Corporate Earnings Outlook 2013 II

economic outlookThe first part of this review ended with the banking sector and five of the 14 listed banks were covered. Recall that the general outlook for the banking sector is generally promising this year but earnings growth is headed for a slow down from the performance achieved in the preceding year. Revenue and profit are expected to grow, recovery process will be sustained by banks still on the recovery tracks but rising interest expenses will not permit further gains in profit margins.

Zenith Bank earned N171.02 billion in gross income in the second quarter, an improvement of 13% over the corresponding quarter in 2012. After tax profit grew by 7% to N45.42 billion over the second quarter figure in the preceding year. Net profit margin has declined from 32.6% in 2012 full year to 26.5% in the second quarter. Based on the growth rate at the end of the second quarter, the bank is projected to realise gross earnings of over N346 billion at full year and profit after tax may decline from N100.15 billion last year to about N92 billion.

Stanbic Bank posted gross earnings of N42 billion in the second quarter, which is 35.5% above the N31 billion reported in the corresponding period in 2012. After tax profit grew by 104% to N10.18 billion over the corresponding quarter in the preceding year. If the current growth rate is maintained, revenue is expected to be in the region of N85 billion for the bank and after tax profit is expected to stand at about N19 billion at full year. Net profit margin has advanced from 9.7% in the 2012 full year to 24.2% in the second quarter.

Fidelity Bank closed its second quarter operations with gross income of N62.9 billion and after tax profit amounted to N9.06 billion during the period. The bank achieved one of the strongest profit improvements in the banking sector in 2012 at over 232% but a sharp slow down looks likely this year. Based on the second quarter growth rate, gross earnings may improve by 7.8% while after tax profit could improve by 8.8%.

FCMB earned a gross income of N63.29 billion in the second quarter and posted an after tax profit of N9.28 billion during the period. Net profit margin continues to improve from 12.8% in December 2012 to 13.5% in the first quarter and further to 14.7% at the end of the second quarter. If the current growth rates are maintained, the bank is expected to close the current year with gross earnings of about N128 billion and after tax profit of over 19 billion. This will be an increase of about 27% in profit up on the N15 billion posted in 2012.

Skye Bank closed its second quarter operations with gross earnings of N71.17 billion and after tax profit of N8.44 billion. These were improvements of 19.3% and 5.7% respectively over the corresponding figures in 2012. Profit margin is down from 13.4% to 11.9% over the same period. Revenue is expected to grow by 12.1% while profit is projected to improve by 40% in the current year.

Sterling Bank improved gross earnings by 28.1% to N41.85 billion in the second quarter against the corresponding quarter in the preceding year. After tax profit rose by over 97% to N5.92 billion over the same period. Profit margin improved from 9.2% in June 2012 to 14.1% in 2013, which is also a further gain from 13.4% in the first quarter. Based on the current growth rate, the bank is expected to grow revenue by about 25% and after tax profit could advance by more than 78% in 2013.

Union Bank ended its second quarter operations with gross earnings of N56.16 billion and its after tax profit came to N9.39 billion during the same period. Revenue growth remained flat during the period as happened in the first quarter but after tax profit declined by 5.7%. There was a loss of profit margin from 21.2% in the second quarter of 2012 to 16.7% in 2013 and from 26.1% in the first quarter. If the current growth rates are maintained to full year, the bank isn’t likely to improve gross income this year but after tax profit could rise more than one and half times from the N7.37 billion recorded in 2012. A further slow down in profit growth is however anticipated in the second half.

Unity Bank improved revenue from N25.93 billion in the second quarter of last year to N30.17 billion in the second quarter of the current year. After tax profit improved from about N3.0 billion to N3.7 billion during the same period. Full year earnings outlook indicates gross earnings in the region of N62 billion and after tax profit of about N7.8 billion for the bank in 2013. This would be an increase of about 15.3% in revenue and 26.2% in net profit over the full figures of N53.76 billion and N6.18 billion in 2012 respectively.

