Again, corporate profits take hit from socio-economic uncertainties

The continued tensed political environment, reported killings across the country, coupled with election fears are not assuring to both domestic and foreign investors and it is already telling on corporate performance.

But as a reminder, experts have urged the Federal Government to rise and stem the tide and allay investors’ fears over the coming elections, warning that failure may prepare another ground for Nigeria’s return to recession.

Recall that the Monetary Policy Committee retained the “fragile recovery” tag on the economy last week, expressing the same concern over election-induced challenges.Apparently piqued by the poor corporate earnings churned out by listed firms, associated to heightened tension since the year, the experts reiterated that if government fails to initiate strategies that will help reactivate the economy and address the security breaches threatening the nation’s sovereignty, there would be significant consequences.

In a chat with The Guardian, they explained that a look at corporate earnings released so far, majority of the companies are far below the expectations needed to propel market rebound.This, they noted, is happening amidst growing uncertainty in the socio-political environment and the slowdown in economic activities, factors that have been of serious concerns for investors, adding that no corporate strategy can be better than the overall economy.

Furthermore, they expressed their dismay, as the stock market, according to their assessment, is still showing signs of recession, as confirmed by the renewed slowdown in the Purchasing Managers’ Index (PMI) over the last few months.A further check has shown that of all the results released to the market so far, sales revenue or earnings have been mostly flat, whether consumer/industrial goods, food and beverages or services companies.

For instance, Dangote Sugar Refinery, last week, reported a 29.15 per cent drop in half-year sales revenue, while cost of sales rose 33.78 per cent.The distribution expenses also soared by 83 per cent, following which net profit sagged by 25.64 per cent. Okomu Oil Palm, on the other hand, reported a 3.72 per cent rise in income, but posted a 4.69 per cent profit decline.

This impacted negatively on the NSE’s Year-To-Date (YTD) returns, deepening its negative position to 4.96 per cent, while market capitalisation lost N421.34 billion, same as 3.07 per cent below the year’s opening value.The market attained its peak YTD of 45,321.82bps on January 22, 2018, after which it has persistently slipped helplessly, with YTD returns of 17.91 per cent, while capitalisation notched 18.70 per cent gain at N16.15 trillion from the year’s opening value.

The market took its deepest cut in the month of May, shedding all of 7.67 per cent, although it was not all-red numbers, as there were few exceptional stocks.These include Unilever Nigeria, which net profit soared by 55.54 per cent. Chemical & Allied Products also recorded 81.32 per cent revenue growth and 31.64 per cent rise in net profit; while Nigerian Aviation Handling Company reported 137.39 per cent growth on 25.23 per cent increase in turnover.

These, however, have not, as usual, been enough to give the market the much-needed strength.An economist, Johnson Chukwu, explained that with the current economic trend, if the country witnesses a political crisis and a severe disruption in crude oil production, a return to recession would likely be.

“Recession is a difficult situation and getting back to it without space will be more difficult. But in the absence of these factors, the economy would remain above recession zone,” he said.According to the Chief Research Officer, Investdata Consulting Limited, Ambrose Omordion, the top and bottom-lines of companies on the NSE, alongside their operating cashflow, for the first half in 2018, was not good enough to give the market the needed rebound.

“Corporate earnings released so far are not looking too good due to uncertainty in the socio-political environment and the slowdown in economic activities.“Many companies’ financials showed potential cut in dividend or nothing at all by year-end, if nothing drastic happens. This portrays a slow-down in the economy.“It is made worse by the political uncertainties ahead of the 2019 general elections, following which investors are taking a flight for safety, preferring to hold on to cash until the political direction becomes clear, while those remaining are trading and investing with utmost caution,” he said.

According to him, there is hope that second half may be better if the expected impact of the 2018 budget implementation are felt, just as execution of a single, long-term interest rate to major employers of labour in the real sector as planned by the Central Bank of Nigeria (CBN) is crucial.“Government should get serious and implement the 2018 budget faithfully, as well as its Economic Recovery and Growth Plan (ERGP), to save Nigeria the agony of another recession,” he added.