December 24, 2021/Proshare

by FBNQuest  Research 

Nigeria’s consumer goods industry has recorded a sharp recovery from 2020. This recovery was driven by rapid consumer demand and industry margins benefitting from higher product prices by Fast Moving Consumer Goods (FMCG) companies. Data from the National Bureau of Statistics (NBS), show a recovery in real household consumption expenditure in 2021. Annualised, real household consumption as a proportion of GDP has risen to 76% in 2021 from 62% in 2020. This is the highest level since 2010, indicating a fast rise in household expenditure on food, home & personal care items and durable goods. Nigeria’s real GDP rose by 4.03% in Q3’21 while the food, beverage & tobacco sub-segment grew by 6.07%, underpinning a strong recovery. 

Nonetheless, we note that the recovery in 2021 is still behind pre-recession levels in 2015, as the COVID-19 pandemic only further worsened the state of the consumer goods sector. This is evidenced by Nigeria’s annual economic growth trend that has trailed at a sub-par average of 1.5% since 2016 compared with an average of 5.5% between 2010 and 2015. Currently, the average Nigerian consumer is worse off, with a contracted spending wallet due to high food inflation, and generally frailer real income levels. 

Across our coverage companies, cumulative turnover in 9M’21 rose by 34.6% y/y, aided by strong consumer demand and price increases by FMCGs across popular portfolio products. However, high-cost inflation, insecurity in northern Nigeria and global supply challenges compressed the cumulative gross margin of our coverage companies to 23.1% in 9M’21 (from 23.9% in the prior period). 

In the international market, we observe significant increases in commodity prices. These include maize (+35% y/y), sugar (+32% y/y), soybean (+37% y/y), wheat (+27% y/y) and CPO (+67% y/y). From a bottom-line perspective, cumulative net margin rose to 3.7% in 9M’21 (from 3.4% previously). It is, however, lower than 4.3% and 6.3% recorded in 9M’19 and 9M’18 respectively, showing a compression in industry margins. 

In 2022, we expect a few factors to drive the performance of the consumer goods industry. Firstly, we expect pressures on the food basket to persist. We believe industry competition, supply chain disruptions and insecurity will trigger price adjustments. Secondly, we expect that industry volume recovery will be sustained, especially over H1’22. This will be achieved via different strategies including further ‘sachetisation’. Thirdly, we anticipate increased capex to keep in touch with competition as well as new M&A announcements and capital raising activity.

Real household consumption expenditure/GDP (2010 to 2021*)

Sources: NBS; FBNQuest Capital Research

*annualised 2021 value