Last week Diamond Bank became the latest Nigerian company to announce a profit warnings. This follows the likes of FCMB and FBNH in the banking industry and Courteville and Computer Warehouse Group in the IT sector. For CWG, this will be the second profit warning in a year.

For all the companies that have so far declared profit warnings, the reasons range from poor state of the economy, foreign exchange crisis and the drop in the price of oil

FCMB

“3Q15 earnings as at September 2015, will be materially below earnings for the same period in 2014, due to two
factors: a spike in impairments particularly in the energy sector and the significant reduction in trade finance-related revenues due to foreign exchange illiquidity. This trend continued in 4Q15 and largely emanated from wholesale banking activities, while retail banking showed

CWG

Principally driven by significant exchange rate volatility. The exchange rate which had been largely stable within a narrow band suddenly plummeted and remained uncertain from the first quarter of 2015, following the significant drop in Oil prices (Nigeria, which is the seventh largest Oil exporter in the world earns about 95% of her foreign exchange from Oil exports).

Diamond Bank

The continuing deterioration in Nigeria’s macro-economic conditions has resulted in Diamond Bank Plc (Bloomberg: DIAMONDBNK) recognising higher than expected impairment charges on loans made to the Energy and Commercial Business sectors.

FBNH

The reduction in earnings is as a result of the recognition of impairment charges on some specific accounts resulting from a reassessment of the loan portfolio within our commercial banking business. This reassessment was driven by the challenging macro environment, coupled with fiscal and monetary headwinds which have resulted in a marked reduction in domestic output

Courteville

The continued fall in the nations reserves as a result of low foreign earnings from crude oil has meant a dwindling allocation to state governments, which has impacted negatively on their ability to meet obligations and has in turn affected our business.

However, investors need to be more circumspect and learn to read between the lines. While some of the companies above may have a genuine case, others are likely to use this as an excuse to mask gross inefficiencies and financial recklessness. Economic headwinds or not some of these companies are indeed badly run and have for years failed to reward shareholders either with improved shareholder value or increase in dividends.

We expect to see more profit warnings announced as the week as companies finalize their 2015 FY earnings. Investors should therefore thread with caution and look at the company’s most recent result for likely pointers or potential red flags.

The post above and its ensuing comments, if any, is purely the opinion of the writer(s). It therefore should never be considered as an investment advise of any sort. If required, readers should please consult a competent professional financial adviser for any investment decision.