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PZ Cussons Nigeria plc recently published its results for the full year (FY) ended May 31 2016 which show remarkable decline across key numbers.
While the company’s revenue dropped by 4.9 percent, from N73.126billion in 2015 to N69.527billion in 2016; operating profit declined by 51.1 percent from N6.651billion to N3.249billion.
Profit Before Taxation (PBT) was down by 52 percent from 2015 level of N6.556billion to N3.148billion.
Also, PZ Cussons Nigeria plc reported after tax profit declined by 53.4percent from N4.570billion to N2.129billion.
Following the release of these results to investors at the Nigerian Stock Exchange, most research analysts revised downwards their earnings and share price targets for the company.
The board of directors of PZ Cussons Nigeria Plc proposed a final dividend per share of 50 kobo ahead of analysts’ estimate, a decision seen to calm market nerves following the disappointing performance.
“PZ Cussons Nigeria’s (PZ) reported another set of weak results in fourth-quarter (Q4) 2016 (end-May). Although sales and PBT were in line with our estimates, we expect the adverse impact of the weak macroeconomic environment on the company to persist into the coming year,” according to Kingston Nwosu and Uwadiae Osadiaye team of research analysts at FBNQuest.
“Management of PZ’s parent company (PZ Cussons UK) acknowledged during its FY 2016 analyst presentation that tight liquidity and increased cost in Nigeria due to the scarcity of FX were significant challenges to growth. Also, the devaluation of the naira to c.N280/US$ from c.N197 has forced the company to take an exceptional charge of N29bn in Q4. Although PZ has made efforts to soften the impact of the headwinds on revenue and maintain margins, these have not been sufficient,” the FBNQuest analysts added.
“Management attributed a -6.7% y/y sales decline in Q4 to lower unit volumes following moderate price increases during the period. Additionally, gross margin contracted y/y in all quarters in 2016 except for Q1 due to old inventory. As a result, we are cutting our 2017-18E Earnings Per Share (EPS) forecasts by -51% on average. We forecast sales decline of -3.8% in 2017E. We have also increased our risk free rate assumption by 200basis points (bps) to 14.5%. As such, our N12.2 price target is 29% lower and implies a potential downside of -33% from current levels. The shares, which have shed -29.2% ytd (NSE ASI: -4.5%), are currently trading on a 2017E P/E multiple of 48.7x for EPS growth of 5.6% in 2018E. We retain our Underperform rating,” the analysts stated.
PZ Cussons Nigeria plc brands cut across personal care, electricals, food & nutrition, and home care products. Its personal care products are from well-known international family brands like Imperial Leather, Cussons Baby and Carex, through to local brands for specific markets – such as Premier Cool and Robb. Its electrical products are Coolworld and Haier Thermocool; food & nutrition (Coast, Devon King’s, Mamador, Nunu, Olympic, and YO! Yoghurt drink; while PZ Cussons Home Care products are Canoe, Morning Fresh, and Zip.
“With an over 80% exposure to imported raw materials, the persistent FX challenges continue to weigh on PZ’s cost as gross margin contracted 3 percentage points to 25percent, reflecting the impact of currency depreciation within the period. Whilst rising cost in the Electricals segment (fully imported) was immediately transferred to consumers, we believe management might have struggled to pass on higher costs in the Branded Consumer Goods segment amidst a highly competitive terrain”, according to Pabina Yinkere-led team of analysts at Vetiva Capital Management Limited.
The analysts noted that PZ revenue decline came in despite price increases implemented in the period, “suggesting that volumes must have been really weak.”
“We are of the opinion that the moderation in margin must have been largely driven by more elastic demand in some of PZ’s product categories. Consequently, down from a 5-year average contribution of 59percent of PBT, Branded Consumer Goods contributed just 25perecnt to FY’16 PBT with a margin of 1.7percent (FY’15: 7.5%). Overall, net earnings recorded a third consecutive yearly decline, down 53perecnt to N2.1 billion (Vetiva: N2.8 billion),” Vetiva analysts added.
“Whilst we expect consumer demand (particularly for durables) to remain tepid in the near term, we believe price increases (to absorb currency weakness) will cushion revenue. Given this, we have revised our FY’17 revenue forecast to N73 billion (previous: N70.4 billion). However, after revising our cost of sales (as percent of sales) assumption upwards, our EPS forecast came to N0.61 (previous: N0.82). Consequently, our 12-month target price is revised lower to N20.33 (previous: N22.21)”, Vetiva analysts further stated.
Iheanyi Nwachukwu
