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NSE: Return of the Bulls
The price appreciation of some banking stocks and some blue-chip stocks traded on the floor of NSE last week influenced the return of the bulls.
The price appreciation of some banking stocks and some blue-chip stocks that traded on the floor of the Nigerian Stock Exchange (NSE) last week influenced the return of the bulls against the bears that had ruled the bourse since October 9, 2019, when the market capitalization fell from the N13 trillion mark to N12.94 trillion.
Also, the All-Share Index dropped from 26,809.92 to 26,598.94. The downturn then was impacted by losses recorded in medium and large capitalised stocks like Nestle Nigeria, Dangote Cement, Guinness Nigeria, Nigerian Breweries and Presco, among others.
But the trend witnessed last week depicted that the bulls are on a rebound, as the major indicators mentioned above sustained their upward movement for about three days consecutively.
Zenith Bank GMD-CEO
On Thursday, when the jinx of N13 trillion mark was broken, the All-share index grew by 1.91% to close at 26,843.11 basis points, the highest recorded yet in the month of November. Also, the total market capitalization increased by 1.83% from N12.8 trillion recorded yesterday to close at N13.1 trillion, hitting the N13 trillion market.
The stock market traded 624.8 million shares valued at N10.02 billion across 6,426 deals from which banks scooped the largest trades of the day.
[READ MORE: NSE: Bulls return to market as Market Capitalisation hits N13.07 trillion mark]
At the end of Friday’s trading, the top trades on the bourse were totally dominated by banks, as they traded 336.8 million shares valued at N3.69 billion, which account for 66% of the total shares traded on the stock market.
The All-share index grew by 0.03% to close at 26,851.68 basis points, as the market capitalization moved up by N100 billion when it closed at N13.1 trillion.
Week on Week
For instance, the ASI and market capitalisation both appreciated by 2.04% to close last week at 26,851.68 and N13.071 trillion respectively. Similarly, all other indices finished higher except for NSE Insurance and NSE Oil/Gas indices, which declined by 0.56% and 1.76% respectively, while the NSE ASeM index closed flat.
CEO/Group Managing Director, Access Bank Plc, Herbert Wigwe
Drivers of the BUMP
The Financial Services industry (measured by volume) led the activity chart with 1.705 billion shares valued at N21.555 billion, as it traded in 15,395 deals, thus contributing 81.84% and 63.65% to the total equity turnover volume and value respectively.
The Consumer Goods Industry followed with 188.870 million shares worth N7.445 billion in 1,989 deals. The third place was Conglomerate industry with a turnover of 82.675 million shares worth N128.662 million in 691 deals.
Zenith Bank Plc, Access Bank Plc and United Bank for Africa Plc. (measured by volume) accounted for 1.210 billion shares worth N17.048 billion in 7,031 deals, contributing 58.09% and 50.34% to the total equity turnover volume and value respectively.
The CBN‘s OMO ban effect
The development could be attributed to the recent Central Bank of Nigeria’s restriction of individuals and small firms from trading in the Open Market Operations (OMO), low treasury bills yield and limited investment outlets available to investors.
These, experts believe, led to the influx of the new growth witnessed by the major market indicators. Comercio Partners Limited explained that though its concerns remain the seeming unclear direction of the CBN with regards to monetary policy, the recent CBN’s move pushed the indicators further.
It stated, “Many investors with huge cash but limited investment outlets available will have invested the funds in the equity market. Some people collect huge severance packages, have huge funds they must have taken to the bourse. ”
[READ ALSO: NSE traded N6.8 billion worth of shares on Thursday as market close positively]
The Treasury bill’s interest rate crash effect
A council member, NSE, Adebayo Ajayi, agreed with Comercio Partners, as he explained that the CBN directive would have a positive impact on the equities market as corporate organisations like pension managers would have to divert more funds into the equity market.
He also attributed the development to the crash of the interest rates in the treasury bills market, which slid into single digit region at the end of the Primary Market Auction last Wednesday.
He said, “The crash of the interest rates of treasury bills made investors’ search for alternative investments intensify. The aggregation of these factors pushed investors to stocks, which recorded highest gain in five weeks.”
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GSK in big trouble as losses mount
The results were less than impressive with several key indicators showing a year-on-year decline.
GlaxoSmithKline Consumer Nigeria Plc (“GSK Plc” or “the Company”) is a public limited liability company with 46.4% of the shares of the Company held by Setfirst Limited and Smithkline Beecham Limited (both incorporated in the United Kingdom), and 53.6% held by Nigerian shareholders.
The ultimate parent and controlling party is GlaxoSmithKline Plc, United Kingdom (GSK Plc UK). The parent company controls GSK Plc through Setfirst Limited and SmithKline Beecham Limited.
The Company recently published its unaudited first quarter (Q1) 2021 consolidated financial statements for the period ended 31 March 2021.
