Equities Market Loses N477bn to Weak Corporate Results

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Goddy Egene

Investors’ reactions to the poor corporate results for the nine months to September have depressed the Nigerian equities market by N477 billion, THISDAY checks have revealed. There has been anxiety among investors over the outcome the financial performance of companies for the nine months to September 30, 2016.

The economic headwinds, engendered by the naira devaluation and high inflation, have made many investors to be apprehensive over what companies would record. While some investors remained in the sidelines, some dumped their shares to lock in profits recorded the previous months.

However, confirming investors’ fears, many companies posted lower profits, while some ended the period with losses. In reaction to the poor results, investors have consistently been selling off their equities in the market. THISDAY checks showed that the market has shed N477 billion or 4.6 per cent between October and last Monday. The market capitalisation fell from N9.733 trillion at the beginning of October to N9.256 trillion last Monday.

A few notable companies missed expectations, ending their reporting period with fall in profit.
The market had reported a decline of 3.94 per cent in the month of October, being the biggest since July 2016.

Market analysts at Cordros Capital said the decline came amid broadly subdued July to September corporate earnings and profit-taking on the gains recorded in September.

“At the beginning of the month, stocks prices suffered as a result of investors taking profit after the market had rallied in most weeks of September. Anxiety over what the overall third quarter (Q3) results would be-after a few notable companies widely missed expectations-held investors back from re-entering the market after the selloffs. The second half of the month was essentially about earnings, the broadly worse-than-expected announcements, which prevented equities from recovering,” the analysts said.

According to Cordros Capital, summarising the Q3 earnings with focus on sectors that drive market activity, the banks impressed, supported by the high interest rate environment (which bolstered yield on assets) and revaluation gains from the depreciation of the naira.
“Consumer goods companies broadly disappointed, owing to significant margin contraction and foreign exchange (fx) related losses. The earnings of cement producers were also impacted by elevated costs and weak sales volumes,” they said.

In the banking sector, those that posted positive results were Access Bank Plc, United Bank for Africa Plc, Guaranty Trust Bank Plc and Zenith Bank Plc. On the other hand, Fidelity Bank Plc, Sterling Bank Plc, First Bank of Nigeria Plc and Diamond Bank recorded fall in profitability. Diamond Bank Plc recorded a major fall in profit due to huge impairment charges on bad loans.

The bank had ended the nine months with a profit after tax of N3.511 billion for the nine months ended September 30, 2016, showing a decline of 78 per cent from N15.967 billion in the corresponding of 2015. The decline in bottom-line resulted from high impairment charges that soared by 106 per cent to N40.261 billion, from N19.5 billion in 2015.

The bank said it opted for prudent provisioning by cleansing its books of assets with poor quality, thus paving the way for operational efficiency and improved earnings for the business years ahead.