Lagos, Nigeria – As Nigeria’s economic landscape shifts, the debt profiles of some of the country’s largest firms are reaching concerning levels. By mid-2024, eight companies within the SWOOT (Stocks Worth Over One Trillion Naira) category have accumulated a combined debt of N4.6 trillion, representing a 15% increase in just six months compared to the end of 2023.
The companies include major players such as Dangote Cement, BUA Foods, MTN Nigeria, BUA Cement, Transcorp Power, Transcorp Hotels, Geregu, and Seplat Energy. Their market capitalizations have declined from N47.6 trillion in Q1 2024 to N43.14 trillion by August 21, 2024, although these stocks have still recorded an average year-to-date gain of 44%.
Key Highlights:
- Dangote Cement saw its debt rise by 57% to N1.6 trillion, resulting in the highest interest expense among the SWOOT companies at N130 billion. Despite generating robust earnings per share (EPS) of N11.26, its net profit margin plummeted by 43% year-on-year to 11%, reflecting the strain of high leverage.
- MTN Nigeria experienced a 19.7% decrease in debt to N945 billion but faced increased interest expenses of N183 billion and substantial foreign exchange losses of N887.7 billion, leading to a loss before tax of N751 billion.
- Seplat Energy reported a 60% increase in debt to N1.1 trillion, with interest expenses surging by 199%. Nevertheless, strong operational performance allowed it to maintain a favorable interest coverage ratio of 5.7x, although net income suffered due to deferred tax liabilities.
- BUA Cement saw its debt profile increase by 32% to N553.48 billion, pushing its debt-to-equity ratio to 132%. Despite maintaining an interest coverage ratio of 7.5x, its profitability has been pressured, resulting in a 6% decline in operating profit.
- BUA Foods managed to reduce its debt by 44% to N364 billion, improving its liquidity and financial stability, but still faced challenges with a significant foreign exchange loss of N54 billion impacting profit margins.
- Geregu Energy reported a modest debt increase to N58 billion, but strong operational performance translated into a 145% year-on-year increase in pre-tax profit, resulting in a robust return on equity of 44%.
- Transcorp Hotels maintained a conservative debt approach with N20.675 billion, showing only a slight increase. The company reported a solid profit after tax of N6.6 billion, though its current ratio of 0.77 raises potential liquidity concerns.
- Transcorp Power‘s debt rose by 28% to N47.6 billion, yet it managed an impressive interest coverage ratio of 12.85x and a return on equity of 39%, demonstrating effective leverage management.
Conclusion
While rising debt levels among SWOOT companies pose challenges—such as increased interest expenses and pressure on profitability—many have successfully navigated these pressures through effective debt management and robust operational performance. The long-term effects of these elevated debt levels on profitability and returns will be crucial to monitor as these companies adapt to the evolving economic landscape. Investors should remain vigilant regarding how these dynamics may impact financial stability and market positioning in the future.