Breweries

The breweries sector faces a period of slow growth in sales revenue, as low consumer spending is affecting the market for consumer goods generally. Consumer demand has weakened under the sustaining cash and credit squeeze.  Large companies are making increasing use of suppliers’ credit and the resulting slow down in paying creditors is generating adverse multiplier effects on demand for even basic consumer goods.

The slow down in revenue is limiting profits of brewing companies, as they are unable to cut costs to defend margins. The business runs on considerable short- and long-term borrowings and high interest charges are constricting profit margins. This is therefore not a year of strong profit growth for breweries.

The full year result for Guinness Nigeria, which is expected this September, is likely to reflect the challenges of slowly moving sales, which may lead to a decline in profit. At the end of the company’s third quarter in March, the company’s sales revenue amounted to N94.93 billion and a flat growth looks very likely for the company at full year. After tax profit of the company stood at N7.63 billion during the same period, which indicates that profit could decline by a wider margin than it did in the preceding year. Profit margin has declined from 11.4% at the end of 2012 full year to 8.0% in the third quarter.

Nigerian Breweries is expected to maintain a continuing growth in sales revenue in the current year though the growth rate is likely to slow down from the preceding year’s record. The company earned about N134 billion in sales revenue in the second quarter and a new peak in turnover can be expected at about N270 billion for the company in 2013. A moderate improvement in profit may be expected this year after a flat growth in 2012. Profit margin is slightly improved from 15.1% at the end of 2012 to 15.4% in the second quarter.

Building materials

Building materials sector seems to have a good foundation for earnings growth this year. Like paints companies, the operators here are expected to continue to benefit from the sustaining high growth in the real estate and construction industries. The leading companies here achieved accelerated in sales revenue last year and they are likely to repeat the performance in the current year. Profit growth is also likely to step up with growing sales revenue and some gains in profit margin.

CCNN experiences a pattern of rise and fall in profit. Last year was the fall and this year seems to be the rise as per the current interims. Profit fluctuation is despite a stable record of sales revenue growth, which is expected to be maintained at current growth rate. The company is expected to raise turnover by over 20% and after tax profit by more than 48% against a drop of 47.8% in profit in 2012. Net profit margin has risen from 7.9% in the 2012 full year to 9.4% in the second quarter.

Dangote Cement is maintaining stable growth in revenue and profit in the current year after an accelerated growth in the preceding year. The company grew sales revenue by 26.5% in 2012 and another accelerated growth of about 40% is projected based on the second quarter growth rate. The company maintains high profit margin, which has improved further from 50.9% at the end of 2012 to 54.2% in the second quarter. The indication is that the company is likely to step up profit growth from 20.7% in 2012 to 48% in 2013.

Lafarge WAPCO is the fastest growing company by profit in the building materials group. The company, which grew after tax profit by 72.8% in 2012, is likely to double profit in the current year. At the end of the second quarter, the company earned N14.58 billion in after tax profit, already very close to the N14.71 billion after tax profit it posted in the 2012 full year. Profit margin has advanced from 16.7% at the end of 2012 to 29.8% at the end of the second quarter. Sales revenue has been growing well in the past four years and this is expected to be sustained in the current year.

Ashakacem seems to be the odd man out in the building materials sector this year in terms of earnings prospects. Revenue growth remains tight and only a moderate improvement may be possible for the company as was the case in the preceding year. After tax profit improved moderately at 8.3% last year but a drop of about 12% looks likely based on the second quarter performance. Profit margin has declined from 14.3% in the 2012 full year to 9.8% at the end of the second quarter.

Chemical/paints

Chemical and paints companies are likely to continue to paint a picture of inability to grow sales revenue but a good strength to defend profit. Paint makers may see a little boost this year, as construction and real estate industries continue to prosper. This will not however be sufficient to prop up strong growth in turnover for the chemical and paints sector. They can only count on their ability to save cost and defend profit margin for either profit recovery or growth to happen for them in 2013.

