After the currency-induced plunge in the bottom line of Nigerian FMCG companies, the sector may be set for a slight recovery in 2024 despite projected tamer revenue growth and elevated borrowings. Our optimism is supported by debt restructuring campaigns, aggressive cost optimisation, and capacity expansion, all of which bode well for earnings.
We anticipate an average sales growth of 12.1% across our coverage in FY'24 (vs mean of 12.8% YoY in FY'23E) owing to the negative passthrough of naira depreciation on household purchasing power pressures and discontinuation of product segments by some players due to volatile input cost and FX environment. The former suggests that an average consumer may place needs over wants and gravitate more towards cheaper value brands, while the latter (FX concerns) implies that it may be difficult to drive sufficient volumes of products that require a lot of imported raw materials. On the bright side, we are unlikely to see the level of distortion that occurred in Q1'23, with the CBN now confirming that old naira notes would remain legal tenders indefinitely in line with an earlier Supreme Court judgement.
