It is generally accepted by most analysts that one of the sector’s to first feel the pinch of an economic downturn is the Industrial Goods sector due to its reliance on construction activities to boost sales.
A sharp fall in price of oil since mid-2014 that stoked a severe dollar scarcity; spurred inflation that eroded the purchasing power of consumers and dampened government revenue, is taking a heavier toll on industrial goods firms as profit waned and growth prospects dimmed.
The ripple effect is that investors have lost appetite for the stocks of these companies leading them to underperformed the NSE-ASI.
The economic recession has led to a drop in property sales and in some cases values as most no longer have the financial muscle to consummate transactions.
An industry expert said since there are no contract works, employers have resulted to mass retrenchments while future expansion plans have been put on hold.
News continues after this ad
Of the 22 firms that have released financial results on the floor of the Nigerian Stock Exchange (NSE), only 4 grew profit while the remaining faltered.
Dangote Cement, UACN Property Nigeria Plc, Portland Paints Plc, Cap Nigeria Plc, Berger Paints Nigeria Plc , and Sky shelter Funds Nigeria Plc recorded a -15.48 percent, -93.27 percent, -41.89 percent, 11.96 percent, -83.41 percent and -12.41 percent fall in net income respectively in the period under review.
News continues after this ad
Julius Berger, the largest construction company by market value, alongside Lafarge Africa Plc, Austin Laz Electronics Product, Avon Crown Cap Plc, Meyer Nigeria Plc, and Premier Paints Plc, recorded losses of N3.32 billion, N37.40 billion, N33.67 million, N85.64 million N71.72 million, and N15.67 million respectively.
The real growth rate of construction activity stood at -6.13 percent (year on year) in the third quarter of 2016, a decline of 6.02 percent points from the rate recorded a year previous, while the real estate contracted by 7.37 percent in real terms, according to (NBS).
“Quoted firms in the building materials and real estate industry have been under pressure, with most of them recording a drop in sales and net profit,” said Pabina Yinkere, head, Research Division Vetiva Capital Management Limited.
“For the real estate companies, it has simply been the economic situation and the resultant reduction in consumer spends that is driving the sector’s decline. Going in to 2017, whilst we expect company specific initiatives to improve fortunes, we see only slight improvement because most of the aforementioned factors are expected to persist,” said Yinkere.
Dangote Cement, Julius Berger, Lafarge Africa, Berger Paints, Beta Glass, Sokoto Cement, Paints and Coatings, and UACN Property have returned -7.08 percent, -16.67 percent, -51.48 percent, -37.70 percent, -41.07 percent, -52.09 percent, -29.81 percent and -59.61 percent compared to -11.55 percent year to date on the NSE-ASI the same period.
For the cement makers, a shortage of gas caused by militant attacks on pipeline facilities made them resort to a more expensive alternative source of energy, Low Pour Fuel oil. This sudden switch spiked input costs.
Nigeria’s economy contracted by 2.20 percent in the third quarter of the year, caused by a sharp fall in oil price since mid-2014 and a severe shortage of dollars, according to the National Bureau of Statistics (NBS).
Inflation for the month of October accelerated to 18.30 percent, the highest in 11 years, which means consumer will be left with little money in their pockets to rent or buy properties.
Unemployment rate has hit 13.30 percent, according to the NBS.