Final consumption expenditure of households improved in the first half of 2021, after the COVID-induced plunge of the prior year. This recovery coincided with a 14.8% improvement in national disposable income, which we attribute to the impact of the increasing re-engagement of shut-out labour of the COVID restriction era. A few sector names also adjusted prices, attempting to compensate for the cost inflation induced by devaluation and surge in commodity prices. However, the competitive nature of the industry meant that margins still contracted across the board, with only a fraction of the cost burden transferred to customers.

In our view, margins could remain mostly depressed in 2022, with commodity prices likely to stay elevated on lingering supply disruptions and increasing demand. The imminent tapering of stimulatory measures by the CBN and BOI could also drive the interest rates on some facilities closer to 9.0% in 2022 (vs c.5.0% since 2020), translating to some funding cost pressures in the sector.