PZ Cussons Nigeria - Decent Results despite Substantial Fx Loss


Wednesday, September 27, 2017 / 10:04 AM /FBNQuest Research

Earnings and price target revised upwards
PZ Cussons Nigeria’s (PZ) delivered another set of strong numbers in Q4 2017 (end-May), similar to the prior quarter. Sales were 10.8% ahead of our forecast, impacted primarily by a favourable price-volume mix. Its parent company, PZ Cussons, had stated in its Q4 2017 group trading statement that the Personal Care, Home Care, Food & Nutrition and Electrical businesses for the Nigerian subsidiary performed relatively well. PZ has come a long way from mid-2015 to early 2017 when fx-related issues in Nigeria hampered profitability. Although recent efforts by the CBN to address fx liquidity problems have been supportive, the effect of the naira devaluation is still evident in the company’s results. Fx loss for the year came in at N8.8bn vs N2.9bn in the prior year. This can be attributed to fx-denominated payables. Trade payables grew by 54.5% y/y to N39.7bn in 2017.

However, the adverse impact of fx losses on the overall results was more than offset by a robust topline growth and gross margin expansion through the year. We are increasing our 2018-19E EPS forecasts by 121.1% on average to reflect stable fx supply and increased utilisation of locally produced palm oil. Our new price target of N22.5 is 44.5% higher and implies a potential downside of -10.8%. PZ shares currently trade on a 2018E P/E multiple of 11.5x for an EPS growth of 6.7% in 2019E. A risk to our valuation is a further devaluation of the naira. PZ shares have gained 73.9% ytd, compared with the NSE ASI’s 31.6%. Our Neutral rating on the stock is unchanged.

PBT up 143.6% y/y in Q4 but down -11.7% q/q

PZ’s Q4 2017 (end-May) sales grew 19.1% y/y to N22.5bn while PBT and PAT increased by 143.6% y/y and 370.7% y/y to N2.5bn and N1.8bn respectively. The major driver behind the company’s strong bottomline was a gross margin expansion of 168bps y/y to 38.8%, which was strong enough to offset a 14.9% y/y rise in operating expenses and a N2.7bn exchange rate loss. Although the results were strong y/y, they were relatively weaker than the more impressive Q3 2017 results. Sales and PBT fell by -5.7% q/q and -11.7% q/q respectively while PAT was flattish q/q.

On a full year basis, sales grew by 14.5% y/y to N79.6bn while PBT and PAT advanced 52.8% y/y and 78.4% y/y to N4.8bn and N3.3bn respectively. The Branded Consumer Goods segment, which advanced by 22.2% y/y to N56.2bn, accounted for over 70% of the overall sales growth. The Durable Electrical Appliances segment sales of N23.4bn was however flattish y/y. The full year group gross margin expanded by 604bps y/y to 35.1%. A final dividend of 50k was declared.

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