READ: GSK Consumer Nigeria Plc records 3.34% increase in 2020 9M revenues
The results were less than impressive with several key indicators showing a year-on-year decline. For example, Group revenue (turnover) declined from ₦4.99 billion in Q1 2020 to ₦3.46 billion in Q1 2021 a drop of over 30.66%. The revenue drop was due to a sharp decline in the local sale of its healthcare products.
Total loss after tax as of Q1 2021 was ₦238.07 million compared to a profit after tax of ₦113.47 million for the same period to Q1 2020.
The company is essentially divided into two segments viz: Consumer Healthcare and Pharmaceuticals. While the Healthcare segment was largely profitable in Q1 2021 (making a profit before tax of ₦ 8.73 million by March 31, 2021, the pharmaceuticals segment made a loss of ₦262.93 million in the same period.
READ: GlaxoSmithKline Nigeria announces changes in its board
The Consumer Healthcare segment of the company consists of oral health products, digestive health products, respiratory health products, pain relievers, over the counter medicines, and nutritional healthcare; while the pharmaceutical segment consists of antibacterial medicines, vaccines, and prescription drugs. While goods for the consumer healthcare segment are produced in the country, the pharmaceuticals are all imported.
The largely imported pharmaceutical products are thus exposed to the vagaries of foreign currency fluctuations coupled with a negligible to no revenue from the foreign sale of its healthcare products (same as in Q1 2020) as it barely exports its products out of the country.
The cost of importing the antibacterial, vaccines and prescription drugs, and the significant local operating expenses wiped off the marginal gross profits made by the pharmaceutical segment of the company. In effect, the gross profit of ₦508.12 million made by the pharmaceutical segment of the company was eliminated by an operating expense of ₦735.7 million and this resulted in a net loss for the pharmaceutical segment of the business.
READ: Nigerian Breweries posts N7.66bn as Q1 2021 profit, shares gain 2.2%
Apart from the impact of imported pharmaceutical products as already discussed, other issues that affected the company’s Q1 2021 results and are likely to continue to affect its performance in future include:
- A limited product mix that has only the likes of Macleans and Sensodyne (Oral Healthcare); Pain relievers (Panadol and Voltaren); Digestive Health (Andrews Liver Salt); and Respiratory Health (Otrivin and Panadol Cold and Catarrh) all within the Consumer Healthcare segment.
- Increased competition, particularly from local pharmaceutical manufactures of similar over the counter medicines and other prescription medications and vaccines.
In addition, in October 2016, GSK Plc divested its drinks bottling and distribution business that manufactures and distributes Lucozade and Ribena in Nigeria, and other assets including the factory used for the drinks business to Suntory Beverage & Food Limited. The loss in revenue from these popular brands continues to impact its topline.
GlaxoSmithKline (GSK) is a global healthcare company and is well-known and acknowledged for its pioneering role in discovering and distributing vaccines for the likes of hepatitis A and B, meningitis, tetanus, influenza, rabies, typhoid, chickenpox, diphtheria, whooping cough, cervical cancer and many more.
It is also renowned for its manufacture and distribution of prescription medicines such as antibiotics and treatments for such ailments as asthma, HIV/AIDS, malaria, depression, migraines, diabetes, heart failure, and digestive disorders.
Perhaps GSK Plc’s fortunes may change if the company is able to obtain the parent company’s licence to manufacture GSK-owned vaccines and prescription medicines within the country while also exploring the possibility of extending the sale of its products outside the shores of the country.
Since different expertise is required for vaccines and prescription drug manufacture and distribution as compared to manufacture and sale of consumer healthcare products, perhaps another alternative may be for the company to create two separate companies with one company being a 100% vaccines and prescription drug pharmaceutical manufacturing and distribution company while the second company specializes entirely in the manufacture and sale of consumer healthcare products.
As a result of the Q1 2021 performance, the company’s earnings per share (EPS) dropped to -20 kobo compared to the 9 kobo earnings per share reported in Q1 2020. At the start of 2021, GSK Plc’s share price was ₦6.90 but the company has since lost over 10% of its price valuation as the company’s share price closed at ₦6.20 on April 30, 2021.
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NB Plc’s share price and dividends keeping shareholders happy
It was not all hunky-dory for the company as its cost of sales jumped from N48.3 billion in Q1 2020 to N66 billion in Q1 2021.
Nigerian Breweries Plc (“NB Plc” or the “Company”) reported its first-quarter (Q1) 2021 results on April 23, 2021.
The company’s performance was impressive considering the headwinds it faced late in 2020 and early 2021 from inflationary pressures, poor consumer purchasing power, lethargic economic growth, and increase in the company’s beer prices which took effect from Q4 2020.
The company achieved a net revenue for the three months to March 31, 2021 of N105.68 billion compared to N83.23 billion for the same period to March 31, 2020 — a 27% increase compared to the Q1 2020 results.
