FSDH Places HOLD Rating on GLAXOSMITH; Records Improvement in Revenue

Proshare

Monday, June 29, 2015 08:23am / FSDH

The audited Full Year 2014 (FY 2014) result of GlaxoSmithKline Consumer Nigeria Plc (Glaxosmith) for the period ended December 31, 2014 shows that its Turnover (T/O) increased by 4.58% to N30.52bn, compared with N29.18bn recorded in the corresponding period of 2013.

The improvement in revenue can be attributed to the increased income generated from consumer healthcare products, particularly Lucozade and Ribena. The Profit Before Tax (PBT) fell to N2.75bn, a decrease of 36.21% from N4.31bn recorded in the corresponding period of 2013.

The tax provision also decreased by 35.27% to N903.37mn from N1.40bn, leading to a Profit After Tax (PAT) of N1.85bn in FY 2014 from N2.92bn in the corresponding period of 2013, representing a decrease of 36.67%.

We note that business activities were generally slow in Q1 2015 because of the general elections, the security issues in the country and the unfavourable macroeconomic situation in the country.

As at Q1 2015, PBT Margin decreased over the Q1 2014 and the Financial Year ended December (FY), 2014 figure. The PBT margin decreased to 5.66% in Q1 2015 from 11.43% as at Q1 2014 and 9.02% recorded at the end of FY 2014.

Glaxosmith’s earnings were impacted by the following:

Positive Factors:

  • Large market size in Nigeria.
  • Re-launch of Horlicks.
  • Introduction of Panadol Suspension for children under the age of 12.
  • Patronage received by Lucozade and Ribena.

Negative Factors:

         Stiff competition in the industry

         Outbreak of the Ebola Virus Disease (EVD) in West Africa.

         Counterfeit and parallel importation of drugs.

         Increased finance cost.

         Foreign exchange loss resulting in a rise in operating expenses.

         Security challenges in some parts of Nigeria


Looking ahead, the company’s long term strategy is to redesign its Route-To-Market (RTM) with the focus to build momentum behind drinks and drive deeper and wider penetration and strengthen the non-drinks portfolio. The company will also focus on a commercial model that will ensure that distributor margins and investment are aligned to support growth.

Valuation
We considered the following factors in arriving at our 5-year forecasts:


Positive Factors:

         The company’s good knowledge and expertise of the domestic market.

         The passage of the National Health Bill.

         The management initiatives on product innovation.

         Drive to ensure operational efficiencies, leading to cost reduction.

         Growing local demand.

Negative Factors:

         Foreign exchange exposure and risk.

         The weak consumers spending power.

         Rising cost of raw materials.


Our fair value for Glaxosmith share is N48.19 per share and the stock is currently trading at N44.00. The total return, a combination of the capital appreciation and the dividend, generates 11.23%. This is lower than the current yield on the FGN Bond of 13.98%. We therefore place a HOLD on the shares of GlaxoSmithKline Consumer Nigeria Plc at the current market price.


Kindly download the attachment for the full report.

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