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Nigeria in 2020: SB Morgen perspective

The Nigerian economy is expected to be challenged with uncertainties in the year 2020 and possibly beyond, SB Morgen Research disclosed.

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Chinese debt trap, Nigerian Economy: Solution To Fixing Buharinomics

The Nigerian economy is expected to be challenged in the year 2020 and possibly beyond. This could be attributed to policies implemented based on impulse and not facts in 2019 by President Muhammadu Buhari’s administration, a report from SB Morgen Research disclosed.

The report described Buhari’s economic policies as ones designed by a protectionist instinct, arbitrariness and a more interventionist stance. How will institutions, and indeed the economy, cope with policies that are implemented based on impulses? It inquired.

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Highlights of the report

  • All metrics for the average Nigerian is in decline.
  • The country’s Human Development Index(HDI) value has only shown marginal increases in the last four years, while capital income has fallen, at a time of rising inflation and tepid growth.
  • At least, 600 people lost their lives by the violence that could be traced to election-related incidents that occurred between the launch of political campaigns and the actual elections.
  • A survey conducted in the wake of general elections showed increasing apathy to the political process.
  • Chinese investments and contracts in sub-Saharan Africa totalled $299 billion between 2005 and 2018, Chinese President Xi Jinping had vowed to invest a further $60 billion in African countries.
  • Average oil prices were below $60 in 2019 while Nigeria’s oil production was under 1.75 million barrels per day, above the pledged OPEC quota of 1.69 million barrels per day.
  • Nigeria ramped up production significantly from June increasing its quota; thereby, forcing OPEC to make complaints in early November after a new quota of 1.77 Mbps was agreed.
  • Food and general inflation fell for much of 2019 only to rise towards the end, driven by an unexpected source. That is the closure of Nigeria’s land border to the movement of goods to and from its neighbours to curb smuggling of petroleum products, rice, and motor vehicles among others.

[READ MORE: Economy: Reviewing FG’s 2019 revenue performance)

Head, Research, SBM Intelligence, Cheta Nwanze, said, “The Nigerian economy continues to struggle albeit remaining on a growth path that saw a 2.28% year-on-year. Growth in the third quarter of 2019 compared to 2.12% rise in the previous quarter.

“The nation’s fiscal position has been deteriorating in recent years, as evidenced by a rising deficit and increased borrowing. Failure to enforce tax laws and broaden the tax base has resulted in weak revenue generation. Increased debt has resulted in heightened service costs (about 52% of the government’s revenue). Despite this, the government is seeking approval to take $30 billion in new loans, which if approved will drive the cost to 80% of revenue, an unsustainable figure.”

What to expect in 2020

SBM expects slight economic growth in 2020, which is in line with the World Bank and the International Monetary Fund (IMF) projection for the world economy at 2.6% and 3%. It stated that the direction of global growth in 2020 would be heavily reliant on the outcome of US-China trade talks and Brexit, “and we foresee that because Donald Trump is facing re-election in 2020, he will be more open to dialogue with China thus opening the way for more global growth in the New Year.”

On the local scene, the research firm expects 2020 growth to beat the World Bank’s forecast and come in about 2.4% on the back of improved oil revenues.

“We believe that Nigeria would be stuck in a low-growth cycle for the next few years unless more critical reforms are implemented. A high growth rate will require attracting targeted investment in identified growth-driven sectors like oil and gas, agriculture, manufacturing, and telecoms among others,” Nwanze added.

No surprise as MPC retains policy rates, balancing effects between rising inflation and tepid growth, Financial Inclusion: Fintech firms got $400 million investment in 2019 - Emefiele 

Godwin Emefiele

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It expects inflation to continue its sharp rise in the new year leading with food inflation. While the Governor of Central Bank of Nigeria, Godwin Emefiele, expects inflation to moderate within 3-4 months, SBM insists that it expects an average of 13% in 2020.

The projection could be attributed to foreign exchange supply restrictions on certain food items, partial border closure, Value Added Tax increase and a possible increase in electricity tariffs and the retail price of petrol.

In all, while all hands are on deck, SBM said the economy might dip back into recession before 2020 is out, as the government is unable to inject any kind of stimulus due to its precarious financial position.

Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper. The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference. The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - abiola.odutola@nairametrics.com.

