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Nigeria Consumer Goods Sector - H1'17 Earnings Preview

Nigeria Consumer Goods Sector                                                 

H1'17 Earnings Preview                                         

Consumer Goods companies are set for significant recovery in 2017, benefitting from an all-round improvement in the state of the economy as well as easy comparables from the previous year. Q1’17 earnings already prove a testament to this, with most reported earnings in the sector beating Analysts’ estimates. Flattered by the particularly low base in Q2’16 (naira devalued by 42% in June 2016) and also reflecting product price increases implemented in the latter part of FY’16, we expect even stronger y/y growth figures in Q2’17.                        

With economic arrows indicating a slow but steady recovery, the operating environment in Q2’17 has been a tailwind for companies. Particularly for the import-reliant manufacturing sector, this comeback has been supported by better supply of a much needed lifeline – foreign exchange. Amidst the improved FX liquidity, the naira has appreciated across free trading FX market segments in Q2’17.                                          

Supported by continued aggressive cost management and moderating inflationary pressures (albeit sticky), we expect operating costs to remain contained in Q2’17. We also expect the improvement in gas supply to support costs within the quarter amidst likely reduction in the use of the more expensive alternative fuel – LPFO. Whilst we expect the aforementioned to bode well for margins, one pressure point for earnings of more leveraged Consumer Goods companies remains elevated interest expenses.                                            

With an early report from UNILEVER verifying our positive outlook for the sector (PAT 35% above Consensus, share price up 16% following release), we expect the Consumer Goods Index to receive a boost following the releases (NSE Consumer Goods up 11% ytd vs. 28% for NSE ASI). We forecast an average 5% and 37% q/q growth in top and bottom line for our Consumer Goods Coverage.