It is less than a week that the International Monetary Fund (IMF) predicted the Nigerian economy would contract by as much as 3.4 percent in 2020, emerging trend in the first quarter 2020 results of listed firms offer stakeholders a glimpse of what the performance of quoted companies in the first three months of this year, and by extension, the second quarter, will be like when all the results are finally out.
Market indices not only corroborating IMF’s forecast, emerging first quarter results are also lending credence to the prediction of the global financial institution. As leading indicators, capital market indices and quarterly results of companies forewarn stakeholders of the impending state of the economy.
Between February 27, 2020 when the index coronavirus case arrived in Lagos and April 17, 2020, Nigerian equities have shed N2.02 trillion from their market valuations, with the market capitalisation of quoted stocks nosediving from N13.97 trillion to N11.95 trillion. The All Share Index closed last Friday at 22,921.59 points representing -14.61 percent year to date loss, and 99 percent of the losses which amounted to -14.50 percent took place between February 27 and April 17, 2020.
Africa Prudential and Infinity Trust Mortgage Bank are among the early birds to file their first quarter unaudited results for the period ended March 31, 2020 to the authorities of the Nigerian Stock Exchange (NSE), and the trend in their results shows the impact of COVID 19 could be significant more than anticipated.
Infinity Trust Mortgage Bank recorded an 8 percent reduction in turnover and 26 percent decline in profit after tax (PAT) at the end of the first quarter ended March 31, 2020. Turnover for the period was N316.2 million whereas in the same period in 2019, the mortgage banker realised N344.9 million. PAT fell to N90.9 million in 2020Q1 as against N123.8 million at the end of the first quarter of 2019.
In Q1 2018, Infinity Trust made N215.3 million and N58.9 million as turnover and profit after tax compared with a turnover and PAT of N205.8 million and N58.2 million respectively in Q1 2017. The decline in turnover in Q1 2020, whereas that was not the case in Q1 2019 and Q1 2018, has made market watchers to conclude that many listed firms could be affected by COVID 19 when their Q1 results are released to the public.
Another listed firm, Africa Prudential, saw its gross earnings for the first quarter of 2020 decline by 14 percent to N743 million as against N869 million in the corresponding quarter of 2019. A deeper dive into its revenue sources shows that the firm made no earnings from retainership services in the first quarter of 2020, whereas in Q1 2019 it realised N116.50 million from the same services. Apart from that, fees from corporate actions fell sharply by 86 percent to N15.33 million compared with N111.5 million it earned same period in 2019.
In Q1 2018, Africa Prudential generated N957.80 million, an increase of 49 percent over N641.55 million it realised in Q1 2017. For that period, retainership fees amounted to N122 million, slightly higher than N120 million made from the same source in the first quarter of 2017. Fees from corporate actions saw an improvement from N22.9 million in Q1 2017 to N24.2 million in Q1 2018.
Our analysis shows that the reduction in gross earnings from N957.8 million in Q1 2018 to N869.4 million in Q1 2019 was because of the declining yield environment while the decline in Q1 2020 revenue was attributed to the rampaging coronavirus.
“Globally, this year had kicked off on an unprecedented note, with the unanticipated spread of the coronavirus disrupting economic activities all across the globe, Nigeria inclusive. The COVID19 pandemic had threatened the smooth operations of our business and that of our clients’ mounting enormous pressure on our revenue sources particularly the Revenue from contract with customers, the resultant effect was the reduction recorded in our gross earnings for Q1 2020.
However, the over 900% surge in our digital consultancy revenue attest to the fact that we have a lot of opportunities to harness the potential inherent in our digital technology business to boost our revenue whilst upscaling our diversification strategy”, Obong Idiong, MD/CEO, Africa Prudential, said.
Ayodeji Ajilore, an insurance analyst with Meristem Securities, expected that the Nigerian insurance sector might not experience much of the coronavirus effects due to the structure of the policies Nigerian insurance firms underwrite and the dynamics of the market.
“The policy structure of the Nigerian market provides for the full force of exclusion clause which exempts firms from settling claims that arise from fundamental risks such as war and pandemics. Whereas the foreign and bigger players are currently grappling with claims settlement bordering on the postponements of Wimbledon, business interruptions, loss of unemployment insurance and other policies. And the only downside for the industry is the inability to underwrite new businesses during this lockdown”, Ajilore said