Economist at Renaissance Capital, Yvonne Mhango, has predicted
that for the first time since 1H11, Nigerian consumer sentiment will be turning
positive in 4Q14.
In a report made available to THISDAY, Mhango noted that lower
interest rates, stronger economic growth, moderately looser spending as the
2015 elections draw nearer, and moderately higher oil output are positive for
consumer sentiment.
Expressing concerns about the lack of trickle-down effect,
Renaissance Capital stated that the Nigerian consumer will not reach its full
potential while strong gross domestic product (GDP) growth does not translate
into increased wealth at the bottom of the pyramid.
“We believe this is due to slow progress on infrastructure
development, particularly with regard to power, and alleged corruption at some
levels of government. Nigerian consumer companies reported disappointing 1H14
results across the board in terms of revenue growth and profitability.”
Mhango added that consumer confidence was eroded by the start of
the rate-hike cycle in mid-2011; a 50 per cent petrol price hike in 1Q12
combined with the imposition of an effective 110 per cent import duty on processed
rice, and increased electricity and other grain tariffs later in the year.
“However, we see consumer confidence turning positive in 4Q14
for the first time since 1H11”, Mhango added.
Renaissance Capital further noted that the 1H14 performances of
consumer companies are a continuation of the downtrend they have witnessed
since FY12.
“According to new data from the IMF, GDP growth dipped to 4.2
per cent in 2012 from 5.3 per cent in 2011. Aside from slower GDP growth there
has been an increase in competition in the market. According to Nestle Foods
Nigeria (Nestle), the unrest knocked 5 per cent off potential revenue growth in
1H14 and price sensitivity of the consumer remains the key.
“In this challenging consumer environment, we prefer the more
defensive consumer names in which we perceive the forecast risk to be lower.
Our top pick is Nestle Nigeria Plc, which has reported the most consistent
profit growth over time, followed by GlaxoSmithKline Consumer Nigeria (GSK)
Plc,”, the report added.
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