COVID-19: Dangote Sugar, MTN, Airtel, others defy bearish trend

…investors rake in billions in 5 months

By OKECHUKWU ONYENWEAKU

In the midst of the confusion, anxiety, fear and panic caused by the Covid-19 pandemic and the wobbly price of crude oil, and with the world economy in dire straits, almost all economic sectors have been hard hit by the head and tail winds of this unusual period. Not even the capital market is spared, especially the equities market. From the United States to Europe, China and Africa the equities market bleeds. And many stocks have taken serious beatings as even strong fundamentals seem to have been questioned.

This sad experience is not only a Nigerian problem as Business Hallmark also observed that global stocks are mostly down at the same time. In Europe, Germany’s DAX fell 1.2%, Britain’s FTSE 100 fell 1.8% and the Euro Stoxx 50 fell 1.5%. In Asia, China’s Shanghai Composite rose 1.2%, Hong Kong’s Hang Seng fell 0.2%. and Japan’s Nikkei rose 0.2% at the close. In the US, futures underlying the Dow Jones Industrial Average, the S&P 500, and Tech 100 fell 0.4%.  The above is the current experience of equities in other developed climes.

In the midst of this general state of decline however, there are still some equities which by dint of luck or otherwise have proved to be stoic and somewhat resistant to the sweeping and corrosive events that have smothered growth in equities.

Of the 163 listed stocks on the price list of the Nigerian stock exchange, nine equities have appreciated in price since March 10, 2020 before the shutdown by the Nigerian Government to contain the Coronavirus pandemic from spreading led to a temporary halt in trading.

Some of the resilient stocks are MTN,Okomu Oil, Presco, Dangote Sugar, Nestle Nigeria Plc, Vitafoam, FCMB, Airtel Africa Plc , BUA Cement and 11 Plc.

In particular, Nestle Nigeria’s stock has been quite formidable in recent times. Its stock price, in the last five months appreciated 15.5 per cent from N1, 017.00 per share on March 10, 2020 to close at N1, 175.00 per share as at August 20, 2020.

But it is not an entirely cheering story as at the same time, Nestle  Nigeria’s second quarter results shows that profit before income tax plunged 16% from N40.436billion in 2019 to N33.862billion in 2020. Its profit also slid in the first quarter of 2020 by 8.1 per cent showing that profit has eased down in two successive quarters this year contrasted against the annual financial result of 2019 where it quite impressively posted a 19 per cent growth in profit.

To be sure, Nestle Nigeria has demonstrated over the years that it is indeed a sturdy player in the Nigerian business arena. With strong household brand leaders like the Milo beverage and the ubiquitous Maggi seasoning cubes, the company has through the years found and occupied regular spots in many a Nigerian household.

MTN NIGERIA Plc

MTN Nigeria’s stock has equally been resilient especially in this trying time of Covid-19 when most equities have had their values eroded. The giant Telco’s stock price which stood at N115.00 as at March 10, 2020 rose 2.1 per cent to N118.50 as at August 11, 2020. Ever since its listing of its shares on May 16, 2019, investors in MTN have been expecting that the company’s IPO would follow suit. However, the pandemic has created some more market room for the telecommunications industry in the new normal where people are expected to practice social distancing in order to avoid getting infected by the virus.  This necessitates that many meetings and trades are now done online instead of the usual face to face meeting, and these meetings consume data which is provided by telcos.

Helped by this no doubt, MTN Nigeria reported a half-year revenue of N638 billion in 2020 compared to the N566.9 billion reported in the same period last year. This 12.5% growth was driven by growth in data revenues in the first and second quarters of the year.

Most impressively, the company reported a 49% growth in data revenues in the second quarter of 2020 as its Nigerian customers guzzled more data in the ensuing Covid-19 economic shutdown.

While its second quarter of 2020’s total revenues rose 8.5% to N308.9 billion driven largely by higher data revenues, Pre-tax Profits for the quarter was however N62.2 billion, down 13.4% YoY.

OKOMU OIL

Okomu oil’s share price has remained resistant to the head and tail winds of Coronavirus and other macro-economic drawbacks. Its stock price rose 30.2 per cent from N61.40 per share on March 10, 2020 to close at N80.00 per share as at Thursday 20, 2020.

Okomu is an attractive stock given its fundamentals. It is also a stock which belongs to the agricultural sector where there has been strong government interest recently.

A stridently Nigerian agricultural firm, Okomu Oil Palm Plc, recorded N4.007 billion as profit after tax in H1, 2020. This is an increase of 252% when compared to the N2.529 billion posted by the firm during the corresponding period of 2019.

