Friday, October 21, 2016 2:23pm / FBNQuest Research
Event: Cadbury Nigeria (Cadbury) reports Q3 2016 results
Implications: Downward revision to consensus likely
Positives: Sales up 6.8% y/y and 9.0% q/q
Negatives: Pre and post-tax losses of N1.1bn and N989m
Cadbury Nigeria reported Q3 2016 results this morning. While sales of N7.4bn grew by 6.8% y/y due to base effects, the company recorded pre and post-tax losses of –N1.1bn and –N989m respectively.
The losses were driven by a gross margin contraction of -2,709bps y/y to 5.8%, offsetting a -22.3% y/y decline in opex to N1.5bn. On a q/q basis, sales were up 9.0% q/q while the pre and post-tax losses mirrored, although to a greater magnitude, the –N477m and –N526m losses on the PBT and PAT lines in prior quarter.
Moving on to the 9M 2016 numbers, sales grew marginally by 1.2% y/y to N21.3bn. However, the company recorded losses before and after tax of -N842m. Although opex declined by -14.5% y/y to N5.5bn, a -939bp y/y contraction in gross margin to 21.0% had a more significant impact on profits.
The results show that Cadbury, like most consumer goods firms, is yet to overcome the negative impact of macro headwinds. The continued devaluation of the naira, which moved further down to c. N305/US$ as of end-September (having fallen to N280/US$ as of end-June from N199/US$), weighed on gross margins. Production inputs such as sugar and milk are mostly imported.
Compared with our estimates, sales were 15.5% ahead. However, we had forecast PBT and PAT of N309m and N247m respectively vs. the pre-tax and after-tax losses reported by the company. While the annualised sales figure is in line with consensus full year sales estimate of N27.5bn, the PBT (loss) tracks behind consensus’ N960m.
On our published estimates, Cadbury currently trades on a 2016E P/E multiple of 35.8x for 2017E EPS growth of 3.0%. Cadbury shares have shed -23.4% ytd (vs -3.7% ytd for the ASI); we expect the market’s reaction to this result to be negative. We rate the stock Underperform. Our estimates are under review.
Cadbury Nigeria Q3 2016 results (N millions)
1. CADBURY declares N842.16 million Loss in Q3'16 Result,(SP:N13.82k)