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Petrol: Fuel marketers call for increase in margins 

Reports state that fuel marketers under the aegis of MOMAN and IPMAN have called on the FG through the PPPRA to raise their margins on petrol prices.

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Petrol: Fuel marketers call for increase in margins

Recently, reports filtered into the local media, stating fuel marketers under the aegis of Major Oil Marketers Association (MOMAN) and Independent Petroleum Marketers Association of Nigeria (IPMAN) have called on the Federal Government through the Petroleum Products Pricing Regulatory Agency (PPPRA) to raise their margins on petrol prices. We note that in Nigeria, pricing of petrol is fixed by the federal government through the PPPRA due to the subsidy regime it operates.

The last publicly available data on the pricing template of the PPPRA on petrol puts expected open market price at N171.76/litre although the CEO of MOMAN puts it at N182.00/litre. Out of this, retailers get only N6.00/litre while dealers get N2.36/litre.

Petrol: Fuel marketers call for increase in margins However, we note that the petrol supply chain is more complex than a dealer to retailer network with several middlemen facilitating the process before it gets to retailers. Thus, many retailers sell with margins as thin as N1.50/litre – N2.00/litre. The last review of marketers’ margins was done in 2016 when retailers’ margin was increased from N5 to N6 while dealers’ margin was increased from N1.96/litre to N2.36/litre.

However, the impact of double-digit inflation and the rising cost of running fuel stations have forced many retailers out of business while others continue to absorb big losses. We note that market leaders like Mobil, Total etc have been operating their petrol sub-division at significant losses with cover coming from other sub-divisions (sale of lubricants and cooking gas etc.).

Mobil recently diversified into the hospitality industry. Last year, billionaire, Femi Otedola sold off his stake in Forte oil following years of value erosion. Similarly, several smaller players who rely on sale of just petrol given their lack of capacity to diversify into other products have had to pack up. The CEO of MOMAN, Clement Isong has since claimed the nation is gradually approaching the point of a breakdown in its fuel distribution network if nothing is done soon.

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Furthermore, he stated that the increase in the rate of petrol truck accidents have been down to the worn-out state of most petrol tankers in the country. According to him, a petrol tanker with more than 15 years of life should not be carrying fuel but many trucks in the country are as old as 40 years making such accidents and dastardly explosions inevitable. Most petrol marketers are unable to invest in new trucks given many of them have seen their equity investments eroded.

From our viewpoint, margins for fuel marketers have been long due for a review given increased costs over time. The only option we believe available to the government is to increase subsidies given that it will be difficult to propose an increase in petrol prices in the face of expected increase in electricity tariffs and VAT. Increasing subsidy, however, will be a reluctant move for the government since it implies a dent to revenue.

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CSL STOCKBROKERS LIMITED CSL Stockbrokers,

Member of the Nigerian Stock Exchange,

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First City Plaza, 44 Marina,

PO Box 9117,

Lagos State,

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Telecoms sector remains resilient as broadband subscriptions climb

Broadband penetration grew to 41.3% in June 2020 from 33.31% in June 2019 and 40.1% in May.

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Telecoms sector remains resilient as broadband subscriptions climb

Despite the adverse impact of the global pandemic on various sectors in the economy, the Nigerian telecoms sector has remained resilient. According to recent data on key industry fundamentals published by the Nigerian Communications Commission (NCC), the total number of broadband subscriptions grew 23.9% y/y and by 2.8% m/m in June 2020 to 78.8m subscriptions.

Similarly, broadband penetration grew to 41.3% in June 2020 from 33.31% in June 2019 and 40.1% in May. In addition, the number of internet subscribers continued to grow in June 2020, up 1.8% m/m and 17.2% y/y to 143.7m subscribers. We believe the m/m uptick in broadband penetration could be due to gradual reopening of the economy.

READ MORE: Exxon Mobil, Chevron record their worst losses in history

We recall that subscriptions declined on a m/m basis in April but showed recovery in May & June, reflecting the resilience of the sector. Industry players in the telecommunications sector continue to invest heavily in internet infrastructure in a bid to improve 4G LTE coverage across the country. Heightened competition among industry players for market share has also forced bundle prices lower, making internet usage very attractive to the average Nigerian.

