NIGERIA – Analysts at InvestmentOne Limited have stated that the fast moving consumer goods sector (FMCG) of the Nigerian economy is one of the best positioned to take advantage of the expanding and gradually diversifying local economy.
In a report made available to THISDAY, the analysts stated that while they recognised that there are near term challenges, their medium term expectations are relatively brighter.
This, they added, was buoyed by expected macro improvement as local and international stakeholders converge to develop infrastructure, fight insurgency and boost economic output.
According to the analysts, “Both Unilever Nigeria Plc and PZ Cussons Nigeria Plc have posted an average of 5 per cent sales growth in the last five years despite the tapered growth across emerging and developed economies. In our opinion, the two listed names should reap the benefit from increased investment in capacity and operational efficiency over the medium term.”
In the near term, the analysts added that the consumer goods subsector remains negatively impacted by the instability in the North, power shortages as well as infrastructure deficits.
These, the analysts stressed, have resulted in weakened earnings growth in recent quarters.
They said: “However, in the medium term, we believe recent increased investments in infrastructure, particularly in the area of gas supply to Gencos, several embedded power initiatives and the recent funding released to the Transmission Company of Nigeria (TCN) will boost production activities and impact operating expenses, translating to wider margins across the sectors.
“Also, Nigeria is set to benefit from the U.S. spending plans which include around $65 million to bolster security institutions and $7 billion target at doubling access to power across selected African countries. Year to date, the Consumer Goods sector has returned 13.64 per cent, due to recent unimpressive results driven by the challenging business environment.”
They added, “In the medium to long term, we expect Unilever Nigeria Plc and PZ Cussons Nigeria Plc to remain resilient. We rate Unilever HOLD based on offering potential upside of 7.1 per cent from current levels. However, we also see PZ as a core holding in the medium term despite our near term SELL rating.”
Following disporting revenue posted by Cadbury Nigeria Plc and other fast moving consumer goods companies, analysts at Renaissance Capital had lowered their Cadbury Nigeria Plc FY14 headline earnings per share (HEPS) forecast from N3.21 to N1.75.
Renaissance Capital had also reduced the company’s revenue forecast from 15 per cent growth to a 5 per cent decline and operating margin from 18.8 per cent to 12.1 per cent. In 1H14 Cadbury reported a 50 per cent decline in HEPS to 67 kobo.