Cadbury Nigeria Plc: Consistent decline in revenue impacts valuation

Proshare

Friday, October 31, 2014, 10.05 AM / DLM Research

9M2014 revenue declines by 12.1% y/y… In its nine months result to September 2014, Cadbury Nigeria posted revenue of N23.31billion, i.e. a decline of 12.2% compared with N26.55billion in the previous year. On a quarterly basis, the company recorded revenue of N7.99billion in 3Q2014, down by 4.9% and 12.3% compared with N8.40billion and N9.12billion respectively in the second quarter of the year and the third quarter of 2013. Also, the third quarter revenue is lower than our estimate of N8.39billion and 8-quarter average of N8.57billion by 4.7% and 6.7% respectively.

…while input cost declines by 9.5%. Cadbury Nigeria’s cost of sales (COS) of N14.61billion in the review period is lower by 9.5% y/y compared with N16.14billion. The lower decline in input cost relative to revenue resulted in a higher COS/revenue ratio of 62.7% relative to 60.8% in 2013. On a quarterly basis, the company recorded COS of N5.11billion in 3Q2014, down by 6.1% and 9.1% against N5.44billion and N5.62billion in 2Q2014 and 3Q2013 accordingly. Furthermore, our analysis revealed that the third quarter COS/revenue ratio of 63.9% is lower than 64.7% but higher than 61.6% recorded in 2Q2014 and 3Q2013 respectively. Again, the latest quarter’s COS/revenue ratio is also higher than 8-quarter average of 63.2%. Therefore, gross profit declined by 16.4% to N14.61billion compared with N16.14billion in 2013 and gross profit margin dipped to 37.4% relative to 39.2% in the previous year.

Operating profit margin declines significantly due to increase in running costs. For the review period, the company reported operating expenses of N6.37billion, up by 3.3% compared with N6.16billion in 2013. The inverse movement in the operating expenses and revenue resulted in a higher operating expenses/revenue ratio of 27.3% relative to 23.2% in 2013. In addition, the company’s operating expenses of N2.31billion in 3Q2014 is higher than N2.04billion in 2Q2014 by 13.4%.

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