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.
As Nigeria's cement industry reflects on a challenging 2023, characterised by demand-stifling events like the cash crunch orchestrated by a poorly executed currency redesign policy, the material currency devaluation, and bouts of heavy rainfall, its hope for a gradual recovery in 2024 feeds off the return to relative macroeconomic normalcy and early gains from tough policy reforms.
Banking earnings touched new highs in 9M’23, aided by material revaluation gains driven by the policy reforms on FX management that led to significant currency depreciation. In 2024, after-tax earnings may be relatively contained due to an expected tamer naira weakening (vs in 2023) as the Central Bank of Nigeria (CBN) intensifies efforts to stabilise the naira. Nonetheless, we see legroom for robust banking core-operating performance in 2024 due to the following reasons.
We begin our outlook conversations with context. Nigeria, a country with 37.0% of its population living on less than $1.9 per day, is facing an inflation rate of over 28.0%, an inability to produce its most important economic resource optimally, and the threat of sustained departure of some of its finest human resources.
In its 9M 2023 earnings result, Nestle’s Revenue grew by 18.93% y/y to N396.59bn from N333.47bn in 9M 2022. The food segment grew by 27.0% y/y to N254.38bn in 9M 2023 from N200.26bn in 9M 2022 and contributed the most to the company’s revenue by (64.1%). The company’s beverage segment (Milo, Nescafe, Nido and others) also grew by 6.8% y/y to N142.21bn in 9M 2023 from N133.22bn in 9M 2022. We forecast Revenue growth of 13% and 14% y/y from its Food and Beverage segments and project FY 2023 Revenue growth of 13% y/y to N506.65bn.
Lafarge Africa reported a 7.1% y/y growth in Revenue to N289.08bn in 9M 2023 from N269.85bn in the prior period (9M 2022). However, on a q/q basis, Revenue was down 13.7% to N91.40bn in Q3 2023 from N105.86 in Q2 2023. The broad-based y/y growth in cement sales (up 7% to N279.77bn), aggregate and concrete sales (up 10.9% to N8.87bn), and other products (up 14% to N437m) contributed to the marginal increase in topline growth in 9M 2023.
