Conglomerates lose 80 per cent of share value in eight years
•Firms relocating to neighboring countries, operators warn
•Investors urge govt to improve business environment
Lingering inflation, parlous infrastructure and harsh operating environment have continued to assail the performance of the conglomerates industry, causing the listed firms under the sector to lose over 80 per cent in share price.
An eight year assessment of stocks under the sector from the beginning of the current administration (2015-2023) till date, revealed that most of the stock prices have plunged by over 80 per cent in the last eight years due to prolonged low investors’ confidence in the shares.
For instance, a look at the shares of one of the big players, UAC of Nigeria (UACN) Plc, showed that the stock price had plummeted from N43 in 2015 to N8 as at close of transactions on Thursday, April 27, 2023, an indication that this oldest conglomerate firm has been rocking under the pangs of harsh operating environment.
SCOA Nigeria Plc, a major firm under the sector is also severely affected by the lingering nation’s macro economic headings. The automobile assembly, distribution, power generation, electrification, water engineering, distribution and construction company’s stock price within the same period indicated that the price plunged from N4.16 kobo in 2015 to 99 kobo as the firm grapples with heavy financing and operating costs.
Chellarams Nigeria Plc, a conglomerate with many subsidiaries, engaged in the manufacturing and distribution of a wide range of products, encompassing consumables and industrial goods also suffered the same faith as the stock price depreciated from N4 to N1.81 kobo as of last Friday.
The dwindling fortunes of the conglomerates also impacted negatively on Unilever Nigeria Plc, as the stock price depreciated from N40 within the period to 13.50 kobo last Friday.
On the companies’ financials, a look at the 2022 full year performance of UACN showed that the company posted a loss before tax of N4.37 billion in its 2022 full year performance, from a profit before tax of N4.12 billion in 2021. The loss was majorly due to increasing inflation, which the economy continues to battle.
The Nigerian Bureau of Statistics (NBS) had revealed that the inflation rate in Nigeria soared to a staggering 21.91 per cent in February. This marks a substantial increase from the inflation rate of 21.82 per cent recorded in the previous month of January.
Latest Consumer Price Index report also showed that Nigeria’s inflation rate rose to 22.04 per cent in March 2023, the highest since 2009. Also in its 2021 performance, UACN recorded revenue of N109.27 billion, an eight per cent growth from N101.38 billion in 2021.
During the period, the company’s cost of sales increased by 13.34 per cent to N95.03 billion against N83.84 billion in the same period of 2021 as inflation deepens.
For the third quarter (Q3) last September, the conglomerate firm slipped into a loss of N2 billion. Specifically, its profit after tax plunged from N563 million in the same period in 2021 to a net loss of over N2 billion.
Commenting on the results, Group Managing Director of the company, Fola Aiyesimoju, said: “Our profitability was negatively impacted by losses in our animal feeds segment, which more than offset contributions from other segments. Our businesses grappled with escalating costs particularly energy, distribution, and finance costs, which negatively impacted performance.”
For John Holt Plc, another firm under the sector, its fourth quarter performance for the period ended September 30, 2022 with a net income of N108 million compared to N297 million achieved in the corresponding period in 2021, while earnings per share from continuing operations was N0.2769 compared to N0.7623 a year ago.
For the full year, the company’s sales were N3, 502 million compared to N 1,186 million achieved a year ago. Its net income stood at N35 million compared to net loss of N508 million a year ago. Basic earnings per share from continuing operations were N0.09 compared to basic loss per share from continuing operations of N1.303 a year ago.
Further analysis of the financial performance of firms under the sector showed that SCOA Plc, in its unaudited financial statements at December 2022 posted loss before tax of N347 million from N562 million posted within the same period in 2021. The firm also suffered loss after tax of N362 million from N180 million profit achieved in 2021.
Indeed, checks showed that the industry is currently bogged by rising production cost mainly due to inadequate or non-existent power supply. Diesel costs are spiraling. Coupled with the low level of power supply, it is putting a financial burden on the sector.
Moreso, weak corporate earnings by these companies is coming on the heels of increase in cost of sales and administrative expenses as most companies operating in the country battle hike in materials used for production, among others.
Vice President of Highcap Securities, David Adonri, said rising energy cost, high cost of funds, low purchasing power of consumers, devastating effect of the currency redesign program, forex scarcity and insecurity have adversely affected the financial performance of conglomerate companies.
Adonri added that many firms under the sector are considering relocating to the neighboring countries due to the nation’s dwindling business condition.
President of New Dimension Shareholders Association, Patrick Ajudua, said due to headwinds such as high cost of operations, especially energy cost, most conglomerates in Nigeria have continued to find it difficult to weather the storm.
He noted that liquidity crisis in the foreign exchange market is considered to be the major challenge facing the sector. Ajudua urged government to fix the infrastructure gap and improve on the ease of doing business to avert job losses in the sector. He added that the room for growth in conglomerate business is hinged on huge infrastructural development and stable operating environment.