PZ Cussons Nigeria Q4 2015 results review: Earnings and PT revised upward


Wednesday, September 16, 2015 11:00 AM / FBN Capital Research

Earnings and PT revised upward
2016-17E EPS forecasts raised by 5.2% on average: PZ Cussons Nigeria’s (PZ) Q4 2015 (end-May) PBT grew 45% y/y, beating our estimate by over 40%. Management has indicated that base effects helped because a one-off cost of around -N1.3bn was not repeated in 2015. However, FX losses on HPZ devaluation (partly) offset that benefit. Also, continuous review of overheads limited opex growth to single digits y/y. As such, we have raised our 2016-17E EPS forecast by an average of 5.2%.

Notwithstanding, we expect sales and EPS
growth to remain subdued in the near term. Our new price target of N16.5 has been increased slightly by 1.7% because a 100bp increase in our risk free rate to 15.5% offset the EPS growth impact. PZ shares have gained 12.0% ytd (ASI: -12.5%) and are trading on a 2015E P/E multiple of 26.9x for a 4.7% EPS growth in 2016E. Our new price target implies a potential downside of - 38.2% from current levels. We retain our Underperform rating.

Q4 PBT up 44.5% y/y to N1.6bn: While sales of N20.2bn came in flattish y/y, PBT and PAT showed remarkable growth of 44.5% y/y and 46.9% y/y respectively. The major driver behind the PBT growth was a gross margin expansion of 673bps y/y to 30.2%, which offset both a mild 6.2% increase in opex and a -95.6% y/y reduction in other operating income. The faster PAT growth was helped by a -104bp y/y decrease in tax rate to 30.5%.

Sequentially, sales were down -4.7% q/q. Similar to the y/y trends, both PBT and PAT grew 25.1% q/q and 27.3% q/q respectively. Again, gross margin expansion (304bps q/q) helped PBT growth while the increase in PAT was influenced by a -387bp q/q decline in tax rate.

Outlook: Lately, PZ has witnessed increased contribution to sales from the North following the improved security situation in that region. However, these gains are mitigated by competition in the South and reduced consumer spending. On PZ Wilmar JV, out of the 27,000ha of land available for planting, only 22% has been cultivated, 55% is under cultivation while the balance is not usable for ethical reasons.


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