FMCGs in 2019: Navigating the murky waters

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Our view on the Fast Moving Consumer Goods (FMCGs) sector remains modestly positive on the back of a gradual recovery in the economy. However, challenges to volume growth may persist due to bottlenecks t o distribution. Pressure on volume growth and transport cost is likely t o persist as difficulty associated with the gridlock at Lagos port is unlikely t o go away i n the interim.

In our view, this is negative for food manufacturers in the Apapa axis as well as others who depend on the importation of their ware (e.g. PZ).

Diversified food & beverage producers such as NESTLE and UNILEVER are expected to sustain a solid outing due to continued improvement in the broader macro environment. The performance of the beer makers (NB, GUINNESS, and INTBREW) will continue to be shaped by growing competition and the possibility of a revised levy on alcoholic beverages going forward.

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In all, our best picks in the sector are NESTLE and UNILEVER, buttressed b y their solid balance sheet positions, product and brand durability. We are not very positive on FLOURMIL and DANGSUGAR, a s our short-term expectation i s dampened by the feedback effect of Apapa gridlock and smuggling activities on volume growth. For the brewers, w e see further pressure on NB’s numbers going forward. We expect INTBREW t o continue t o report positive revenue, however, pressure on cost lines remain a concern. GUINNESS’s performance may b e supported b y its growing spirit line, but this may not be enough to boost bottom line growth.

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UNITED CAPITAL RESEARCH

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