1 Comment

1 Comment

  1. anodebenze

    January 2, 2020 at 1:52 pm

    where is the evidence ?,protection measures,arbitrariness,the only protection action done by Mr Buhari was the closing of the border,which will open this month,it is farmers who are pressurizing govt to closes the border.i think things will get better as business confidence is coming back,IF THE GOVT CONTINUE ALL THEIR SOCIAL ACTION,SOCIAL LENDING IN CORMMERCIAL BUSINESS,WE DO NOT FORGET GOVT HAVE STABILIZED THIS RECESSION,AND ALSO,THIS IS THE FIRST RECESSION IN NIGERIAN HISTORY.
    if WE GO BACK TO PRE-RECESSION AND IF THIS BUSINESS CONFIDENCE WILL REACH THIS PRE-CONFIDENCE,and WE DO HAVE CBN INTERVENTION,THE ECONOMY MAY GROW MUCH BETTERas the main action by the govt was in containing this recession,they may change style,by june,if they have seen confidence have been restores,this recession took everybody by surprise and it was very shocking,it is a rude awakeing for all Nigerian,if the economy maintains a growth above the present level for this year and next year,NIGERIANS WILL SEE SOMETHING THEY HAVE NOT SEEN BEFORE

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Analysis: Total Nigeria needs a financial overhaul

 Total Nigeria’s Q1’20 results are a testament that some might have it worse than others as it recorded a revenue drop of 9.3% to N70.2 billion

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Total Nigeria, Analysis: Total Nigeria needs a financial overhaul

The Oil Industry has had a particularly tough year, owing primarily to the novel pandemic. The International Energy Agency (IEA) predicts that the global oil demand is expected to further decline this year as Covid-19 spreads around the world, constraining travel as well as other economic activities.

Organizations like Total depending on international trade will be forced to scale down operations until restrictions ease off. However, Total Nigeria’s Q1’20 results are a testament that some might have it worse than others.

The period recorded a revenue drop of 9.3% to N70.2 billion in the first quarter of this year compared to Q1 2019. Total earns its revenue from three main sectors namely: Networks, General Trade, and Aviation. Revenue from Aviation fell by 39.5%. The decline in Networks is attributed to the reduced demand as a result of the enforced lockdown and restriction on travel across the nation.

READ ALSO: Analysis: MTN’s blow out Q1 profit vs Covid-19 headwinds  

Yet, it is clear that the company had its own challenges pre-COVID-19. In the quarter, it attained a loss after tax of N163 million which was 65.6% better than the loss after tax of the comparative quarter; it is overwhelmed by a myriad of distinct issues.

First off, its revenue has experienced a steady fall over the years; reasons for this is tied largely to its lack of importation of petroleum products.

It is also burdened by inefficiencies in its operations evident in its high operational and direct expenses, as well as its high debt over the past years. The company has carried on huge loans and borrowings in its books: N40.6 billion in 2019 and only a marginal reduction of N2.2 billion in the current year.

(READ MORE:Nigeria’s Bonga crude oil export terminal shut down)

Even higher are its expenses after an 8.38% reduction in the just-released results, it arrived at N69.7 billion for Q1 2020. Amongst its high operational expenses is the high and increasing technical fees it pays to its parent company. From N251 million in the first quarter of last year, it incurred around N700m in the year under review. It also has cash flow issues with about N22b in negative cash and cash equivalents. In its 2019 report, it revealed that the year had been tough with its cost of doing business rising exponentially as evident in its interest expense, 395% higher than the previous year as a result of repayment for products and a high level of borrowing.

Total Nigeria records loss for the first nine months of 2019, Analysis: Total Nigeria needs a financial overhaul

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The company, in its last full year annual report, noted that to make significant savings to both operational and capital expenditure costs, a series of initiatives relating to cost efficiency, process optimization, and significant reduction of working capital requirement and finance costs, were put in place and are in motion for this year.

READ ALSO: STERLING BANK: Reduced fee income, weak operating efficiency drives steep decline in pre-tax profit

As Dr. Fatih Birol, IEA’s Executive Director put it “The coronavirus crisis is affecting a wide range of energy markets – including coal, gas, and renewables – but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand transport fuels.”

