As 2023 winds up, the NGX has witnessed remarkable performances in two pivotal sectors: banking and consumer goods. 

These sectors have been a beacon of resilience and growth amidst market fluctuations, showcasing consistent strength and promising trends throughout the year. 

In the banking sector, top banks have achieved record profit levels on the back of record interest income, while also making gains from the revaluation of foreign currency exchange rates. 

Conversely, the consumer goods sector faced challenges with significant losses attributed to currency revaluation. 

However, adept management strategies allowed companies to navigate these losses by strategically increasing revenue streams.  

Understanding the dynamic shifts and trends within these sectors illuminates the broader landscape of the market and offers valuable insights into their trajectory and potential for the upcoming periods. 

2023 Review

Massive growth in share prices

Companies in the banking and consumer goods sectors recorded massive year-to-date returns, with the most outstanding among them being,  

• Northern Nigeria Flour Mills, a year-to-date return of 638.8% 
• Nascon Allied Industries Plc, a year-to-date return of 386.5%.
• UBA Plc, a year-to-date return of 239.9%
• Golden Guinea Breweries, a year to date returns of 288.9%
• Dangote Sugar Refineries Plc, a year-to-date return of 252%
• Sterling Holdco, a year-to-date return of 220% 
• BUA Foods Plc, a year-to-date of 206%
• Access Holdings Plc, a year-to-date return of 170.9% 
• Unity Bank Plc, a year-to-date return of 170.9%, and 
• Fidelity Bank Plc, a year-to-date return of 160.3%

Companies within the consumer goods sector surged in share prices, reflecting impressive growth in the market. However, behind these soaring stock values, the reality on the ground told a different story. 

Nestle Nigeria, an industry stalwart, faced an unexpected turn, marking a comprehensive loss for the first time in decades.  

The breweries, while seemingly thriving in the market, also encountered significant challenges. Guinness, for instance, reported a staggering pre-tax loss of N22 billion in its FY 2023 report.

These contrasting narratives highlight the discrepancy between market valuation and on-field performance within the consumer goods sector, underscoring the complexity of factors influencing stock prices beyond the companies’ actual operational realities. 

Foreign exchange gains/losses

Concerning currency revaluation, the outcome was different for both sectors, as the banks accrued massive gains due to the FX revaluation. 

However, for consumer goods companies, massive losses were accrued due to FX revaluation.  

As of H1 2023, Nairametrics recorded that the banks had made up to N1.7 trillion gains due to FX revaluation. For example, in H1 2023 alone, UBA accrued over N418 billion in FX gains, GTCO made N357.5 billion, FBNH made N229.7 billion in FX gains, and Zenith Bank made N355.6 billion, among others.  

For consumer goods companies, the case was different, as many FMCGs accrued significant FX losses. As of 9M 2023, Nestle Nigeria posted over N86 billion FX losses, while Cadbury Nigeria posted about N1.03 billion losses, and Guinness Nigeria posted N1.40 billion FX losses.  

However, for the banks, the CBN placed a caveat, limiting them from spending their earnings from FX revaluation on dividend payments or operating expenses. 

According to the circular by the CBN, the banks were advised to treat their FX revaluation gains as a “counter-cyclical buffer to cushion any adverse movements in the FX rate.”  

2024 Preview

Possible recapitalization exercise in 2024

The looming possibility of a recapitalization exercise in 2024 has become the focal point shaping the trajectory of Nigerian banks within the stock market. Yemi Cardoso’s revelation at the CIBN Annual Dinner in November 2023 has triggered a surge in investor confidence, initiating discussions and speculations about the potential exercise, a groundbreaking move set to occur after two decades. 

While the anticipation swirls, it’s crucial to recognize the inherent resilience of Nigerian banks, a quality that positions them adeptly to weather potential capital shocks. Highlighting this strength, recent reports from the Central Bank underscore a Capital Adequacy Ratio of 14.2% among Nigerian banks, showcasing a robust improvement from the previous quarter’s 13.8%. 

However, this impending recapitalization is expected to usher in a wave of transformative changes within the banking sector. Foreseeably, it will likely spur mergers, acquisitions, and capital raises as banks gear up to meet the new requirements. Already setting a precedent, Wema Bank has taken the lead with its announcement of a substantial N40 billion capital raise, signalling the proactive stance of banks in aligning with potential regulatory shifts.  

The impact of this exercise on the stock market in 2024 cannot be overstated. The anticipation alone has already sparked a re-evaluation of investment strategies and market positions. 

As the year unfolds, all eyes will be on how banks manoeuvre through this recalibration, presenting both challenges and opportunities that will reshape the banking landscape and reverberate throughout the stock market. 

New Listings and Delistings 

The consumer goods sector is gearing up for significant shifts in 2024, potentially marked by a flurry of listings and delistings. 

Among the anticipated developments, the most notable could be the emergence of Dangote Foods, an amalgamation speculated to involve Dangote Sugar Refinery Plc, NASCON Allied Industries Plc, and potentially Dangote Rice. 

The consolidation of NASCON and Dangote Sugar Refinery already commands a substantial market cap, standing at N829 billion. 

The inclusion of the rice component could position Dangote Foods as a prominent player within the SWOOT category, promising a noteworthy transformation within the consumer goods market. 

Amidst discussions swirling around the potential entry of this new market giant, certain consumer goods companies are finalizing plans for delisting from the NGX. 

Notably, PZ Cussons Nigeria Plc stands at the forefront of these movements. 

The dismal financial performances of several consumer goods entities have intensified calls for such actions, raising questions about their sustained viability in the stock market. 

This wave of delistings comes in the wake of disappointing financial reports from various consumer goods companies. 

These outcomes have amplified voices advocating for their delisting, underscoring the imperative need for a reevaluation of operational conditions for manufacturing businesses. 

These developments not only signify a potential reconfiguration of the consumer goods sector but also shed light on the broader systemic challenges faced by these companies. 

There’s a growing call for the government to proactively create an environment conducive to sustainable manufacturing operations, underlining the urgency for policy interventions that support and enhance the long-term viability of these businesses within the market landscape.