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READ MORE: Federal Government to introduce new laws for online businesses  

With the advent of the global pandemic, we believe the growing use of digital channels for daily routine activities ranging from telecommuting, entertainment and social engagement bodes well for continued growth in internet penetration. This will be further supported by increasing smartphone penetration, favourable country demographics and a fledgling social media culture. Nevertheless, we believe the sector still requires more investment to bring it at par with more developed climes. With internet penetration still below 50% (39.58% as at April 2020), we think significant potential exists for telecom and internet service providers in Nigeria.

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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COVID-19 and its impact on the cement industry

Our outlook for the cement industry is mixed due to a plethora of factors…

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The impact of the restrictive measures put in place during the second quarter to contain the global pandemic was apparent in the financial performance of two of the major players in the cement industry (Dangote Cement and Lafarge) as Revenue was pressured. Specifically, the industry leader, Dangote Cement recorded a decline of 15% in Sales volume in its Nigerian Operations while Lafarge reported a decline of 10%. Notably, the CBN Manufacturing PMI showed that demand for new orders in the cement subsector slowed to 63.6 points at the end of Q2 from 70 points in Q1.

READ: Measures introduced by Nigeria to ensure transparent use of the $3.4 billion IMF loan

In our view, the lockdown in the month of April in three key states across the federation (Lagos, FCT and Ogun) coupled with heavy rainfall in June led to the decline in the industry’s sales volumes during Q2. Furthermore, we think the increased level of government attention on the healthcare sector amidst revenue challenges led to the suspension of most construction projects across the nation. Meanwhile, we highlight that the FG reduced the amount budgeted for capital expenditure by 20% in the revised 2020 budget following the downturn in oil prices which undermined oil revenue. Based on the recent presentation made by the Minister of Finance on budget implementation, the sum of N253.3bn has been spent on CAPEX as at end of May, which pales in comparison to the pro-rated revised budgeted capital spending of N816.70bn and translates to a performance ratio of 31%.

READ ALSO: COVID-19: Abuja Sheraton suffers 88% drop in revenues

Looking ahead, our outlook for the cement industry is mixed due to a plethora of factors ranging from subdued private investment in gross fixed capital formation, rising inflationary pressures on essential food items (which could dampen the quest for capital goods such as housing), increased energy costs due to the devaluation in the local cuurency amidst heightened competition in the industry that may limit industry players from hiking prices to preserve margins. Although, we expect pressure on volume growth to persist in the short term until there is a significant pick up in economic activities, we note that the relaxation of lockdown measures and the low interest rate environment are positive factors that will support the earnings of industry players.

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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The “new normal” in business and economy

In the new normal, business owners are faced with overwhelming, competing challenges.

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The "new normal" in business and economy

As the COVID-19 pandemic continues to ravage the world, leaving citizens of the world a new world order, businesses need to navigate their financial and operational obligations. They are also expected to meet the needs of their greatest assets – customers and suppliers.

The crises may have paved way for uncertainties, but it has also created opportunities for sectors to emerge and grow, while some will fall and vanish if not properly managed and strategized as the companies who will stand firm in this era will be those that implemented risk management as part of their business strategy.

While this crisis is first and foremost a public health issue, which has claimed the lives of thousands of people worldwide and still counting, the economic would no doubt be overwhelming and is likely to create major economic meltdown in both the formal and informal sectors

READ ALSO: Airtel Africa’s profit up 12.9%, customer base reaches 111.5 million

The train must be primed to chug along now! In the new normal, business owners are faced with overwhelming, competing challenges. They are surrounded by treacherous waters now darkly infested with COVID-19 sharks. Still, they must continue to dive into the deep end of the global pandemic.