However, Total’s position goes beyond the impact of the pandemic. Its rebound rests on its ability to carry on with cost control and lower debt commitments, together with the speed of the containment of the virus. That said, the company might need to raise capital soon while also coming up with formidable strategies to strengthen its business model.

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Merger, Tax incentive boosts BUA Cement FY 2019 result

BUA Cement Plc recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.

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BUA Cement gives succour to host communities in Edo

One of the industries set to experience the downsides of the Covid-19 pandemic is the construction industry. Given the slowdown in construction activities as a result of the lockdowns and constrained economic activities, the reasons are not farfetched.

Prior to the outbreak of the pandemic, Globe Newswire had predicted an accelerated growth pace of the global construction industry from 2.6% in 2019 to 3.1% in 2020. This growth has now been revised to 0.5%. What is even more daunting is that the revised growth rate is based on the assumption that the outbreak will be contained across all major markets by the end of the second quarter of 2020.

It is only after that (including freedom of movement in H2 2020) that events could facilitate reverting to the normal course of activities to foster businesses in the industry like BUA Cement or those that depend on it to restart activities.

Nigeria’s third-largest cement company, BUA Cement Plc, however, still has its 2019 victories in order. Involved in the manufacturing and sales of cement, BUA Cement has 3 major subsidiaries and plants in Northern and Southern Nigeria.

(READ MORE:Update: BUA Cement Plc lists N1.18 trillion shares on NSE)

With a market capitalisation of N1.18 trillion ($3.3 billion), BUA is the third most capitalised company on the NSE. Its recently released financials reveal a 47.5% increase in revenues of N175.52 billion up from N119 billion in 2018.

Kalambaina Cement Line 2, BUA Group, Kalambaina Cement, CCNN, Merger, Tax Incentive Boost BUA Cement FY 2019 Results

The company’s profits also increased by 69.1% from N39.17 billion in 2018 to N66.24 billion in 2019. Core operating performance was strong, and this was supported by strong cement sales in the domestic market, impairment writes back, and other income.

Deal book 300 x 250

The main reason for the company’s increased earnings is from the cost synergy and increased revenue as a result of the merger that took place between CCNN Plc and Obu Cement Company Limited.

There was also a striking jump in its income statement on its tax for the year. For FY 2019, it incurred a tax expense of N5.6 billion, in comparison to the N24.9 billion tax credit it received in FY 2018.

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This was as a result of a reversal of previous tax provision made on Obu Line 1; it received approvals for an extension of the company’s pioneer status on Obu line-1 and Kalambaina line-2 in February 2020, to leave effective tax rate at just over 8% in 2019. The pioneer status will help the company save funds that will otherwise have been spent on higher taxes.

(READ MORE:Dangote Cement to access more debt funding)

BUA reported an impressive FY’19 result. Its performance shows the growing strength of the company and its increasing market share. On the back of the strong performance, management declared an N1.75 dividend per share that translates to a dividend yield of 5.5% on current prices.

Cash flow position was also robust with a strong closing cash balance – from N2.8 billion in 2018 to N15.6 billion as at year ended 2019. The company’s growth, as well as the impact of its merger, present a great buy opportunity of the highly capitalized, low-cost stock. As of today when the market closed (21st May) its share price stood at N35.60 from a 52-week range of N27.6 and N41.

READ ALSO: COVID-19: Best and worst case scenarios for the Nigerian economy

What we see is a great growth stock further heightened by the population expansion and increased urbanization. However, we expect the impact of the Covid-19 pandemic to be felt from the Q1 results of the company.

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The industry could slow down for the year as the level of commercial construction also slows down. Yet the best part of holding stocks like this is that even with stalled operations for a period, a resurgence will always emerge.

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Analysis: Airtel Nigeria is winning where it matters

Airtel has left no stones unturned in ensuring that its provisions are top-shelf – subscribers to the network, of course will have their own ideas.  

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Analysis: Airtel Nigeria is winning where it matters.

Airtel might have won our hearts over with internet-war adverts starring our favourite tribal in-laws, but its fundamentals are what will make us the bucks that keep us happy. Airtel Africa Ltd is a subsidiary of Indian telecoms group, Bharti Airtel Ltd; the group has left no stones unturned in ensuring that its provision of prepaid plans, credit transfers, mobile internet services, messaging, roaming facilities and more, are top-shelf – subscribers to the network, of course, will have their own ideas.

