Leading companies outperform economy growth rate

Our land soaked in blood, gloom, South-East Bishops wail

•As earnings grow 13.6%, profit 32.7%

•It is inflation aided – Analysts

By Peter Egwuatu

Leading companies in Nigeria have reported sharp increases in income and profits, outperforming the recently released positive figures in Gross Domestic Product, GDP, and inflation.

Financial statements of the 97companies covering first nine months of this year, Q3’21, filed at the Nigerian Exchange Limited, NGX, shows that combined gross earnings grew by 13.6 per cent to N7.3 trillion from N6.4 trillion in the corresponding period Q3’20.

This indicates faster growth rate compared to the Year-on-Year, YoY, economy (GDP) growth rate of 4.03 per cent reported by the National Bureau of Statistics, NBS, for the third quarter of 2021.

More significantly, the companies’ profit recorded sharp increase as Profit Before Tax, PBT, in Q3’21 jumped by 30.8 per cent to N1.7 trillion from N1.3 trillion in the corresponding period Q3’20. This gives a significant headroom over the nation’s average inflation rate of 17.42 per cent in the period under review.

Financial Vanguard findings revealed that the jump in profitability by the 97 companies was fuelled by the Oil and Gas sector which rebounded posting N61.4 billion in Q3’21 as against a loss of N41.5billion in Q3’21. The rebound was also attributed to the rebound in global energy sector and prices of crude oil at post-COVID lockdown era.

Meanwhile, analysts and stakeholders while commenting on the performance of the companies against the nation’s key macroeconomic indicators expressed divergent views, with many of them saying that the figures do not reflect the economic realities on ground.

Also some of the analysts who spoke to Financial Vanguard on the development attributed the growth, partly, to the Federal Government’s expansionary budget of 2021, Central Bank of Nigeria, CBN stimulus package to some sectors of the economy to tackle the effect of COVID-19 pandemic among others.

However, some analysts and stakeholder argued that the growth in GDP and the steady decline in inflation are nothing to jubilate about as average Nigerians still continue to find it difficult to survive giving the high cost of living in the country.

But a few others said the growth is just a reflection of recovery from the COVID -19 induced pandemic which they stated was positive and a step in jump-starting the economy for sustained growth.

Leading sectors

The banking sector in Q3’21 came top in absolute term as it recorded positive performance in both earnings and profitability rising by 3.7 per cent and 3.13 per cent to N2.54 trillion and N701 billion from N2.45 trillion and N680 billion in Q3’20 respectively. The sector accounted for 34.8 per cent of the combined companies’ earnings.

Trailing behind the banking sector on earnings performance is ICT/Computer based sector recording N1.2 trillion and accounting for 16.8 per cent of the combined earnings while it occupied third position on the PBT chart recording N322 billion and accounting for 18.6 per cent of the combined companies’ PBT.

The Industrial sector occupied the third position on the combined earnings chart recording N1.02 trillion and accounted for 14 per cent of the combined companies’ earnings. In terms of PBT the sector occupied the second position posting N471.6 billion and accounted 27.3 per cent.

Analysts/stakeholders’ views

Commenting on the corporate performance in Q3’21 in relation to the economy, analyst and Vice Executive Chairman, HighCap Securities Limited, David Adonri, said: “Declining inflation indicates that the fiscal economy (Production & Trade) is improving, although, this assertion is subject to monetary stability. Some of the growths in earnings by listed companies were inflation aided due to increase in prices of their products. Many of the companies also undertook cost saving measures. With opening up of the global economy and restoration of global supply chain, and increasing demand, business activities are surging, leading to increased production and corporate earnings. However, despite improving corporate performance, because factors that fuel inflation and influence GDP are more encompassing, these macroeconomic indicators may still lag behind corporates.

While commenting on the impact of GDP and inflation to the future of the economy, he added: “Increasing GDP and declining inflation are predicted to continue till year end. Additionally, with favourable crude oil price, improved performance of listed companies should be sustained till year end.”

In terms of banks marginal performance, Adonri, said: “During the lockdown of 2020, banking business shifted seamlessly to the virtual channels. So, their earnings were not depressed. Therefore, in comparison to last year, nothing has really changed for them. Their performance is stable and growth has nearly plateaued. A big surge in macroeconomic conditions, especially security can reopen closed channels and open new opportunities for them.”

Reacting as well, analyst and Managing Director of APT Securities & Funds Limited, Mallam Garba Kurfi said: “The performance of Q3’21 results is mixed while some have very good results especially the cement and telecoms companies while Banking and Insurance have mixed results. Yes, it is as you observed that industry such as cement manufacturing companies are running successfully with their products and are in serious demand with increase in both turnover and profits .

The growth recorded by Telecom, Industrial and Consumer Goods give confidence as the country is gradually returning to growth, same apply to other industries. I am not surprised that GDP grew, remember we are in expansionary budget which are the root to growth economy. Actually, the growth recorded by these companies is induced by expansionary budget and other intervention by the CBN.”

Commenting , analyst and Head of Research and Investment at Fidelity Securities Limited, Victor Chiazor said: “Year on year “(YoY) performance of listed companies will always be mixed in the sense that all companies cannot continue to report impressive numbers as there will be periods where policies and the economic situation will be favourable to some and unfavourable to the others.”

Continuing, he said: “In my view on the banking sector some of them reported significant gains from their trading income last year especially from bond trades given the drop in yields and rice in bond prices.

“Banks that were unable to repeat such gains from trading or other line items reported drop in profit for the period which we saw for most tier-2 bank while most of the tier-1 banks found ways to cushion the effect of the drop in trading income.

“The industrial sector was already coming from a low base due to the lower level of activity reported for first half of 2020 due to the lock down. Hence it was possible for most of them to report higher profits for the period.

On the GDP growth, he said: “The latest GDP figure is quite inspiring to say the least given the tough economic periods witnessed in the past. However, this rise was partly boosted by a low base effect in 2020 as the economy contracted by 3.62 per cent in Q3’2020 on the back of the partial lockdown imposed due to COVID-19 during Q3’2020.

The government will have to believe that what it is doing is enough to support the economy but also do more by making the fiscal authorities more visible and proactive as seen with the monetary authorities. Initiatives to reverse the consistent contraction in the mining and quarrying sector as well as improve growth in Agricultural sector needs to be the focus of the government in the near term, while we also believe that the real trajectory of the Nigerian economy will be clearer from Q2’2022 when the GDP growth rate isn’t supported by a low base effect.”

Responding as well, Chairman, Pragmatic Shareholders Association of Nigeria, PSAN, Mrs Bisi Bakare, said: “I quite agree with the insinuation that the figure displayed by NBS isn’t a reflection of reality on ground. The companies are even trying to survive so we even appreciate their performance no matter how small. Even from the escalating cost of food stuff coupled with high transport cost of food stuff, unabated increase in price of gas and other domestic items we know that inflation is not dropping. All these have continually made the cost of living to be high which has eaten deep into our purchasing power. So what is there to jubilate when we say GDP has grown?

Mr Boniface Okezie, Chairman Progressive Shareholders Association of Nigeria, said: “Our companies are trying to survive given the harsh operating environment. Though, there were missed performance of companies results in the Q3’21. The government is deceiving the masses with all these macroeconomic figures being shunned out.

They say GDP rose when dollar in the parallel market is on the rise. They say inflation is dropping when purchasing power of the people is dropping. How many of the banks are lending to the manufacturing sector to boost output. So I don’t really believe in these figures.”

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