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DangCem, DangSugar, Nestle, Flour Mills face profit margin pressure

BY: CHARLES ABUEDE

Equity market analysts are now openly expressing fears that consumer goods stocks such as Dangote Sugar, Flour Mills Nigeria, Nestle Nigeria and Unilever Nigeria, as well as industrial-focused stocks involved in cement production with a heavy gas composition in their energy mix, may emerge as losers from the faceoff in Eastern Europe between Russia and Ukraine, as their profit margins come under severe pressure.

On the flip of the coin, companies within the upstream oil and gas sector may emerge as top advancers in the aftermath of the crisis due to the current positive rally in crude oil price globally, now above $133 per barrel.

The lingering Russo-Ukrainian crisis may have yet to exert an immediate impact on Nigeria but it is likely to have significant effects in the coming weeks or months. However, analysts have reckoned that a prolonged battle could have ripple effects on inflation, economic growth and corporate performance in Nigeria and around the world as investors may likely continue to seek safer haven in assets like gold and other treasures, while staying underweight to equities with a preference for war and defence stocks, as well as commodity-focused companies.

The war may have been helping investors navigate hazy clouds in the Nigerian equities and commodities market, but the immediate impact is on crude oil prices which have risen 29.5 percent in February to $118.1 per barrel. While this appears it would have a positive impact on external reserves accretion for the economy, Nigeria’s falling crude production will continue to undermine potential gains in the short to medium term, leaving analysts to posit that the federal government is likely to struggle to achieve its revenue projections for 2022 due to weaker oil remittances from NNPC, despite oil price staying above its budget benchmark.

FSDH Research analysts have noted that “Nigeria is also likely to feel the impact on inflation in the coming months due to supply chain disruptions. For example, wheat is a critical input into many consumables in the country ranging from flour, baked products and pasta. Thus, we expect to see some pressure on food inflation in the coming months,” they stated.

Their assertions show that in the capital markets, Nigeria’s equity investors’ have not necessarily sold off equities in response to the crisis. For context, the benchmark NGX-All Share Index gained 1.7 percent in February 2022, fuelled by gains in upstream oil and gas stocks, such […]

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