Since last year when Airtel Nigeria became the second telecommunication company in Nigeria listed on the NSE, the company has experienced a steady level of growth. With a presence in 14 African countries, the group’s strength lies in its diversity with stronger companies mitigating the poor performances of others.

Performance Overview: Airtel Africa 

Airtel Africa’s report for the year ended March 2020, revenue jumped by 10.9% from $3.1 billion at the year ended 2019 to $3.4 billion in 2020. The consolidated profit before tax also jumped by 71.8% from $348 million in 2019 to $598 million in 2020. However, profit for the period dropped by 4.23% with earnings of $408 million in 2020 from the $426 million it had earned in 2019. A reason for this is the tax figure that moved from a credit of $78 million in 2019 to tax payments as high as $190 million in 2020. Total assets also jumped by 2.41% from 2019’s value of $9.1 billion to $9.3 billion in 2020 primarily as a result of their acquisition of more property, plant, and equipment (PPE). The total customer base grew by 9.3% to 99.7 million for the year ended.

Full Report here.

Revenue growth of 10.9% was driven by double-digit growth in Nigeria and East Africa. However, the rest of its African operations experienced a decline in revenue. Its success in Nigeria is especially commendable, considering the fact that the company lost more than 100,000 subscribers in Nigeria between December 2019 and January 2020. Raghunath Mandava, Chief Executive Officer, remarked that the results which were in line with the group’s expectations, “are clear evidence of the effectiveness of our strategy across Voice, Data and Mobile Money.”

(READ MORE: NCDC and NNPC-IPPG reinforce #TakeResponsibility theme with multi-lingual campaign)

Behind The Numbers – Nigeria

Airtel Nigeria’s performance indicates the company is making the right calls in a very competitive industry. Nigerians are fickle when it comes to data and voice but will spend if the service is right. The company grew its data revenue by a whopping 58% to $435 million a sign that its strategy to focus on data is working. Voice Revenues for the year was up 15% to $850 million. In total, Airtel Nigeria’s revenue was up 24.4% to $1.37 billion. Ebitda margin, a number closely watched by foreign investors 54.2% from 49% a year earlier. Operating profit for the year ended also jumped by 52.6% for the year from 2019 and 32.4% from Q1 2019. Total customer base in Nigeria also grew by 12.5%.

Regulation forces Airtel Africa to initiate shares listing in Malawi , Analysis: Airtel Nigeria is winning where it matters.

Deal book 300 x 250

Nigeria is surely critical to Airtel Africa’s future seeing that it contributes about one-third of its revenue. Recent results thus indicate it is winning where it matters most and it must continue to stay this way if it desires to survive a brutal post-COVID-19 2020. Telcos are expected to be among the winners as Nigerians rely more on data to work remotely but there are other players in this game. Concerning the impact of the pandemic, he explained that at the time of the approval of the Group Financial Statements, the group has not experienced any material impact arising from the impact of COVID-19 on its business.

On cash flows…

The group has also taken measures to enhance its liquidity. The CEO explained that it is moving its focus to enhance liquidity towards meeting possible contingencies.

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“Having considered business performance, free cash flows, liquidity expectation for the next 12 months together with its other existing drawn and undrawn facilities, the group cancelled the remaining USD 1.2 billion New Airtel Africa Facility. As part of this evaluation, the group has further considered committed facilities of USD 814 million as of date authorisation of financial statements, which should take care of the group’s cash flow requirement under both base and reasonable worst-case scenarios.”

To this end, they have put in the required strategies to preserve its cash as its cash and cash equivalents, consequently, jumped by 19.1%.

(READ MORE: COVID-19: MTN says it has put strict measures in place to preserve resources)

Buying opportunity

Investors looking at this impressive result will be wondering if this portends a buying opportunity. Airtel Nigeria closed at N298 on Friday and has remained at this price for about a month. The stock is quite illiquid and is not readily available to buy.

It’s the price to earnings ratio of 4.56x makes it quite attractive. Further highlighting this opportunity is its price-to-book ratio which is as low as 0.5273, suggesting that the stock could be undervalued. Whether it is available to be bought, is anyone’s guess.

 

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