Rising diesel prices and raw material costs are increasing pressure on fast moving consumer goods (FMCG) companies in Nigeria, FBNQuest analysts have said in a new report.
The report said the Russian-Ukrainian conflict would likely negatively impact the group in 2022.
“The conflict has driven up commodity prices as supply chains adjust. We see two new sources of cost pressure for FMCG businesses in 2022 which are unusually high raw material costs and energy costs,” the analysts said.
According to the report, the main products imported by FMCG companies that are affected are wheat, crude palm oil, corn and barley.
“Furthermore, diesel prices are up more than 150% month-over-month due to global shortages and currency scarcity,” he said.
Diesel is an important fuel for manufacturers not connected to gas distribution lines, as well as important for logistics and distribution.
Guinness Nigeria, PZ Cussons, UAC of Nigeria and Flour Mills of Nigeria (FMN) recorded an impressive comeback in the fourth quarter of 2021, which showed strong improvements in fundamentals, according to the report.
He said: “Guinness Nigeria, PZ Cussons and Nigeria’s UAC gained 82.6%, 73.0% and 24.5% respectively between Q4 21 and Q1 22. The worst performing stocks were Nigerian Breweries. (15.7% loss), International Breweries (6.4% loss) and Dangote Sugar Refinery (3.0% loss) quarter-on-quarter.
Also Read: Local Inputs, Others Seen To Lower Costs For FMCG Companies
“Average sales growth for our coverage in Q4 21 was 47.5% year-over-year, driven by strong price increases through 2021 and a recovery in sales volumes. FMN, Guinness and Unilever led the way on this, with each company exceeding our estimates. Our hedge net profit margin increased 447 basis points year-on-year to 6.1%, led by Unilever, PZ and Dangote Sugar Refinery.
The report said dividend yields for the group averaged 4.0%, with the highest being Dangote Sugar Refinery (6.4%) and the lowest being Nestlé (1.8%).
Analysts said: “The rally in stock prices is obviously limiting returns. Announced dividends are always subject to the approval of the shareholders of the respective companies.
“Currently our favorite names in the group are NB, FMN and Guinness as we believe their fundamentals are strong enough against macro headwinds in 2022.”