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A business’s success depends in part on the economic systems of the countries where it is located and where it sells its products. A nation’s economic system is the combination of policies, laws, and choices made by its government to establish the systems that determine what goods and services are produced and how they are allocated. The resources of a person, a firm, or a nation are limited. Hence, economics is the study of choices—what people, firms, or nations choose from among the available resources. Every economy is concerned with what types and amounts of goods and services should be produced, how they should be produced, and for whom. These decisions are made by the marketplace, the government, or both. In the United States, the government and the free-market system together guide the economy.

READ ALSO: UPDATED: Inflation rate jumps to 12.40%, highest in over 2 years

Business owners therefore should have their priorities clearly mapped out; providing support and being a backbone to their people, customers and suppliers. They must achieve all this, whilst simultaneously addressing supply chain disruptions, maintaining stable profit margins, aligning their businesses with evolving demand and changes and identifying potential pitfalls and new growth trends.

Businesses in the new normal require a new mindset to recover from the crises, thereby identifying, analyzing and addressing effective strategies that would help the business return to normality and grow. This is the time to build organizational relationships with strategic partners for proper execution of effective strategies.

Management personnel and stakeholders are quickly turning their attention to the ‘next’; that moment of unpredictable and probably muted economic recovery with newly identified threats and opportunities. This is a new era defined by fast-changing initiatives to shift the cultural norms, societal beliefs and values, such as renewed brand purpose.

READ MORE: IMF expects Nigeria’s GDP to shrink by 5.4% in 2020

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Leaders, corporate and political, are faced with the urgency to reopen their businesses.

To bridge the gap of uncertainty, reopening would require a series of ‘reinventive’ thinking. The pandemic offers a big opportunity to have companies invest in areas they wish they’d paid more attention to before the crisis. Now, to be more digital, data-driven, and in the cloud; to adopt a variable cost structure rather than fixed, to find its root in e-commerce and security are no longer deferrable agendas.

Consequent to the pandemic, organizations globally are experiencing an unfamiliar change in their workflow processes and harnessing their workforces optimally. Companies are yet to fully understand and determine how working remote working will help achieve corporate objectives beyond the survival hump. Profitability and business models are being cautiously reviewed. Teams and workforces try to function and perform in line with expected deliverables whilst struggling to cope with even more sombre personal and existential challenges in the new normal.

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Organizations, teams and workforces need new and bespoke fitting plans today. They need to formulate strategies and drive policies that can position them advantageously to work out and around the emerging challenges as the state of global health and economic unfolds. All stakeholders have critical roles to play in developing and establishing systematic approaches that promote shared workforce resilience, flexibility and intelligence.

Similarly, the ongoing COVID-19 pandemic has changed customers, employees, citizens and humans’ experiences, attitudes and behavior forever. The norms of behavioral consumer psychology are deviating from the expected curves. Results, though displaying expected changes, are creating sweaty anxiety for boardroom decisions. The crisis has caused a fundamental change in human-human interactions and behavior. In the new world order, companies would necessarily need to review and redesign operational flow and operating models. These changes would impact greatly on design, communication, running expenses, remunerations, investments etc. The definitions of that people need and want has been reshaped and businesses need to blend into the new, emerging ecosystem so they can properly reposition for sustainability and profitability. The global pandemic has created uncertainties and forced companies to reevaluate and reinvent how business operations units are leveraged. It has redefined how digital platforms can be used in supporting and ensuring continuity in the business through and beyond the crisis.

The state of the economy affects both people and businesses. How you spend your money (or save it) is a personal economic decision. Whether you continue in school and whether you work part-time are also economic decisions. Every business also operates within the economy. Based on their economic expectations, businesses decide what products to produce, how to price them, how many people to employ, how much to pay these employees, how much to expand the business, and so on.

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The crisis has fundamentally changed supply chain management economics and dynamics; we are in uncharted waters. Routes to market are evolving which would inevitably kick some companies off the market and make some others tether on balance. In response to the pandemic, leaders have been mandated to increase their adoption of value chain transformation to help outrun uncertainty. For those who are able to successfully navigate to the other side of this new normal, it becomes imperative to establish strategies for greater resilience and apply lessons learnt to create systems and models that would better prepare companies and stakeholders for further future disruptions.

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