Investors reward firms with strong profit margins
BusinessDay’s analysis shows that firms with the highest net profit margin have outperformed others in the sector. Cement Company and Northern Nigeria (CCNN)’s net profit margin hit a 6 year high of 16.48 percent in 2017, the largest margin expansion in the sector, and the Sokoto based cement maker’s stock price gained 148.15 in the past year, this compares with the Dangote Cement’s 1 year return of 14.85 percent and Lafarge Africa’s 1 year return of -24.85 percent.
Dangote Sugar Refinery Plc’s net profit margin of 19.18 percent in 2017- the highest since 2006- is the largest margin expansion in the sector as the largest producer of the sweetner’s 1 year return of 140.07 percent outperforms International Breweries’ 1 year return of 35.18 percent, Nigerian Breweries return of 26.68 percent, and Unilever’s 35.18 percent.
Seplat Petroleum Development Company Plc’s net profit margin of 58.66 percent- the highest since 2013- is the largest margin expansion in the sector as its share price has gained 38.49 percent since the start of the year, this compares with Oando Nigeria Plc’s one year return of -21.47 percent, Forte Oil’s return of -42.15 percent, Total Nigeria Plc’s return of -17.45 percent, Mobil Nigeria Plc -19.98 percent, and Conoil Nigeria Plc’s -9.75 percent.
Guaranty Trust Bank (GTBank) Plc’s recorded the highest net profit margin in the sector as its stock price gained 16.69 percent in the past year, this compares with Access Bank’s one year return of 7.26 percent.
An uptick in crude oil price and output, introduction of the new foreign exchange regime by the apex bank, devaluation of the currency, increase in the price of key products, helped propel the bottom lines of firms the consumer goods, banking, industrial goods and oil and gas sectors in 2017.
“I think what has happened is that most of these firms-especially the manufacturers and goods firms- raised prices of their products at a higher rate than that at which costs increased,” said Ayodeji Ebo, managing director and CEO of Afrivest Securities.
“Most banks return on equity (ROE) has improved. That could be attributed to the high interest rate environment of 2017 combined with foreign exchange gains,” said Ebo.
“The rebound in oil price and relative calm in the Niger Delta region helped strengthen the margins of upstream oil and gas firms,” Ebo summed.
For the year ended December 2017, after tax profits for the 10 lenders that have reported results spiked by 44.28 percent to N693.92 billion from N478.19 billion the previous year (2016).
Analysts are upbeat that the 2018 record budget will invigorate construction activities and combined with election spending will spur consumer spending hence trickling down to the numbers of firms.
“All things being equal, if there is political stability, lower interest rates, and low inflation, then firms with improved margins will see investors swoop on their shares,” said Johnson Chukwu, managing director and CEO of Cowry Asset Management.
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