Wednesday, July 20, 2016 6:50pm /FBNQuest Research
Event: Cadbury Nigeria (Cadbury) reports Q2 2016 results
Implications: Downward revision to consensus likely
Positives: Opex down -8.7% y/y
Negatives: Q2 2016 sales down -8.2% y/y
Cadbury Nigeria reported Q2 2016 results this afternoon showing declines across key P&L items. While sales of N6.8m declined -8.2% y/y to N6.8bn, the company reported losses before and after tax of -N477m and -N526m respectively. Gross margin contracted by -828bp y/y to 24.6% to more than offset a 269.5% y/y rise in other income to lead to the bottom line losses.
We suspect that the contraction in gross margin was largely driven by the devaluation of the naira given that Cadbury imports a significant portion of its raw materials. Although Cadbury sources all its cocoa (a key raw material for the firm) requirements locally, the firm relies heavily on imported sugar and milk.
Sequentially, trends were similar. Sales declined by -4.6% q/q while the loss after tax in Q2 compare with N53m recorded in prior quarter. Again, gross margin contracted by -884bp q/q. Compared to our forecasts, Q2 sales missed by -9.4% while PBT and PAT were significantly behind. The half year result show that sales of N13.9bn fell by -1.6% while PBT and PAT of N216m and N147m compare with losses in prior year. The results also track behind consensus sales and PBT estimates of N30bn and N1.6m respectively.
Several marketing initiatives have been recently rolled out by the company, for example, the relaunch of Bournvita, the Bournvita-Indomie collaboration promo, Shoppers delight promo and Ramadan promo. However, the effect of all these on the books are not yet visible. We expected a boost in volumes from the company’s new production facility similar to Q1. In addition, new products like Clorets and Trident gum as well as the 3-in-1 hot chocolate drink are yet to effectively penetrate the market.
On our published estimates, Cadbury currently trades at 2016E P/E multiple of 24.6x for 2017E EPS growth of 0.8%. The stock has shed -6.2% ytd (ASI -1.5%); we expect the market’s reaction to this result to be negative. We rate the stock Underperform. Our estimates are under review.
Cadbury Nigeria Q2 2016 results (N millions)
Source: NSE, FBNQuest estimates