Listed consumer goods companies poised for gains as effects of border closure directive kicks in

HIGH EARN INGS ACCRUAL MIGHT be in the offing for listed consumer goods companies as the recent border closure by the federal government seems to have brought about a temporal relief, suggests analyst at Cashcraft Capital Limited.

According to Ologbonori Taiwo, head of equity research at the firm, the implementation of the border closure has brought about a hike in prices of consumer products which means higher earnings accrual for companies in the consumer goods sector that have been experiencing contracting margins in recent times.

The consumer goods index of the Nigerian Stock Exchange closed the week in a positive territory, recording a growth of 2.2 percent. Of the top ten price gainers for the week, five were consumer goods players each posting a week share price appreciation above 13 percent.

Okomu Oil gained 13.53 percent to close at N54.95 and Dangote Sugar added 15.10 percent and closed the week at N11.05. PZ Cussons, UACN and Livestock feeds added 19.49 percent, 19.70 percent and 28.21 percent respectively according to data obtained from the NSE’s weekly market report.

Giving specific details, Taiwo explained that with the border closure, companies such as UACN and Flourmill is set to benefit from consumer produce such as vegetable oil whose price has been pushing up with pace, as well as a better cash flow management from a decreased rate environment and relative foreign exchange stability.

Other added benefits for UACN include deleveraging efforts with a few of its subsidiaries in view of its unbundling process as well as its business repositioning drives, Taiwo said.

He indicated that benefits for Flourmills includes a relatively decelerating price of wheat at the international market Quarteron-Quarter (QoQ) with Q3 in view (nearer to its year low than high), as well as higher sugar price, which served as a main boost to the company’s Q1 revenue plus management efforts to better funding alliance.

Benefits from border closure for Okomu Oil and Presco, Taiwo said is a recorded curb in the recent spate of lower volumes, ensuring that a relatively fixed price accommodates accelerated revenues.

Additionally, a better funding match with lower rates in view of an interest expense reduction following a recent N10 billion federal government Agric credit loan will augur well for the Agric producing and processing firms.

He indicated that with the first tranche of the loan already dispersed including ongoing expansion work and strong liquidity stance, aims at increasing revenue and earnings base for Okomuoil.

Higher expected volumes are predicted for Presco given that the Sakponba plantation will come on board this year, coupled with better foreign exchange stability and cost optimization.

Highlighting a few demerits of the policy to these companies, the equity analyst indicated that capital expenditure is likely to increase. He said there is the small worry of a possible deterioration/ loss in biological asset for Okomuoil and Presco, particularly the latter, and tighter margins from inflationary pressures plus tougher competitive terrain on lower price points for UACN and Flourmills.

However, I think that the pros far outweigh the cons (risk-return in view), especially for the 1st 2 companies (UACN and Flourmills) highlighted.

To this end, Taiwo advised that now is that time to take positions in these companies, especially where such positions are in line with such shareholder’s investment horizon.