Nigeria-listed companies posted significantly better returns for their shareholders in the first half of 2023, data from their financial statements shows.
A recent Nairametrics analysis conducted over 35 listed companies cutting financial services, manufacturing, telecoms, and consumer goods show a higher return on equity when compared to the same period in 2022.
According to the analysis, the companies reported a combined N2.146 trillion in profits during the year against a total average of N12.1 trillion in shareholder funds.
This delivered a return on average equity of 23.3% compared to 17.24% in the same period last year.
Return on Equity (ROE) is a key metric that aids investors in distinguishing between profit-generating companies and profit burners. It is derived by dividing the net income by the shareholders’ equity, providing insights into how effectively a company uses its equity to generate profits.
High ROE is often seen as a sign of a well-managed company that effectively uses its equity to generate profits. This can make the company more attractive to investors, potentially leading to an increase in demand for its shares and a higher stock price.
Several Nigerian listed companies have displayed efficiency in generating profits from their shareholders’ equity, as reflected in their reported return on equity (ROE) figures in H1 2023.
These companies achieved substantial returns on equity above 20%. Notable among them are GTCO, UBA, Zenith Bank, Okomu Oil, MTN Nigeria, etc.
Despite recent policy shifts and macroeconomic challenges, Nigerian listed firms have demonstrated strong performance in the first half of 2023.
Their H1 2023 results reveal significant profit growth and robust balance sheet expansion.
In response, the equity market has reacted positively as evidenced by the impressive return of the NGX All-Share Index (NGXASI), which stood at 29.52% as of the end of September 2023.
As investors anticipate the upcoming release of Q3 results and seek to identify “cash cow” stocks with the potential for higher returns, it’s crucial to recognize that simply identifying cash-rich stocks is insufficient for constructing a robust investment strategy.
To make well-rounded investment decisions, it’s imperative to complement this with attractive efficiency metrics like return on equity (ROE). This holistic approach ensures a solid foundation for investment choices.
In this context, Guaranty Trust Bank (GTCO) stands out. GTCO achieved an impressive ROE of 61.40% in H1 2023, marking a significant increase from the previous year’s 23.9%.
This means that the company generated N61.40 in profit for every unit of shareholder’s equity held.
Beyond the ROE metric, Guaranty Trust Bank (GTCO) presents additional value to investors. The bank has a consistent track record of delivering dividends to shareholders over the past 5 years.
With an annual dividend of N3.30, GTCO’s stock offers an attractive dividend yield of 9.17%.
When combined with a capital gain of 56.74%, the stock provides a compelling total return of 66.10%. This total return potential makes GTCO an appealing choice for investors seeking both income and capital appreciation.
With a relatively low earnings multiple of 2.72x, the stock appears undervalued, and analysts project a potential upside.
This valuation, coupled with the strong performance across various financial metrics, positions GTCO as an investment case for investors seeking both value and growth in the equity market.
UBA, which emerged as the most profitable company in terms of PAT performance in H1 2023, also recorded an impressive Return on Average Equity (ROAE) of 57.4%, surpassing the figures it recorded in H1 2022 and for the full year 2022.
Just like GTCO, UBA’s impressive ROAE growth was driven by a record 438% YoY growth in net income, primarily due to substantial FX revaluation gains.
Also, outside the ROE metric, UBA offers investors a compelling investment option with a total return of 128.12%, combining share price gains of 119.74 YtD and a dividend yield of 8.38%.
The bank has maintained a consistent track record of dividend payments over the last five years and is anticipated to continue this pattern. In line with this, it has announced an interim dividend of N0.50 for the first half of 2023.
Zenith Bank recorded an ROE of 36.90% in H1 2023, showcasing efficient equity utilization.
The bank’s impressive ROE can be attributed to the 139% growth in gross earnings, increased interest and non-interest income, and an improved cost-to-income ratio.
Apart from its impressive ROE, Zenith Bank has consistently distributed dividends over the past five years, totalling N467.808 billion, with an annualized growth rate of 27%. Offering a dividend yield of 4.56% and substantial capital gains of 59.39% YtD, Zenith Bank presents an enticing total return of 63.96%.
From the ICT/Telecom Sector, MTN Nigeria stood out with an impressive 43.22% Return on Equity (ROE).  Outside the ROE metric, MTN Nigeria’s share price has gained about 22% YtD.
MTN Nigeria’s strong market presence and robust infrastructure make it well-positioned for sustained long-term earnings growth. Â Underlining this outlook, MTN Nigeria has successfully delivered a trailing four-quarter earnings per share of N15.17, serving as a significant indicator of its potential for future profitability. Â
Similarly, Okomu Oil Palm Plc, a prominent palm oil producer, demonstrated efficiency in profit generation with a 41.77% ROE. Despite a slight decline in net income, Okomu Oil maintains an impressive profit margin of around 40% in H1 2023.
In addition to Return on Equity (ROE), the consistent dividend payout and the attractive investment opportunity with a dividend yield of 4.56% and significant capital gains of 59.39% year-to-date (YtD) also reflect positively on the stock’s appeal to investors.
Among the other companies analyzed that recorded return on equity include, MTN Nigeria (+43.22%), Dangote Cement (+37.23%), Zenith Bank (+36.90%), Presco (+36.17%), Fidelity Bank (+34.90%), BUA Foods (+34.18%), FCMB (+33%), etc.
Amidst these impressive ROE performances, it is important to highlight that some companies in the consumer goods sector recorded negative return on equity (ROE) figures for H1 2023.
Specifically, Nigerian Breweries, International Breweries, Dangote Sugar, and Nestle all recorded negative ROE, primarily attributed to losses incurred after tax.
These negative ROE figures signify challenges and financial difficulties, the companies experienced within the period under review.
But, let us also not forget that the forex revaluation gains which catapulted the banks to such high profit positions, are supposed to be a one-off occurrence, hence their 2024 performance should show those that are truly champions. Moreover, the huge debt write downs by these top banks in the current year in contrast to previous years also shows there are still a lot of pitfalls in their operations and the banks who are able to manage this part of their business better may be the real winners going forward.