute term recording N150.8 billion as against N156. 3 billion in H1’18, while 11 Plc (formerly Mobil Nigeria) occupied second position in percentage term rising by 8.0 percent to N92.8 billion in H1’19 from N85.9 billion in H1’18.

In PBT, the Oil & Gas sector performed woefully as only four companies out of eight captured in this report recorded profit. Seplat Petroleum topped the chart in absolute term recording N36.9 billion in H1’19 as against N37.1 billion in H1’18, representing a decline of 0.4percent, while Forte Oil occupied first position in percentage term rising by 857.3 percent to N 6.3 billion in H1’19 from N 0.661billion in H1’18.

11 Plc, in absolute term, came second in PBT recording N6.2 billion in H1’19 as against N8.1billion in H1’18, while in percentage term, RAK Petroleum came second soaring by 400 percent to N0.40billion in H1’19 from N 0.8 billion in H1’18.

Building/Industrial Goods Sector

The Building /Industrial sector occupied the third position in absolute term in earnings posting N559 billion, while in percentage term, the ICT/Computer sector occupied the third position as it surged by 27.8 percent to N8.9 billion from N6.9 billion in H1’18.

Within the  Building /Industrial sector, Dangote Cement led the earnings chart in absolute term recording N467.7 billion in H1’19 as against N482.4 billion, while Cement Company of Northern Nigeria, CCNN led in percentage term rising by N166.0 percent to N 32.1billion in HI’18.

Trailing behind Dangote Cement in absolute term was CCNN as well, while Meyer Plc took second position in percentage term rising by 17.6 percent to N0.604 billion from N 0.513 billion in H1’18.

Stakeholders /operators reactions

Reacting on the performance of the companies, the Chief Operating Officer, InvestData, Mr. Ambrose Omoriodon said: “The flat position of many listed companies were clear manifestation of gloomy economy as many companies were unable to penetrate new markets and the purchasing power of many Nigerians are low leaving many of these companies goods on the shelves with cost of operations in the increase due to poor infrastructures like power, road and storage facilities among others.

“On why banks continue to dominate other sectors in performance indicators, this is due to the nature of banking services and the important role the banks play in an economy, they are bound to do better in any economic situation. The Q3 results will be the same except for the last quarter of the year. We are expecting that the government will have started real governance and policy formation to address many socio-political and economic issues.”

Commenting as well, the Chief Executive Officer, APT Securities & Funds Limited, Mallam Kasimu Kurfi said: “Most of the companies that recorded improvement in the turnover but lower profit was due to increase in the cost of production as related to diesel, lack of power and insecurity and poor access to the Nigerian Ports which all add to the cost of production.

“The Banking sector maintains lead in financial performance because of the sustainability in the declaration of the interim dividend for the year and liquidity of the sector both by volume and value.

“I project lower Q3 performance in view of the new major policy from the CBN that would limit the access of banks to bonds and treasury bills. The CBN had also directed deposit money institutions to increase their lending to deposit ratio or suffer a penalty. Also the implementation of new minimum wages will add to cost of production by companies which will impact on their bottom line.

The Chairman, Progressive Shareholders Association of Nigeria, PSAN, Mr. Boniface Okezi, said: “Arguably the banks have always maintained its stride in the area of performance. It will continue to do so despite the wobbly economy. But we the investors may not likely part with higher dividend next year  as dividend payout by many banks  will be lower because of the pronouncement  by their regulatory body( CBN) that the banks are going to recapitalize which is in front burner among the banks now.  Other regulatory hitch is from the Financial Reporting Council of Nigeria, FRCN over the implementation of International Financial Reporting Standards (IFRS 9) that is not helping the companies.

Also, the banks have to contend with Assets Management of Company of Nigeria, AMCON funding which they have been doing since inception.  The banks have been making provision for Non Performing Loans, NPLs which is a lot of money coming from the same profit that the banks have made. Take example, Zenith Bank that posted over 283kobo Earning Per Share, EPS instead of paying at least 50kobo as interim dividend they are proposing 30 kobo because they have to plug back large chunk into their system. The same thing apply to Guaranty Trust Bank, GTBank . You can see the danger of the fragile economy.”

Commenting as well, the National Chairman, New Dimension Shareholders Association of Nigeria, Mr Patrick Ajudua said: “The economy has shown no improvement since the beginning of the year against our expectation due to no economic blueprint and policy direction by the government.

‘‘This can be attributed to the non inauguration of ministers. So, the result is the slight growth in earnings and this is commendable; but that cannot be said for the 4.5 percent decline in bottom line.

“The decline in profit is attributed to high cost of doing business vis- a-vis interest rate, cost of production and significant drop in oil revenue. This signifies that government has to rejig its economic team and planning, develop road map for infrastructure development.”

Vanguard

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