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PZ Cussons Nigeria Plc - Q2, November 2011 - FSDH


 February 22, 2012

Company:              PZ Cussons Nigeria Plc

Rating:                   HOLD 

PZ Cussons Nigeria is principally engaged in the manufacture, distribution and sale of a wide range of consumer products and home appliances, which are leading brand names across the country in detergent, soap, pharmaceuticals, cosmetics, confectionary, refrigerators, freezers and air conditioners. The company also distributes the products of Nutricima Limited, Harefield Industrial Nigeria Limited and PZ Wilmar Limited. In Q2, 2011, the company recorded strong revenue growth in all its business units of Personal Care, Home Care, Electricals and Nutrition.

In order to combat the threat facing manufacturing companies in Nigeria, PZ Cussons has invested in improving its manufacturing and distribution facilities under the “Project Unity” program it concluded in 2010, with the upgrade of the white goods (white goods are major household appliances) manufacturing and distribution facilities in Ilupeju, Lagos State.  Also, the new Detergent Tower in Ikorodu, Lagos State, which was completed at the end of 2009 is now fully operational and has enabled PZ Cussons to provide new and innovative products to the Nigerian consumers, while at the same time, increasing its production capacity. The Project Unity program of the company represents an N10bn investment into upgrading its manufacturing and distribution facilities. Also worthy of note is the recent strategic joint venture with Singapore’s Wilmar International limited to construct palm oil refinery in Nigeria. The project is scheduled to be completed by the end of the 2012 calendar year. PZ is investing about $27mn over the space of two years to fund the project.

PZ Cussons is a manufacturing company, and thus is susceptible to the challenges facing the manufacturing businesses in Nigeria. These includes: 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) we arrived at a fair value of N24.90 per share, which is our fair value. The forward earnings yield and dividend yield based, on our fair value generate 2.98% and 1.49% respectively. We therefore place a HOLD on PZ CUSSONS stock at the current market price of N26.90.

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