Capital Market Operators Warn of Potential Decline in 2023 Dividends Amid Naira’s Free FallCapital market operators are cautioning that quoted companies heavily burdened with foreign liabilities or reliant on imported inputs may face a downturn in 2023 dividend payouts to shareholders. The warning comes in the wake of the recent free fall of the Nigerian naira, with operators attributing this potential decline to the mounting pressure on profit margins in the current economic climate.
The operators, interviewed by Nairametrics, emphasized that companies boasting substantial net foreign assets or primarily reliant on local sourcing of inputs, along with products exhibiting elastic demand, may better withstand the challenges posed by the depreciation of the naira.
Naira Hits Record Low:
The naira plummeted to a record low of N1,348.63 per dollar on Monday, reflecting strong demand on the official market (NAFEM market). This significant depreciation, despite the additional release of $500 million by the Central Bank of Nigeria (CBN), has raised concerns about the economic challenges facing the country.
The observed depreciation is unparalleled and stands as the lowest point in the historical performance of the naira, signaling the severity of the current economic challenges.
Market Experts’ Insights:
According to market experts, companies with net foreign assets in dollars are poised to reap abundant profits, while those with liabilities in foreign currency may face significant devaluation or substantial losses. This analysis has profound implications for shareholders of publicly traded companies.
Mr. Tajudeen Olayinka, CEO of Wyoming Capital and Partners, forecasted a tale of contrasting outcomes for quoted companies based on their net foreign assets. He predicted that companies with substantial net foreign assets would likely see a robust increase in dividends from their 2023 accounts, fueled by significant profits or “bountiful harvests.”
Conversely, companies burdened with foreign liabilities might struggle to maintain their shareholder dividends, potentially dipping into revenue reserves or foregoing dividends altogether.
Mr. David Adonri, Executive Vice Chairman of Hicap Securities Limited, highlighted the ripple effects of the naira’s recent floatation, emphasizing significant challenges for import-dependent companies amidst escalating foreign exchange rates. He cautioned that such companies may witness a decline in dividend payouts as profit margins come under pressure.
Managing Director of Arthur Steven Asset Management Limited, Mr. Olatunde Amolegbe, pointed out sectoral vulnerabilities, with Consumer Goods and Industrial Sector companies poised to bear the brunt of the turmoil. He highlighted the erosion of disposable income among consumers and the challenges companies face in passing on full FX-related costs to consumers.
As companies unveil their 2023 financial results, shareholders are advised to closely monitor the impact of foreign exchange fluctuations on dividend payouts and overall corporate health. This analysis underscores the intricate interplay between foreign exchange dynamics and corporate performance, emphasizing the importance of proactive management strategies in navigating such volatile environments.