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Cadbury Nigeria Plc - Q3, September 2011 - FSDH


February 23, 2012

Company:    Cadbury Nigeria Plc  

Rating:         BUY    

Cadbury’s principal activities involve the manufacture and sale of branded Fast Moving Consumer Goods (FMCG) mostly to the Nigerian market, but increasingly for exports into West Africa. The company has a strong portfolio of brands that are popular across the country. Its strong roots in local markets and first-hand knowledge of local culture have enabled it to consistently produce quality products desired by its customers. Its product lines are classified into two: Food Drinks and Confectionery. The relative contribution to group results of the Confectionery and Food Drinks portfolio in 2012 was 93% (2009:91%) in terms of sales value. A range of intermediate products such as Cocoa Butter, Liquor and Powder are produced by its Subsidiary (SCPCL) in Ondo State, Nigeria.

The additional funds available to Cadbury by its Right Issue have been deployed into significant capital investment projects designed to ensure that its manufacturing capability operates at maximum efficiency. Also, the company is responding to strong consumer demand and category growth, and has undertaken an ambitious program to invest in new capacity and progressively modernize its Food Drinks plants. This program includes a significant civil engineering project along with installation of new processes and packaging equipment to boost manufacturing capacity. Also, the company has installed upgraded processing equipment in Stanmark Cocoa Processing Company Limited (SCPCL), which has helped to improve the flexibility of the factory in addressing the highly volatile market for cocoa derivatives. Cadbury has remained committed to the principle of good governance and to high standards of business integrity, ethics and professionalism in every aspect of its operations.

Cadbury remains susceptible to the challenges facing the manufacturing businesses in Nigeria. These include: epileptic power supply; the country’s deficient infrastructure; credit squeeze; low purchasing power; high financing cost in the financial market, among others. 

Using Discounted Free Cash Flow Method (DCF) and the Discounted Future Earnings (DFE), and with appropriate weightings, we arrived at a fair value of N20.12 per share, which is our fair value. The 2011 forward earnings yield based on our fair value generates 0.93%.The forward earnings yield at current market price is 10.31%. We therefore place a BUY on the shares of Cadbury at the current market price of N9.02.

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