Harvest Time for Stock Investors

0

Equities market investors are now taking stock as companies announce their audited results for 2018 financial year, writes Goddy Egene

Returns on investments in the stock market come in two major forms. It comes either in the form of capital appreciation or dividend pay-out. Capital appreciation occurs when the price of a stock rises and this can happen at any time of the year. On the other hand, dividend benefit comes when companies record profit and part of it is shared among the shareholders. And this occurs at the end of every financial year.

Hence, most investors look towards the end of the financial year of companies with high expectations and enthusiasm. That time is here again as companies announce their financial performance for the year ended December 31, 2018.

Analysts’ Projections
As the results begin to pour in, analysts at Vetiva Capital Limited have projected mixed fortunes for investors. According to Consumer Goods Analyst at Vetiva, Ifedayo Olowoporoku, “Driven by the seasonal nature of the industry, we expect stronger topline performance across consumer goods companies for the fourth quarter period, majorly supported by volumes amid stronger consumption levels in the festive period and also mildly buoyed by stronger commercial activity during electioneering season.”

Expatiating on the impact of the aforementioned factors, Olowoporoku, said: “For the full year (FY) 2018 period, however, we expect mixed performance across the top names in the market, with weaker profits to be reported by the brewers, food commodity and agro-allied producers, while much stronger bottom line figures are projected for the packaged foods and home and personal care players.”

Speaking on the Industrial Goods sector, Onyeka Ijeoma said: “We expect volumes to come in slightly weaker in the final quarter of the year, pressured by extended heavy rainfall in fourth quarter (Q4) as well as a heightened political environment.”

Although that profits in Q4’18 are expected to come in lower quarter on quarterq/q, the report highlighted that FY’18 figures will still come in stronger than in the previous year, driven by a sturdier performance recorded in the earlier quarters of the year.
For the Agriculture sector, which is majorly represented by the oil palm producers listed on the Nigerian Stock Exchange, Vetiva is forecasting a largely unexciting performance for FY’18 numbers.

“We expect lower top-line for the crude palm oil sector in Q4’18, with global Crude Palm Oil (CPO) prices falling five per cent in the quarter. With CPO prices also generally lower through the year (19 per cent down y/y), we also expect a slowdown in FY’18 top-line across the industry.”

Reporting on the expectations on the banking sector, Vetiva said Tier I Banks will continue to outperform lower tier players, leveraging on their stronger balance sheets and liquidity positions to drive stronger margins.

“On a broader industry level, however, gross earnings for the banking sector in FY’18 will be majorly driven by growth in non-interest income, as interest income remains constrained by negative credit growth. Bottom line is also expected to be buoyed by significant y/y moderation in loan loss provisions amid the implementation of IFRS 9,” it said.

Early Results
The results have started to come in and shareholders have begun to record dividend recommendations and payment dates. Transcorp Hotel Plc, Transnational Corporation of Nigeria Plc, Nigerian Breweries Plc and Newrest ASL Nigeria Plc released their results as at Monday. All of them recommended dividends for the shareholders.

Transcorp Hotel Plc recommended a dividend of 15 kobo per share compared with 12.4 kobo paid the previous year. Transcorp Plc recommended three kobo, up from two kobo the previous year. Newrest ASL Nigeria Plc is to pay 20 kobo dividend, while Nigerian Breweries Plc recommended a total dividend of N2.43, which is lower than the N3.13 paid the previous year.

A look at the results showed that Transcorp Hotel Plc, Transcorp Plc and Newrest ASL Nigeria Plc overcame the challenging operating environment to put smiles on the face of shareholders.
For instance, Transcorp Hotels Plc reported revenue of N17.424 billion in 2018, up from N13.843 billion. Profit before tax (PBT) rose 35 per cent from N3.7 billion to N5.0 billion while profit after tax(PAT) jumped 37 per cent from N2.7 billion to N3.7 billion. The directors of the company have recommended N1.14 billion as dividend, which translates to 15 kobo per share.

Commenting on the results, Managing Director/CEO of Transcorp Hotels Plc, Mrs. Owen Omogiafo said: “We are pleased with the overall performance of our company as evident in the year on year growth. This demonstrates the strength and quality of our business strategy to consistently provide world-class luxury services to all our guests and redefine the hospitality standards in Africa.”