Berger Paints has been looking down in terms of sales revenue and profit performances for the past two years but this year the company seems to be looking up once again. Both revenue and profit have been sliding down from the peak records of N2.78 billion and N0.44 billion respectively recorded in 2010. Based on the company’s second quarter earning records, turnover is expected to approach its 2010 peak this year and after tax profit could make a strong rebound. Net profit margin is up from 7.2% in the 2013 full year to 8.3% at the end of the second quarter.

CAP is expected to maintain stable growth in both turnover and profit for the fourth year running in 2013. The company’s strength lies in the ability to keep its costs within limits on a continuing basis so that each naira growth in sales revenue registers also on profit. At 21.5% in the second quarter, net profit margin is maintained, inching up from 21.4% in the 2012 full year. Full year prospect therefore indicate a likely improvement of about 18% in both turnover and profit for the company in 2013.

Conglomerates

Conglomerates normally have the advantage of diversified operations: using highly growing markets to compensate for slowly growing areas and thus maintain overall stable growth. This expectation isn’t just working out that simply for the operators here.  Each market segment seems to present sufficient challenges within it, making it almost impossible for any line of operation to counter the weaknesses elsewhere. Consequently, the operating records of conglomerates fluctuate virtually in the same manner as single market-focused companies. Just like other sectors, the only difference among the operators is the extent a company is able to shield revenue from the presently high and rising interest charges.

PZ Cussons suffered a slight decline of 1.1% in sales revenue in its financial year ended May 2013 but was able to double after tax profit at 102.2% to N4.87 billion. This marks a major profit recovery for the company after it sustained profit drops in the preceding two years. The turnaround was made possible by a total clean up of balance sheet debts, through which it now earns interest income place of payment of interest charges. Net profit margin advanced from 3.3% in the 2012 full year to 6.8% in 2013.

UACN achieved exceptional growth in turnover and profit in 2012 but this year looks like one of a slow down even a decline. At the end of the second quarter, the company realised a turnover of N37.71 billion and after tax profit of N3.44 billion. Full year projections show that the company’s sales revenue is likely to improve by 9.8% but after tax profit may decline by 10% at the end of the year. Net profit margin is down from 10.2% in the 2012 full year to 9.2% in the second quarter. The company had grown sales revenue by 10.7% in 2012 and lifted profit by 108.2% in the year.

Unilever follows the same pattern of UACN on revenue and profit performance and prospects so far this year. Its net profit margin has come down from 10.1% at the end of last year to 9.2% at the end of the second quarter. Full year profit outlook also indicates a likely marginal decline of 3.3% against an improvement of 4.0% in the preceding year. The company has maintained a slow but continuing growth in sales revenue in recent years and this is expected to be maintained in the current year with turnover projected to grow by 5.7%.

Food/beverages

Food and beverage companies are facing a highly competitive market both flooded with imports and constrained by low consumer demand capacity. The economy has come to a stage where a large segment of the consumer market has been lost by the operators here due to inability to afford basic consumer goods. This segment of the market is switching over to local substitutes or is avoiding a number of consumer stuff that used to be taken for granted on family tables.

The target market here has shifted to the upper segments where competition with imported products has intensified. A tight selling market and high operating cost are working adversely on margins and only a few companies with ruling household product names and others free from debt and interest payment burdens are likely to maintain stable profit growth in the current year.

7-up is the growth driver of the food and beverages sector in the current financial year. It is expected to achieve accelerated growth in profit for the second year from both stable growth in sales revenue and a strong growth gain in profit margin. At the end of the first quarter in June, the company recorded a turnover of N17.8 billion and an after tax profit of N1.47 billion. Net profit margin rose from 4.5% at the end of its preceding financial year in March to 8.0% in June. Full year earnings outlook for the company indicates a sales revenue in the region of N73 billion and after tax profit of N6.6 billion.

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