BusinessDay 07 Jan 2019

Monday 07 January 2019
www.businessday.ng
COMPANIES
& MARKETS
COMPANY NEWS ANALYSIS AND INSIGHT
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BUSINESS DAY
19
Equity funds count losses as
stock market rout takes toll
Pg. 20
ANALYSIS
Companies face higher borrowing costs in 2019
LOLADE AKINMURELE
Again, the private
sector is at risk
of being crowded
out by government
borrowing in 2019 in
bad news for an economy
still sruggling to find its
feet after a scathing recession.
Expectations for a
higher yield environment
this year implies higher
borrowing costs for corporates.
The yield expectations
are being driven by rising
interest rates in developed
markets which could force
the hand of the Central
Bank of Nigeria (CBN) to
raise interest rates in order
to compete favourably
for capital.
Yields are also tipped to
rise if the federal government
fails to meet its revenue
target for the third
straight year as that will
widen the budget financing
gap which would in
turn boost local bond supply
and bid yields higher.
The Federal government’s
2019 budget has a
N2.3 trillion deficit and is
predicated on revenues of
N7 trillion.
Both scenarios are
threatened by disappointing
revenues which naturally
feeds into a wider
deficit that will leave the
government with limited
options than to borrow.
Capital expenditure
bore the brunt of disappointing
revenues in the
past two years but 2019
will give the government
less wriggle room given
L-R: Aniekan Joseph, Area Sales Manager, Lagos; Dr. Soji Adetona, Consultant Pathologist; Olanrewaju Bolawe, Medical Scientist, all of SYNLAB
Nigeria (formerly PathCare) at the recently held Health Writers Association of Nigeria (HEWAN) Awards and Symposium, where SYNLAB Nigeria
was awarded “Best Laboratory of the Year”.
the spike in recurrent expenditure
which cannot
be easily made away with
like capital spending.
Non-debt recurrent expenditure
alone will hit
N4 trillion this year. If
government revenue is to
perform as it did in 2017
or 2018 where only 50 percent
of the target was met,
then worker salaries, overhead
costs and statutory
transfers will be higher
than total revenue, before
considering capital expenditure
and debt servicing.
The total non-debt recurrent
expenditure will
equate to 128 percent of
the government’s projected
N3.5 trillion revenue
for the year. N3.5 trillion is
half of the N7 trillion 2019
revenue projection.
What that implies
is that the government
would have to borrow
just to maintain an over
bloated bureaucracy. Add
capital expenditure as well
as debt servicing obligations
and the government
will need to borrow even
more, thereby crowding
out the private sector.
After a record breaking
2017 for government
bond yields which peaked
at 18 percent, 2018 saw
yields fall to 14 percent
on average amid lower
inflation rate and reduced
bond supply from the federal
government which
tweaked its debt strategy
to borrow less domestically
in favour of external
debt.
However, there are
signs of a higher yield
environment in 2019 and
those signs started flashing
as early as late 2018.
Rising global interest
rates which sparked selloffs
in emerging markets
and political uncertainty
that coloured the second
half of the year, saw the
Central Bank of Nigeria
push yields higher in the
fourth quarter of 2018 using
Open Market Operations
(OMO) auctions, to
attract foreign portfolio
investors and tame inflation
ahead of the system
liquidity that accompanies
campaign spending
in an election year.
The OMO auctions
laid down a marker for
fixed income yields, with
one-year government
Treasury Bills rising as
high as 17 percent while
average bond yields rose
nearly 200 basis points to
15 percent.
The aggressive monetary
tightening adopted
by the CBN is expected to
continue this year on the
back of higher inflation
expectations and rising
interest rates in the
United States and other
developed markets.
The price stability
mandate of the CBN
means if inflation rises,
interest rates are likely
to be raised. The apex
bank relied heavily on
raising interest rates in
the latter part of 2016
when inflation soared to
a high of 18 percent. The
CBN hiked benchmark
rates to 14 percent from
11 percent over that period
and that’s where it
has stayed for nearly two
years now.
The outlook for higher
interest rates in the United
States and sustained
foreign capital outflow
this year will only pile
more pressure to the CBN
to tighten even further.
The consensus forecast
for interest rates in
2019 is a 50-basis hike to
14.5 percent. The Monetary
Policy Committee
is scheduled to hold their
first meeting of 2019 this
January.
The IMF tips the Nigerian
economy to expand
2.3 percent this year.
Although still in a
tepid posture, the economy
is gradually recovering
from recession. The
economy expanded by
1.81 percent in the third
quarter of 2018, up from
1.5 percent in previous
quarter, but still below
1.91 percent recorded
in the first quarter. The
country’s growth rate still
falls short of population
growth rate of 2.6 percent,
implying that the economy
needs stimulus policies to
make growth sustainable
and inclusive.
MARKETS
Vitafoam recommends N260.51m dividend, approves bonus issues for shareholders
OLUWASEGUN OLAKOYENIKAN
The Board of Vitafoam
Nigeria Plc,
one of Nigeria’s
leading manufacturers
of foam and
flexible/rigid polyurethane
products, has recommended
a dividend of N260.51 million
to the company’s shareholders.
In a notice filed at the Nigerian
Stock Exchange (NSE)
Friday by the foam maker, the
recommendation was made
at a meeting of its Board of
Directors held on December
18, 2018.
The dividend represents
25 kobo per share for the
financial year ended September
30, 2018 and it is subject
to shareholders’ approval at
Vitafoam’s Annual General
Meeting scheduled to hold on
March 7, 2019 in Lagos, and
withholding tax, according to
the firm.
“If approved at the Annual
General Meeting, the
dividend will be paid on 8th
March, 2019, to members
whose names appear in the
Register of members at the
close of business on Friday,
15th February, 2019,” Vitafoam
said.
Besides, the Board also
approved a bonus issue of 1
new share for every 5 existing
ordinary shares to shareholders
whose names appear on
the register of members at the
close of business on Friday,
February 15, 2018.
Vitafoam explained that
“the new shares shall rank
equally in all respects with
the existing ordinary shares
except that they shall not rank
for the dividend recommendation
of the year ended 30th
September, 2018.”
This implies Vitafoam’s
outstanding shares in the
market would increase from
its current 1.04 billion shares,
a development that would
have resultant effect on the
firm’s earnings per share
which stood at 57 kobo in
2018, according to Aluko Paul,
a research analyst at MBC
Securities Limited.
Vitafoam posted 46.67
percent return to emerge
the seventh-best performing
stock on the floor of NSE in
2018. This was triggered by
a 10 percent gain to N4.40
recorded by the consumer
goods firm on Monday,
December 31, 2018 after it
declared a whooping profit of
N601.92 million for the year
ended September 30, 2018.
The stock rallied to N4.99
on Thursday, January 3, it
highest in over two years. Part
of the gains was however reversed
Friday, January 4 after it
shed 9.82 percent to N4.50 per
share on profit-taking activity.
In spite of this, Paul said
“in the coming days, we
might see more activities on
the stock as it has not been
very liquid in the past and we
expect long-term investors to
key into it at this price which
Edited by LOLADE AKINMURELE (loladeakinmurele@gmail.com) Graphics: CHINEDUM ONYEMA
might likely push up.”
BusinessDay check shows
that Vitafoam recorded
unimpressive financial performance
in 2016 and 2017,
posting a loss of N127.69
million in 2017 down from a
loss after tax of N32.03 million
in 2016.
However, the company
bounced back in 2018 with a
ballooned profit of N601.92
million despite paying
N191.03 million as tax. Also,
revenue surged 10.38 percent
to N19.53 billion as against
N17.69 billion recorded in the
previous year.