The outbreak of the COVID-19 pandemic added a new layer of concern for most of the consumer goods players as lockdown in key revenue-generating and industrial states (Lagos, Abuja, and the Ogun States) as well as the ban on inter-state movement depressed performance in Q2-2020.
Also, the disruption in global supply chains, naira adjustment, and FX market illiquidity throughout Q2-2020 added more concerns for companies with sizable import needs.
Looking beyond Q2-2020, we have a moderate outlook for topline performance across the sector in H2-2020. This is as we expect economic activities to pick up from Q2-2020’s low.
Also, predicated on our assumption that the government would not be implementing another round of lockdown in H2-2020 and with earnings of most consumers under pressure, we estimate a moderate growth in demand for essential and non-essential items.
However, we expect cost pressures to remain in H2-2020, mildly cushioned by the impact of low-interest rates as well as administrative charges amid the lay-offs of some non-essential workers earlier in the year.
Overall, we are more bullish on FLOURMIL and DANGSUGAR due to the nature of their product portfolios in essential items. For the brewers, we expect volumes growth to remain depressed, dragged by the continued restrictions on social gatherings and weekend parties.
However, of the three major players in the brewery space, we believe NB is in the best position to ride the tide, given its broader distribution channel and its wide factory footprints across the country.
United Capital Research