It also achieved a N39.67 billion gross profit — a 13.7% increase in gross profit compared to Q1 2020.
Quarter-on-quarter EBITDA rose by 22.8% from N19.82 billion in Q1 2020 to N24.34 billion in Q1 2021. Other positive outcomes quarter on quarter were the increase in operating income (from N10.94 billion to N14.49 billion), profit before tax (from N8.3 billion to N11.51 billion), and profit after tax (from N5.53 billion to N7.66 billion).
It was not all hunky-dory for the company as its cost of sales (direct costs attributable to NB Plc’s production) jumped from N48.3 billion in Q1 2020 to N66 billion in Q1 2021, an increase of N17.7 billion. According to the company, its costs are subject to seasonal fluctuations as a result of weather conditions and festivities. As a result, the company’s results and volumes are dependent on the performance in the peak‐selling season, typically resulting in higher revenue and profitability in the last quarter of the year.
The total cost of sales, marketing and distribution, and administration expenses grew from N72.47 billion in Q1 2020 to N91.63 billion in Q1 2021 – a jump of 26.43%. This jump was largely attributable to the cost of raw materials and consumables which grew to N46.53 billion (compared to N30.2 billion for the same period in Q1 2020).
The raw materials cost pressure has been a trend since Q2 2020 driven by the rising commodity prices, foreign exchange devaluation and domestic inflationary pressures. As a result, the cost of the raw materials to net income ratio has continued to rise. This ratio was 36.3% in Q1 2020 but has risen to 44% in Q1 2021.
What may be a source of particular concern for the company is how well working capital is being managed from a liquidity and leverage perspective. The company reported cash and cash equivalents of N30.37 billion in Q1 2020, this had dropped to N18.43 billion by Q1 2021. In the same period, trade debtors and other receivables (i.e., those that owe the company for purchases that have not been paid for) had increased from N11.42 billion in Q1 2020 to N23.48 billion in Q1 2021, an increase of over 105% in just 12 months!
More worrying, in terms of magnitude, are trade creditors and other payables (i.e., those that the company owes payments for goods and services purchased) which grew from N139.2 billion in Q1 2020 to N145.41 billion in Q1 2021, a rise of N6.21 billion (or 4.5%) in just 12 months.
While the company’s loans and borrowings had reduced significantly (short-term loans in Q1 2021 was N35.65 billion versus N39.64 billion in Q1 2020; and long-term loans in Q1 2021 was N15.87 billion versus N51,81 billion in Q1 2020), the cost of borrowing, that is, interest expenses that the company paid on borrowed funds, rose from N2.7 billion in Q1 2020 to N3 billion in Q1 2021. This suggests that while short term and long-term borrowing have reduced, working capital needs are being refinanced at a higher cost or alternatively, most of the reduced short term or long-term borrowings have simply been restructured from longer-term loans to shorter-term overdrafts and commercial papers with a higher interest expense. The balance sheet as of Q1 2021 showed a liability in the form of bank overdraft and/or commercial papers of N21.44 billion which was not in the books in Q1 2020.
The first-quarter report also showed that as of March 31, 2021, the company had revolving credit facilities with five Nigerian banks to finance its working capital with the approved limit of the loan with each of the banks ranging from N6 billion to N15 billion (total N66 billion). N9 billion of the available amount was utilized at end of March 2021 (2020: Nil).
It should be noted that NB Plc’s financial statements for the 3 months ended 31st March 2021 are yet to be independently audited, so the results may be further improved or be worse, depending on the views and professional opinion of the external auditors in terms of accounting treatments and management judgement on significant transactions.
From the company’s numbers and explanations, the results are clearly driven by:
(1) Benefits from its increased pricing with the raised prices taking effect from December 10, 2020. The increases ranged from 5.2% to 6%, mainly on selected brands packaged in aluminium cans and on the 600-ml Star Larger returnable glass bottle.
(2) Volume growth in its premium brands (particularly Heineken) and non-alcoholic portfolio (particularly Maltina).
(3) Relative inelastic demand for its portfolio mix despite price increases, availability of substitutes, and stagnate consumer wages eroded by inflation. In economics, inelastic demand occurs when the demand for a product remains static or changes less than changes in price.
Overall, the company achieved outstanding results that would have confounded analysts’ estimates. Given continued inflationary trends and currency depreciation, it would be interesting to see whether turnover and profitability growth are sustainable over the remaining quarters of the year. On its financial year 2020 performance, the company paid a final dividend of NGN0.69 in April 2021 (interim of NGN0.25 paid in December 2020). If the trend is sustained, it can only be good news for NB Plc in terms of increases in its share price and dividends for its shareholders.
Heineken Brouwerijen B.V owns 37.73% of the company to which NB Plc pays annual technical service fees and royalties.
