·As earnings rise 17%, crossing N10trn mark
·Profit rises 37% to N2.6trn
·CBN gets credit for the positive results
·2022 looks bright except if – Analysts
By Peter Egwuatu
Leading companies in Nigeria have recorded impressive financial performance ahead of the recently posted positive numbers in the nation’s Gross Domestic Product, GDP, as well as relatively stable inflation figures.
Corporate and financial analysts expect 2022 performance to maintain similar trend except if developments in the pre-election environment as well as Russia-Ukrainian conflict bring up some major upsets.
Financial Vanguard findings from the 2021 financial statements of 96 companies filed at the Nigerian Exchange Limited, NGX, show that combined gross earnings grew by 17.2 per cent to N10.39 trillion from N8.86 trillion in the financial year 2020.
This indicates faster growth rate compared to the Year-on-Year, YoY, GDP growth rate of 3.4 per cent reported by the National Bureau of Statistics, NBS, for year 2021.
More significantly, the companies’ profitability recorded sharp increase as Profit Before Tax, PBT, in 2021 jumped by 35.8 per cent to N2.57 trillion from N1.89 trillion in 2020. This gives huge margin over the nation’s inflation rate of 15.63 per cent in the period under review.
Financial Vanguard findings reveal that the jump in profitability was fuelled by the recovery of economic activities in virtually all sectors of the economy with the banking sector taking the lead, accounting for 42.9 per cent of the combined profits of the 96 companies.
Meanwhile, commenting on the performance of the companies against the nation’s key macroeconomic indicators, analysts observed that the banking sector was largely supported by the Central Bank of Nigeria, CBN, as it allowed forbearance on loans given to businesses that were affected by the COVID-19 while the oil and gas companies (downstream and upstream) benefited from higher business activities as well as a recovery in oil prices.
The banking sector in the financial year 2021 came top in absolute terms as it recorded positive results in both earnings and profitability, rising by 7.8 per cent and 18.4 per cent to N3.8 trillion and N1.01 trillion from N3.5 trillion and N856 billion in 2020 respectively. The sector accounted for 36.6 per cent of the combined companies’ earnings.
Trailing behind the banking sector on earnings performance is ICT/Computer based sector recording N1.6 trillion and accounting for 15.4 per cent of the combined earnings while it occupied third position on the PBT chart recording N438 billion and accounting for 17.0 per cent of the combined companies’ PBT. The ICT/ Computer sector was majorly fuel by the performance of MTN Nigeria Communications Plc which recorded N1.65 trillion and N436.7 billion to account for 98.8 per cent of the sector’s gross earnings and PBT respectively.
The Industrial Goods sector occupied the third position on the combined earnings chart recording N1.38 trillion and accounting for 13.3 per cent of the combined companies’ earnings. In terms of PBT the sector occupied the second position posting N639.6 billion and accounting for 24.8 per cent of the combined PBT of the 96 companies.
Commenting on the corporate performance in relation to the economy, analyst and Managing Director/CEO, Wyoming Capital & Partners, Mr Tajudeen Olayinka, said: “In a period of high or prolonged inflation, listed companies and firms generally, adjust to variability of costs and cost pressures in the short run, to be able to stay afloat and keep their machines running.
“What this means is that, firms must, at the minimum, recover variable costs in the short run, in order to remain in business.
“It is the aggregation of short run adjustments by firms across industries and the entire sphere of the economy that is responsible for the inflation numbers we see from time to time.
“By this analogy, listed companies have demonstrated their capacities to adjust to inflation from time to time, as we saw in the results posted for 2021.
“Accordingly, the observed surge in 2021 came from the usual adjustment process that normally should accompany a supply shock, and this is the reason we say equity market is an adjusting market. Most times, it beats inflation hands down.”
On banking sector premium performance, he said: “You should understand that banking or finance business represents a portfolio of profitable opportunities, and so, the performance of that sector in 2021 was not out of place. And you could see that in the repeated debits for Cash Reserve Ratio, CRR, by CBN. Banks chase after profitable moments, and prefer to be debited for CRR by CBN, than to lose money on reckless sentiments.”
Commenting also, analyst and Managing Director/CEO, APT Securities & Funds Limited, Mallam Garba Kurfi, said: “The reasons why most companies did very well for the year 2021 is due to the effect of COVID- 19 in 2020 where most economy activities stood still for more than two months which did not happen in 2021.
“Our records show that so far, only few banks that have turned-in their results were able to show reasonable positive changes like Fidelity Bank, Ecobank and Access Bank, but some of them were below previous year 2020 like GTBANK, First Bank, among others.
“The changes were more in Manufacturing Industries such as Dangote Cement, WAPCO, Prescoe Oil, Fidson among others. This could be due to inflation, devaluation of Naira and CBN interventions with many soft loans.”
Commenting on the performance of the companies, Analyst /Head of Research and Investment at Fidelity Securities Limited, FSL, Mr Victor Chiazor, said: “Most of market players reported a decent outing for 2021 as they were able to leverage on the increased business activities in 2021 when compared to 2020 when we had full and partial lockdowns.
“The banking sector was largely supported by the CBN as it allowed forbearance on loans given to businesses that were affected by the COVID-19 while the oil and gas companies (downstream and upstream) benefited from higher business activities as well as a recovery in oil prices.”
In his reaction, Analyst/ Chief Operating Officer, InvestData Consulting Limited, Ambrose Omordion, said: “Post pandemic shift and recovery from supply chain disruption contributed to the positive performance as normalcy gradually return to the economy with improving demand after lockdown.
“The impact of the CBN intervention in critical sectors of the economy and relatively low interest rate has supported the impressive performance of many companies on the NGX. These were in the midst of positive economic indices despite the high rate of unemployment in the nation. Kudos to CBN and corporate Nigeria managers.”
Continuing, he said: “The banking sector being the engine room of economic development and growth, as the economy is recovering many companies will meet up with their loan repayment which has equally contributed to decline in nonperforming loan of the banks, while rallying crude oil prices and hike in pump price of fuel in 2021 has impacted the bottom line of the sector because of the high demand of the industry’s products.”
Olayinka, enthused: “My expectation is that many of the listed companies will continue to run the full course of adjustment in 2022, as usual, except it becomes so clear that we cannot escape World War III.
“Equity market is still largely underpriced, and so, there is that tendency for upward movement in prices of some undervalued stocks.”
On projection for Q1’21, Kurfi, said: “Our expectations look good for the year 2022 but the continuity of it depends on how the major political parties handle their primary elections. Inflation always exchange good returns to Manufacturing Industries because many of their raw materials bought at low price will be used for production and sale at higher price which translate into good profit”.
In his outlook for Q1’22 , Chiazor, said: “The first quarter of 2022 will be significantly positive for those in the upstream segment of the oil and gas sector given the current price of oil while other sectors of the market will likely report marginal growth in top and bottom line.”
Omordion, said: “The performance of the companies in Q1’22 would be mixed as some companies with less dependence on imported raw materials will maintain positive performance, while the companies that depends on imported materials, as prices of commodities are hitting 14 years high, will be affected, just as high energy cost will increase production cost and impact of Russia Ukraine war.
“But in all, there are opportunities to make money in equity investment for discerning investors and traders that understand the dynamics of stock market trading”.