Okomu oil, in its H1 2020 unaudited financial statements revealed a total turnover of N13.527 billion. This is a 57.92% increase compared to the N8.566 billion recorded during the same period in 2019. Meanwhile, the company’s cost of sales reduced in H1, 2020 as the market cost for oil palm stood at N996.342 million as against N1.405 million in 2019. Similarly, the marketing cost for rubber during the period was N86.639 million, compared to N286.571 million. Altogether, the total cost of sales for the period was N1.082 billion compared to N1.692 billion recorded in 2019.However, Okomu Oil’s operating expenses also rose by 67.44% year on year. In numerical terms, it rose from N3.962 billion in H1, 2019 to N6.634 billion H1, 2020.

AIRTEL AFRICA PLC

Airtel Africa’s stock appreciated 27 per cent from N298.90 in March 10, 2020 to N380.00 by August 20, 2020. Like other telecommunications firms, Airtel Africa is receiving all the attention at this period when many transactions are made online and huge data is needed for such transactions. The new normal in which telecoms are used for even meetings has boosted the firm’s top and bottom-lines. The good news is reflected in its performance which was made public recently.

Airtel Africa posted an impressive Q1 ending June 2020 financial statement with an operating profit of $210 million; up by 12.9%, and which showed a 111.5 rise in its customers’ base of 11.8% to 111.5 million in spite of the ravaging COVID-19 pandemic. The Company also reported an operating profit of $210 million, up by 12.9%.

Airtel reports in its year end March 31st 2020, statement that while its customer base increased by 11.8 per cent to $111.5 million, revenue increased 6.9 per cent to $851m.

For Raghunath Mandava, chief executive officer, Airtel Africa, the company’s core business focus now is to survive the COVID-19 pandemic amid all odds. Hear him:

“During the last quarter, our business was impacted by the Covid-19 pandemic, as restrictions on the movement of people and ways of socializing were introduced to contain the spread of infection. In these unprecedented times, we have worked with governments, regulators, partners, and suppliers to keep customers and businesses connected as well as supporting the economies and communities.

“We focused on expanding and maintaining our network to ensure it could cope with increasing demand, we kept our distribution up and running by increasing the penetration of digital recharges and stock levels, and we expanded our home broadband solutions to ensure customers could work and access entertainment remotely.”

Mandava also spoke about growing concerns on the resurgence of COVID-19, but he was optimistic that based on Airtel Africa’s present result and the depth of its investments, all would yet be well:

“The outlook remains uncertain, particularly regarding a so-called potential second wave of infections and the actions governments will decide to take in that event. However, these results are further evidence of the growth opportunities our markets offer and the effectiveness of our strategy to focus on winning customers, investing in our network and expanding our voice, data and mobile money businesses.”

The Airtel stock is presently trading at N348 at the NSE with an accompanying market capitalization of N1.308 trillion, dividend yield of 3.38% and a price/earnings ratio of 10.63 at the time this report was drafted.

FCMB GROUP

FCMB Holdings’ stock appreciated 8 per cent despite the challenging period of Covid-19 when other stocks are losing weight. Its stock which stood at N1.85 per share as at March 10, 2020 closed at N2.00 on August 20, 2020. It is not surprising that FCMB’s stock stemmed the storm and stood its ground against the headwinds. Its performance for the half year ended June 2020 showed strength.

The Bank grew its top line and bottom line figures in the first half of 2020. The holding company in its unaudited financial statement declared gross earnings of N98.18, up by 9.35% from N89.79 billion reported the previous year. Profit after tax grew by 28.83% to N9.7 billion from N7.53 billion achieved in the first half of 2018.Earnings per share grew to 49 kobo from 38 kobo, which translates to 28.83% growth year on year.Relative to the share price of N1.95, P.E ratio of FCMB is calculated as 3.98x with earnings yield of 25.12.

VITA FOAM PLC

Vita form’s performance in recent times has been impressive. It is one the stocks that withstood the sweeping tide of Coronavirus which has disrupted business trends in Nigeria and the world. Its stock price appreciated 27.2 per cent from N4.52 per share on March 10, 2020 to N5.75 per share as at August 20, 2020.

Vita foam’s revenue declined for the second quarter ended March 31, 2020 by -7.6% to N12bn from N13bn in the previous quarter. However, its Profit before tax grew by 112.7% to N2.4bn whileProfit after tax grew by 128.9% to N1.7bn.

At the close of business in the second quarter 2020, the company’sNet Assets grew by 18.9% to N7bn from N6bn.

BUA Cement Plc

On its part, BUA Cement revealed quite impressive 2020 half-year results, declaring revenues of N101.3billion and a Profit After Tax of N34.82billion. This represents an increase of 12.7% and 13.74% respectively from the corresponding period in 2019.

