Nigeria Consumer Goods Sector – FY’18 Earnings Preview: Mixed bag of performances for FMCGs

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In line with the year-long trend observed in the sector, we expect revenue growth for consumer goods companies in Q4’18 to remain majorly driven by volume performance. Specifically, we forecast stronger topline figures in the seasonally stronger fourth quarter amid higher consumption levels in the festive period, and also mildly buoyed by stronger commercial activity during the electioneering season.

With this, we expect revenue in Q4’18 to rise 10% q/q across our coverage companies, with sales from the quarter contributing c.27% to total revenue for the year. In terms of FY’18 numbers, however, revenue growth across our coverage is projected to moderate 4% y/y on average – a reflection of the varied performance observed across the major sub-sectors in the year.

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Specifically, impacted by a more competitive environment following the notable increase in industry capacity, as well as the implementation of higher excise taxes, revenue for the brewery sector contracted by about 5% y/y in FY’18. Also affected by immense competition from illegally imported refined sugar into the country, sales from sugar producers are expected to decline c.20% y/y.

On a positive note, turnover from packaged food producers, such as NESTLE and UNILEVER remained resilient through the year, supported by recovering consumption in this category. Upon further consolidation of growth in Q4’18, we forecast an 11% y/y growth rate for FY’18 across this sub-sector. Topline for the Agro-Allied industry will, however, print 24% lower y/y amid a sustained price war emanating from disruptive new entrants.

Looking at operating margin drivers in the quarter, we highlight the benign movement in inflation figures through Q4’18 amid stability in major variables such as exchange rate and fuel prices. We, however, expect higher interest costs q/q across our coverage noting the higher interest environment in the quarter. Nonetheless, following the sizable deleveraging of balance sheets across most companies, we forecast sizable y/y reduction in the net interest line.

Overall, majorly reflecting the trend across topline, we forecast the mixed bottom-line performances across our coverage companies with an average 13% y/y moderation in PAT for FY’18.

  • Best Performers: NESTLE, UNILEVER
  • Worst Performers: UACN, DANGSUGAR
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Source: Company Fillings, Vetiva Research

Credits: Vetiva Capital Management Limited

 

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