Analysing Nigeria’s most profitable companies in H1 2024

Return on equity is a crucial financial metric that measures a company’s ability to generate profits from its shareholders’ funds. It tells a story of how efficiently a company is using its shareholders’ funds to create value, hence making it a key indicator of profitability.

According to Investopedia, an investment dictionary, “The higher the ROE, the more efficient a company’s management is at generating income and growth from its equity financing.”

Based on just net income recorded in the first half of 2024 (H1 2024), the top five most profitable companies in Nigeria are all banks. Companies in the financial services sector, particularly banks, have experienced a strong profit surge since 2023. This growth has been fueled by the high-interest rate environment and substantial gains from the revaluation of their foreign exchange-denominated assets.

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However, when considering the ROE, the analysis broadens, accounting for a company’s ability to leverage its net assets to generate profits. This provides a more comprehensive measure of financial performance.

Topping the list as the most profitable company in Nigeria in H1 2024 is oil palm company, Presco Plc, with an ROE of 60.3 percent.

1. Presco Plc – 60.3%

At the end of H1 2024, Presco Plc posted a ROE of 60.32 percent, as it posted a net income of N38.9 billion during the half-year. The company’s profit after tax in H1 2024 represented a 158 percent year-on-year growth, from the N15.1 billion posted in H1 2023.

Year-on-year, the company’s ROE also grew by 24 percentage-points from the 36 percent recorded in H1 2023, reflecting improved financial management. In the light of Nigeria’s economic slump, especially for manufacturers, Presco’s story has been difficult, with the company recording almost zero FX-exposures.

At the end of FY 2023, Presco posted a profit after tax of N32.9 billion, reflecting a net income margin of 32 percent. However, in just six months of 2024, the company’s net income margin jumped to 44 percent. With a price-to-earnings ratio of 1.24x, Presco can be viewed as an undervalued stock.

2. Transcorp Power – 48.2%

The latest listing on the NGX, Transcorp Power closed H1 2024 as the second most profitable company, with an ROE of 48.2 percent. The company posted a profit after tax of N14.5 billion during the half-year, marking a 65 percent year-on-year growth from the N8.8 billion recorded in H1 2023.

During the half-year, Transcorp Power’s net income margin hit 21.5 percent, marking a 370 basis points year-on-year decline from a 25.2 percent net income margin recorded in H1 2023. The company, which listed on the NGX in March 2024, is currently at a price-to-earnings ratio of 61.6x, as well as a price-to-book ratio of 23.9.

3. Okomu Oil – 47.8%

The two major oil palm players in Nigeria have shown to be bastions of financial efficiency over the years. Just like Presco, Okomu Oil also posted a ROE that positions it as one of the best users of shareholders’ funds in Nigeria. In H1 2024, Okomu Oil posted a ROE of 47.8 percent, based on a net income of N20.2 billion during the half-year.

Despite grappling with security challenges that impacted its projected profits, Okomu Oil achieved a resilient performance, posting a 25 percent year-on-year net income growth from the N16.2 billion reported in the first half of 2023. The company’s ROE during the half-year also appreciated year-on-year, from the 44 percent recorded in H1 2023.

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4. Consolidated Hallmark Holdings – 47.6%

In the financial services sector, Consolidated Hallmark Holdings posted the highest return on equity, with 47.6 percent during H1 2024. The company recorded a net income of N7.5 billion during the period, marking a whopping 660 percent growth from the N989.6 million net income recorded in H1 2023.

Like most of the companies in the financial services sector, major parts of the gains were from interest income as well as revaluation of financial assets. Consolidated Hallmark recorded an investment income of N1.2 billion, in contrast with N312.1 million recorded in H1 2023. The company also recorded N5.9 billion from the revaluation of its financial assets.

5. AXA Mansard Insurance – 47.3%

According to data, the most efficient users of resources in the financial services sector are insurance companies. After Consolidated Hallmark, AXA Mansard was the next most profitable company in Nigeria, with an ROE of 47.3 percent.

AXA Mansard recorded a net income of N25.1 billion during the half-year, marking a 91 percent year-on-year growth from the N13.1 billion recorded in H1 2023. During the half-year, AXA Mansard’s insurance revenue grew by 68 percent year-on-year from N39 billion as of H1 2023.

The company’s fiscal efficiency was reflected in the 79 percent year growth in the premiums received, as the company received N80.8 billion cash premium, in contrast with N45.2 billion in H1 2023. With a share price of N5.74, as well as a price-to-earnings ratio of 2.17x, AXA Mansard is trading at a slightly undervalued share price.

6. GTCO Holdings – 46.7%

GTCO Holdings is the only banking group that appears on this list and has consistently been touted as the bank with the highest ROE in Nigeria.

The group was the highest profit-generating entity in Nigeria during the half-year, with a profit after tax of N905.6 billion during the half-year. GTCO’s net income as of H1 2024 represented a 223 percent increase from the N280.5 billion recorded in H1 2023.

During the half-year, the group’s ROE immensely grown year-on-year from the 26 percent recorded in H1 2023.

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7. Geregu Power – 44.3%

Geregu Power Plc, the other power company listed in the NGX, also recorded an impressive return-on-equity, wih 44.3 percent. During the half-year, the company posted a profit after tax of N20 billion, marking a 148 percent year-on-year growth from the N8.05 billion recorded in H1 2023.

Just like Transcorp Power, the company has reflected an efficient usage of shareholders’ funds to generate profits. And in H1 2024, the company’s return-on-equity jumped from 19 percent as of H1 2023 to 44.3 percent as of H1 2024.