Speaking on the results, Yusuf Binji, Managing Director of BUA Cement said that the continued impressive performance in 2020 despite the challenging operating environment occasioned by the COVID-19 pandemic, was a pointer to the value and strength of the BUA Cement brand and product offerings as well as a nod to the excellent implementation of the company’s Business Continuity Plan which ensured that BUA Cement was able to withstand the impact of the pandemic in the period under review.

PRESCO PLC

Presco Plc is one of the stocks which have proved to be very impressive in recent times. The company’s stock appreciated 14.69 per cent from N44.90 per share in March 10, 2020 to close at N51.50 per share as at August 20, 2020.

The stocks upswing performance may have been induced by its qualitative half year results. Market observers believe that a lot of agricultural/ food products must be on demand now.

Presco Plc has posted 70.55 per cent increase in profit after tax for the half-year ended June 30, 2020. The unaudited financial result for the half-year showed profit after tax of N4.39bn from N2.57bn recorded in 2019, accounting for a growth of 70.55 per cent. Profit before tax jumped to N5.77bn in 2020 from N3.44bn a year earlier, representing an increase of 67.73 per cent.

Revenue also grew to N13.46bn during the period under review from N10.40bn in 2019, amounting for an increase of 29.35 per cent while the cost of sales stood at N4.42bn from N3.56bn in 2019.

The company however posted a 15.88 per cent drop in profit after tax for the first quarter ended March 30, 2020.

Details of its unaudited financial result for the first quarter showed profit after tax of N1.80bn from N2.14bn recorded in 2019, accounting for a drop of 15.88 per cent.

Profit before tax stood at N2.353bn in 2020 from N2.576bn a year earlier, representing a decline of 8.66 per cent.

Revenues also eased to N5.38bn during the period under review from N5.51bn in 2019, amounting for a decrease of 2.38 per cent while cost of sales stood at N4.20bn from N4.38bn in 2019.

While the equities market is still adrift at -6 per cent negative with other stocks strongly tilted to the south, the above firms have displayed strength even as the Nigerian has remained weak and ravaged by the pandemic Covid-19.

However, over 30 firms have closed shop in the USA which is even a stronger economy; Europe is no better. Businesses in the United Kingdom and many other parts of the world have had their fair share of upheavals which closed many firms.

Analysts believe it has become hard for firms to fly in such weak economy as Nigeria where the economy is expected to slide into recession by about -5 per cent; where inflation is hitting the roof top; where the Naira has lost value and vigour; where the budget deficit stood at -4.69% of GDP; where insecurity has halted business activities in some parts of Northern Nigeria; where unemployment remains very high; where government is unstable; where economic policies are done to favour a section of the country.

‘’Who would expect companies to perform magic in a country where its citizens appear to have lost hope’’, a senior civil servant who would not want to be mentioned in print.

This is in addition to the wobbling price of crude which hovers between $38 to over $40 pbd which is the main survival of the Nigerian economy.

In fact, many have attributed their weak performance of not only the economy, caused by the ravaging coronavirus and harsh operating environment.

As inflation continued to ravage disposable income and push up cost of production, consumers’ preference for cheaper imported goods jumped. To worsen matters there has been an influx of shrewd businessmen from the Middle East and Asia who embraced mostly unconventional means of doing business in order to gain market share.

Also being held responsible for the poor market conditions are the factors of poor infrastructure and porous borders. This is even as epileptic power supply and a deplorable transport system are equally pushing up costs and taking the top brand products out of the reach of average Nigerians. Again, the flooding of the nation’s markets with cheap and untaxed goods by smugglers has provided Nigerians with much cheaper source of products, but with other adverse benefits for the broader economy.

In the midst of all these, the above mentioned stocks remained stoic.

Seemingly explaining this unusual dialectic in one of his influential New York Times columns, Paul Krugman says:

“Whenever you consider the economic implications of stock prices, you want to remember three rules. First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy…The relationship between stock performance – largely driven by the oscillation between greed and fear – and real economic growth has always been somewhere between loose and nonexistent”.

Also, the no less famous Malkiel and Shiller have also discussed the seemingly odd behaviour of stock markets in the face of the pandemic. According to Malkiel, the alleged stock market irrationality is only “apparent”, and the COVID-19 crisis does not “imply that markets are inefficient” inasmuch as there are no arbitrage opportunities, and stock markets remain hard to beat. On his part, Shiller is more nuanced: “Speculative prices may indeed statistically resemble a random walk, but they are not so tied to genuine information…The contagious stories about the coronavirus had their own internal dynamics only loosely related to the information about the actual truth”.

Well, has it not been said that economics is not really an exact science?