Financial services firm, Renaissance capital, says Nigerian consumers are in for tough times as it sees no respite for the naira in the short term and expects further naira depreciation to NGN220/$1 over the year. The firm said the currency depreciation had a significant impact on its input cost forecasts for the consumer companies.[pro_ad_display_adzone id=”10″]
“We have cut our FY15E earnings forecasts and TPs across the group. We downgrade Nestle Foods Nigeria to HOLD (from Buy) on revisions to our forecasts. GlaxoSmithKline Consumer Nigeria (GSK) is our only BUY, while Unilever Nigeria and Cadbury Nigeria remain SELLs,” RenCap said in its Full year 2015 forecast. Input costs expected to escalate in 2015 RenCap says it expects that the further naira depreciation over 2015 will have “a material impact” on the price of imported goods our input with lower global food prices no longer offsetting naira depreciation.
Today, the naira ended at a record closing low against the dollar on despite central bank intervention. According to Reuters, “the unit, which opened at 193.60 naira, firmed to 185.80, lifted by the intervention. It quickly fell back to close at 193.90.” However, RenCap noted that despite the impact of increased inflation, and a 30 percent on average weaker Naira on finished goods, it does not think companies will be able to fully pass on the increased input costs in price increases. However, it also sees little chance of the government increasing wages an employment growth because of the continuing constrained consumer environment. Downgrades to all earnings forecasts RenCap also reduced its earnings forecasts for all the consumer companies under the firm’s coverage. It estimates that Unilever will decline by 44% in 2015, GSK by 30%, Cadbury by 16% and Nestle by 12%. Unilever and GSK will be the most hit because, its direct exposure to the currency will mean higher input cost increases in the year. But RenCap adds that while it expects the highest input cost increases for GSK, it believes the pharmaceutical company has more pricing power than cosometic-based Unilever to partially offset the increases. What else might keep you up at night? RenCap says the rhetoric from various government officials about increasing fiscal revenues and limiting foreign currency outflows would add to the challenges faced by the consumer in the coming year.
Nigeria’s finance ministry said in December it is mulling the doubling of VATs, and announced economic measures a luxury tax, review of waivers and spending cuts. The government has also said ban imports of goods that are not produced in Nigeria. It said the interest rate hikes are also likely to make conditions more challenging for the consumer companies.(VENTURES AFRICA)
