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Insecurity, competition to depress banks, FMCGs Q3 earnings

By on October 23, 2014

Uncertainties, which are likely to stem from the 2015 elections, insecurity in the northern part of the country and increased competition are some of the factors that will hamper the expected third quarter results of banks and Fast Moving Consumer Goods (FMCGs) companies, experts in the nation’s financial service sector have said.
In a report made available to THISDAY, analysts at FBN Capital stated that the expected quarter 3 (Q3) or 9 months 2014 results will provide the last opportunity to assess how well banks are faring this year. The experts also stressed that half year 2014 results already showed that banks are on course for a rather lacklustre 2014, with the average half year annualised return on average equity (ROAE) more or less flat compared with the 18.5 per cent that the banks delivered in 2013.
“With no meaningful year on year (y/y) expansion in ROAE expected, attention is likely to shift to the quarter on quarter (q/q) changes, which we expect to provide some positives. We forecast Q3 profit before tax (PBT) to grow by 7.5 per cent q/q on average. Notwithstanding, the range across our coverage universe is quite wide. Banks which we expect to deliver above average growth include FCMB (+13.2per cent), Diamond (+25.4per cent), Guaranty Trust Bank Plc and Skye Bank Plc.
“However, given that most banks reiterated their guidance on most metrics for 2014 after their Q2 results were published, we believe these forecasts are baked into the market’s expectations. We should add that the rebound in earnings implied by these forecasts is partly boosted by soft Q2 results. A lot of emphasis is likely to be placed on whether banks reaffirm their full year guidance for 2014 – which we believe they will, particularly loan growth, and their outlook into 2015 given the uncertainties which are likely to stem from the February elections, “the experts said.
They added that FMCGs are not likely to have a change of fortune as the insecurity in the north and fierce completion in the sector still persist.
“We do not expect a different trend from our core consumer names in the Q3 reporting season. In Q2, earnings growth for most of these companies came in weaker than expected, stifling any real hope of a recovery in the short term. From a macro standpoint, the naira has depreciated by –2.7 per cent against the dollar year today (ytd), increasing raw material costs for the mostly import-dependent manufacturers.
“The continued slide of crude oil prices on the international markets could further challenge the federal government’s ability to hold the line on the exchange rate. On a brighter note, raw material prices in Q3 should provide support for core consumers’ earnings; crude palm oil (CPO), raw sugar, wheat, barley and sorghum prices declined by around 20 per cent on average within the months of July and September.
“Sorghum fell by -32 per cent while wheat, barley, CPO and sugar declined by -23 per cent,-21 per cent, -13 per cent and -10 per cent respectively. For the brewers, we expect Q3 sales to grow by 10 per cent y/y on average due to the gradual inclusion of value brands into their product portfolios and the 2014 FIFA World Cup. Similar to Q2, we anticipate subdued earnings growth for the big cement players due to relatively lower cement consumption during the rainy season, “they stated.

 

[This Day]