Utica Capital Modest on Banks Earnings Outlook, Positive on Telcos
Utica Capital

Utica Capital Modest on Banks Earnings Outlook, Positive on Telcos

Projections on companies’ earnings performance for the financial year 2022 are mixed; ranging from positive to moderate. Analysts appear to be relatively cautious about banking sector earnings expectations, a view anchored on increased regulations and competition by rivals in the financial technologies space.

Though, experts believe that Nigerian bank resolves have been strongly tested in the past two or more years, especially with the covid-19 outbreak and how quick local lenders adjusted to various earning dilutive regulatory demand, industry and economic related threats.

In their separate reports, global ratings agencies extolled the quality of Nigerian banks’ balance sheet, which according to them remains sturdy and robust to weather short to medium term shocks.

While the majority of the banks have higher exposures to oil and gas, and a large sum in the risky downstream segment, rising global prices appears to have lower lenders exposures. Crude oil prices recently breaks 2014 highs in the market amidst tight supply that continues to put pressures on energy costs.

In its outlook for the year, Utica Capital expects monetary policy rates is to remain at the current level -at worst till the second half of the year. The firm said in addition to the implementation of the Basel III framework, this should pressure interest income as banks are expected to hold more low-yield, but highly liquid assets.

Fixed income yields are more likely to hover around 2021 averages, the firm said in the note. It added that the ability to grow interest-earning assets – loans and investment in securities- would determine growth in interest income for banks.

The firm posits that more transaction volume on e-channels would drive gross earnings and bottom line.

In its modest outlook for the segment, Utica Capital expects Agricultural stocks to consolidate on the earnings growth seen in the past two (2) years, saying this would be sustained by rising product prices (crude palm oil and feed millers), thus offsetting cost pressures.

In the energy sector, the firm said improved oil prices would bode well for the upstream players.  Utica Capital however noted that downside risk remains weak production volume owing to incessant maintenance of facilities including oil theft and pipeline sabotage.

Nonetheless, the firm projected that the sector will see improved margins. In the downstream segment, it said the implementation of the PIA should result in the deregulation of the sector.

However, it noted that partial deregulation is only expected which would imply a fractional increase in PMS prices to ease government expenditure on under-recovery.

According to the report, the firm is bullish in the Pharmaceutical sector due to record demand for pharmaceutical products. However, it sees inflation, logistics challenges and forex constitute the major headwinds in 2022.

The report envisages an upward price adjustment on pharmaceutical products like antiretroviral drugs consequence to the inflationary environment. Read: Seeking Descent Return Means Buying these Banks, Telcos Stocks

The insurance sector’s performance has been generally unimpressive due to pressures on earnings. While clouds on recapitalisation have thickened, the industry was hit by hit claims post #EndSARS struggle.

Utica Capital sees single-digit growth in new policies underwritten. It said earnings would be pressured by the yield environment which is expected to remain stable for the most part of the year.

However, a significant increase in fixed income yields might generate a very different outcome through an improvement in investment income, the report added.

Outlook on telecommunications is positive as Utica analysts spotted a growing subscriber base, in addition to increased revenue per user to grow topline.

There is also a continued cost efficiency, translating to increased earnings though it said stringent regulatory policy remains industry headwinds. #Utica Capital Modest on Banks Earnings Outlook, Positive on Telcos