Nigeria | NGX

In FY'22, passthrough from foreign exchange losses took the shine off earnings, with after-tax profit rising by only 4.1% to N13.2 billion, despite a 29.4% surge in operating profit. Without the associated foreign exchange losses (N26.3 billion), NB would have recorded a 211.9% surge in profit to N39.2 billion in the review year. As expected, this currency pressure was linked to the company's strong reliance on imported raw materials (c.45.0% of total) and other foreign inputs, contributing to the 69.8% increase in net foreign currency exposure to € 139.1 million.

The Afrinvest weekly sentiment weakened to 1.7x from 3.6x recorded in the prior week Despite the downbeat investor sentiment, we expect the market to trend upwards as investors continue to react to corporate earnings results.

Following the release of FY'22 financials and subsequent conversations with management, we raise our revenue projections for WAPCO across our forecast horizon. Specifically, we have a new revenue CAGR of 12.3% over our five-year forecast horizon (vs 11.5% previously). Our optimism reflects the potential impact of the ongoing debottlenecking exercises in its Ashaka and Ewekoro plants, which are likely to support cement volumes amidst steady demand and also improve economies of scale. Following the drag on volumes driven by inadequate gas supply and depressed consumer wallets in FY'22, we now project an 8.5% volume improvement for the current financial year aided by the abovementioned supports. In particular, the debottlenecking exercise is expected to free up over 2.0 million metric tonnes (MMT) in installed capacity and improve the firm's ability to meet demand.

Domestic equities outperformed global peers in the review month, delivering a 4.8% MoM gain. The strong earnings results of bellwethers like MTNN and BUAFOODS may have notably impacted market performance. We also note the positive contribution of the Oil & Gas sector (+16.0% MoM), which may have benefitted from improvements in crude oil production (+19.8% MoM to 1.6 million barrels per day) and proactive positioning to benefit from the potential impact of higher PMS prices on downstream players.

We revise our FY'22/23 revenue projection to N1.5 trillion (vs N1.4 trillion per our last forecast). This revision primarily reflects sustained revenue enhancement strategies (improved route-to-market and expansion of fertiliser blending capacity) and the impact of higher product pricing. Already, the company has attained 75.3% of our full-year projection, with north of 34.0% sales traction across the Food, Agro-Allied, and Sugar segments.

According to management, Guinness Nigeria Plc (GUINNESS) will likely sustain the transfer of cost burden to consumers in the near term despite potential negative implications for volumes. In our view, the net positive impact of this strong pricing resolve, which cascaded to the 15.8% YoY expansion in gross profit in H1’22/23, could be supported by the company’s aggressive e-commerce penetration and marketing campaigns, driving our forecast FY’22/23 revenue of N233.3 billion ahead of the expected increase in excise duty. This revenue projection also captures our expectation for an increase in election-related spending, which may place a floor on volume contractions and boost management’s confidence in its current pricing strategy.