Nigeria's earnings season commences

Nigeria's Stock Exchange is currently experiencing its earnings season, with a flurry of financial reports hitting the market. Many of these reports have shown mixed performances, prompting investors and analysts to closely examine the numbers. Kayode Omosebi, an Investment Research Analyst at ARM, recently joined CNBC Africa to discuss some of the key findings from the reports. Omosebi highlighted a few companies, including Forte Oil and Guinness, that have had both positive and negative outcomes in their financial results. Forte Oil, for example, saw a 19% increase in revenue, driven by growth in lubricants and the power business. However, the company faced challenges with profit before tax due to rising input costs, particularly from FX pressures, which led to a margin compression. Operating costs also increased, leading to a decline in profit. Forte Oil undertook a bond issuance last year to finance expansion projects, which added to their finance costs. Omosebi mentioned that the company is presently relying on NMPC volumes to sustain operations, as margins are expected to remain compressed this year. On the other hand, companies like Total and Mobil are poised for a better performance, thanks to their diversified business models and strong retail penetration. Total, for instance, is expected to deliver strong results this year, with a projected EPS of 44 naira. Mobil, however, might face challenges due to the acquisition that took place. In the case of Guinness, the company struggled with rising costs that outpaced revenue growth. Despite volume gains in the value and spirit business segments, the premium market segment faced challenges. FX issues and cost pressures continue to be areas of concern for Guinness. To address these issues, the company initiated a rights issue to reduce exposure to FX loans and focus on the premium beer business. Omosebi noted that Guinness is working on cost reduction strategies and innovation in its business segments to enhance revenues. Looking ahead, the macroeconomic environment in Nigeria remains challenging, with inflation and currency fluctuations affecting businesses. However, Omosebi expressed optimism for certain consumer names, such as Flour Mills, which he views favorably in the downstream sector. While Forte Oil has a hold rating, Total remains a buy with a target price close to 350 naira. Overall, the earnings season in Nigeria presents a mixed bag of results, requiring companies to navigate uncertainty and implement strategic measures to drive growth and profitability.