Nigeria's consumer goods sector gains in Q1

Nigeria's consumer goods sector has shown signs of recovery in the first quarter of the year, with the NSE Consumer Goods Index gaining almost 3% last week. This performance comes as a positive shift for the sector, which has been the worst year-to-date performer on the Nigerian bourse. Esili Eigbe, Director and Head of Equities for Nigeria at Exotix, shared insights on the impact of the first quarter earnings on the consumer goods space during a recent interview with CNBC Africa. The first quarter earnings for consumer goods companies have been relatively encouraging, with many companies reporting stronger earnings compared to the previous year. However, it is important to note that the first quarter of the previous year had a low basis for comparison. Despite sharp price increases implemented across various sectors last year, the current trend is supported by volume growth. This growth does not necessarily indicate an increase in overall consumer spending but rather reflects market share gains by larger players at the expense of smaller competitors. Some industry giants like Nestle and Nigerian Breweries have access to foreign exchange at preferential rates, giving them a competitive edge over smaller producers. Price increases can pose a challenge for consumer goods companies as consumers may react negatively to higher prices. However, the current market dynamics have seen consumers down trading to cheaper products and an influx of new entrants offering more affordable options. In addition, the weaker exchange rate has led to higher cross-border trading, further boosting volume growth for consumer goods companies. The Central Bank of Nigeria's interventions in the foreign exchange market have had a positive impact on the sector, reducing companies' dependence on parent companies for foreign exchange and raw materials. This trend bodes well for consumer companies in the coming year, although sustainability will depend on various factors such as oil prices and production output. Despite uncertainties, investors are likely to continue favoring sector leaders and larger companies, rotating dividends into these blue-chip stocks for stability and security. Smaller players in the consumer goods space may face challenges due to limited access to favorable foreign exchange rates and accommodating price increases. As a result, the market is expected to witness a continued shift towards larger, more liquid stocks in the consumer goods sector. While industry giants like the banks and cement companies have shown resilience and stability, smaller players may struggle to compete against their larger counterparts. Overall, the sector outlook for the consumer goods industry in Nigeria remains promising for established players, while smaller companies may face difficulties in the current market environment.