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Q3’16 Earnings Review and Sector Performance

Proshare

Friday, December 09, 2016 9.15 PM / Taiwo Ologbon-Ori 

 

As year 2016 is coming to a close, we shall continue to remain optimistic towards improved revenue for government and promising economic momentum for year 2017. We do hope that our oil production output would return to 2million bpd, considering the intense negotiations with Niger Delta elders and militants- We anticipate that economy would benefit from the OPEC deal as global oil price has recently rallied above $55 on OPEC deal. But if the stat quo continues beyond Q1'17 i.e. the falling revenue, low FX reserves and illiquidity conditions and all macroeconomic pressure that drove economy into recession remain unabated  - there would be a subdued confidence in economy and stock market would record more losses. 

Nigerian economy is currently at a challenged phase as data affirms. According to a recent economic scorecard published by TheAnalyst, GDP figures for the economy had contracted by -0.36%, -2.06% and -2.24% successively in Q1, Q2, Q3 2016. The continued growth in unemployment and inflation figures also provides pointers to an economy that is current experiencing stagflation. 

Companies, quoted and unlisted, are consequentially operating under an adverse conditions, with some operating on a shoe string basis or out rightly on a life support as returns thus far has shown.


Cursory analysis of Q1, Q2 and Q3 earnings reports presented by quoted firms indicated that majority of the companies are operating on a weak balance sheets amid low financial postures. No doubt, they have all experienced serious set-backs from a weak and dwindling economy.  

The earnings capabilities and profitability have been laden with economic challenges while the expansion and organic growth plans have been put on hold due to FX shortage, naira devaluation and illiquidity. This has resulted into heavy and unprecedented loss for firms across board, which had also subsequently created undeclared bad assets in their balance-sheets. The recent rush to the bond market to raise fresh capital further buttressed this notion. 

In the banking sub-sector, we have observed significant growth in non-performing loans across board while low dividend payout ratio remains an evidence of weakness from few key Tier-1 banks. This was largely traced to though operating environment, which had impacted the operating cost in the face of double devaluation, illiquidity and shortage of FX.  

As analysis reveals, the entire financial sector experienced weak turnover growth as average revenue growth in Q3’16 closed at 6.47% with an average PAT growth of 147% 

Also, companies in the Consumer and Industrial Goods sub-sectors battled challenging operating environments as the impacts of bearish macroeconomic fundamentals took its toll severely.  

The pressure of FX shortage had increased operating cost significantly in the face of shrinking revenue and market share. Both Consumer and Industrial Goods sectors recorded a significant weakness in profitability base as average PAT growth for Q3’16 closed unimpressive at -356.31 and -88.09% respectively.  

However, Agriculture and Oil & Gas sub-sectors closed with improved prospects as analysis had indicated. Agriculture Sector recorded average revenue growth of 40.80% and an average growth of 89.39% in profitability base to emerge as the most impressive sector for Q3’16.   

According to sector analysis, the average PAT performance for agriculture sector was rated 3rd, following 208.91% and 147.91% average PAT growth observed in ICT and financial sectors respectively. 

In the same pattern, Oil & Gas sector recorded 26.96% as average revenue growth for Q3’2016- the top-line performance was rated 2nd, following average top-line performance of 40.80% recorded in agriculture sector.  The table below puts the review in proper perspective.

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1. Q2'16 Foreign Trade Review - Deficit Correction Dependent on Improved Crude Oil Volumes

2. Nigeria’s Merchandise Trade Grows by 49% in Q2 2016

3. Nigerian Capital Importation Falls by 8.98% in Q2'16 Relative to Q1'16

4. Job Creation Increases by 5.1% in Q4'15; Declines by 83.1% in Q1'16

5.  Unemployment Rises to 13.3% in Q2’16 from 12.1% in Q1’16

6.   Labour Productivity per hour Increases to N637.50 in Q2’16

7.    Labour Productivity per hour Drops to N605.27 in Q1'16

8.   Nigeria’s GDP Declines to -2.06% in Q2’16 from -0.36% in Q1’16; Lower by 1.70%

9.    CPI Rises to 17.1% in July, 0.6% Higher Than 16.5% June Rate

10.  Capital Importation into Nigeria Moves up by 3.07% in Q3’15, down by 43.34% in Q4’15

11.   Capital Importation to Nigeria drops marginally by 0.20% in Q2'15

12.  Nigeria’s Merchandise Trade Declines in Q2 2015

13.  Capital Importation to Nigeria drops Marginally by 0.20% in Q2’15 – Aug 19, 2015

14.  Nigeria Records Negative Trade Balance in Q1’16 Due to Falling Exports

15.   Merchandise trade declines by 30.6% in 2015 due to falling exports

16.  Nigeria's Merchandise Trade Declines in Q3, 2015

17.   Nigeria's Merchandise Trade Declines in Q2 2015 – Aug 19, 2015

18.  NBS Releases Foreign trade Statistics Report for Q1 2015 – May 27, 2015

 

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