According to her, the impressive growth in revenue can be attributed to the sale of the newly upgraded rooms in Transcorp Hilton Abuja.
“We keep up the pace with global advancements in technology and are proud to say that Transcorp Hilton Abuja is the first hotel in Nigeria to launch the “ICE app” a digital application that delivers personalised experiences to guests,” she said.

Similarly, Transcorp Plc, which is the parent firm of Transcorp Hotels Plc recorded revenue of N104.163 billion in 2018, up from N80.284 billion in 2017. PBT jumped by 82 per cent to N22.4 billion, from N12.3 billion in 2017, while PAT rose faster by 94 per cent to N20.6 billion, from N10.6 billion in 2017.
Commenting on the results, Chief Executive Officer of Transcorp Plc, Mr. Valentine Ozigbo, said they are proud to have ended the year on a high note.

“We are proud to have ended the year on a high-note while sustaining a strong performance, which is a reflection of our sound business strategy. We will continuously strive to deliver significant value to our stakeholders while achieving our long-term goals,” he said.

According to him, “This result was achieved due to the increased revenue from the power and hospitality segments of the group. In addition, we were able to cut down on our loss from forex arising from financing activities by 30 per cent year-on-year as we experienced a relatively stable exchange rate during the fiscal year-ended 2018, this no doubt impacted our Profit before tax as it soared 82 per cent year-on-year.”

Ozigbo explained that Transcorp Power Limited has continued to explore opportunities created by the eligible customer framework initiated by the federal government.
“We are at an advanced stage of negotiations with a number of eligible customers, which will translate into transactions in the months ahead. Our hospitality subsidiary, Transcorp Hotels Plc, also maintained its history of profitability in 2018, displaying the impact of our recent $100 million upgrade at the Transcorp Hilton Abuja and the immense value placed on the hotel’s best-in-class hospitality services,” he said.

In his comments, the Chairman of Transcorp, Mr. Tony Elumelu, said: “We remain committed to our purpose of improving lives and transforming Nigeria by powering our industries and businesses while providing our local and international guests with unrivalled hospitality services. This is our way of creating sustainable value for all our stakeholders.”
Newrest ASL Nigeria Plc ended the year with a revenue of N5.425 billion, showing an increase of 38 per cent, as against N3.92 billion in 2017. PAT soared by 285 per cent from N386 million to N1.48 billion.

However, Nigerian Breweries Plc recorded a decline in revenue and PAT.
The company recorded a revenue of N324.4 billion, down marginally from N344.5 billion in 2017, while exercise duty rose from N21.271 billion to N25.837 billion. Cost of sale reduced from N201 billion to N197 billion, bringing gross profit to N126.9 billion compared with N143.5 billion the previous year.
Marketing and distribution expenses rose from N66.863 billion to N70.052 billion, while administrative expenses reduced from N21.748 billion to N20.785 billion. Similarly, Net finance cost fell to N7.529 billion compared with N10.491 billion in 2017.

The company ended the year with PBT of N29.4 billion, down 36.9 per cent from N46.6 billion in 2017 and PAT of N19.4 billion as against N33 billion the previous year.
The company explained that the 2018 results were adversely impacted by the increased excise duty rates that came into effect during the year and a challenging operating environment.

Impact of results
It is believed the harvest season will attract more investors to the stock market as they move in to enjoy dividend being declared. Also, the performance of companies is one factor that is expected to dictate the direction of the market this year.

According to analysts at Afrinvest (West Africa), after the conclusion of the elections, investors will place a premium on investment decisions based on fundamental analysis of companies as opposed to speculative trading.

“Hence, we believe that performance of corporates will be a major consideration in 2019. Our expectation for corporates’ performances varies across sectors, with our optimistic expectations tilted towards the Banking sector, especially the Tier-1 players that have historically demonstrated resilience amidst tougher operating conditions. We also anticipate improved performances from consumer goods companies –as economic conditions improve –and oil & gas companies –as earnings are projected to be buoyed by increased oil production and prices,” they said.