Thursday, January 29, 2015 15:46 PM / FBN Capital Research
Event: PZ Cussons Nigeria reports Q2 2015 (end-Nov) results
Implications: Cuts to consensus full year 2015 estimates likely
Positives: Gross margin expansion of 41bps q/q to 27.3%
Negatives: PBT and PAT both down 41% y/y and 45% y/y respectively
PZ Cussons Nigeria (PZ) reported Q2 2015 (end-Nov) results this morning which shows y/y declines for key line items across the P&L. While sales of N17bn fell by 4% y/y, PBT and PAT both declined by 41% y/y and 45% y/y respectively. In addition to the weaker sales, a gross margin contraction of -128bps y/y to 27.3% and a 7% y/y rise in operating expenses weighed on profitability during the period. We believe the naira’s devaluation during the quarter more than offset any benefits accruing from subdued crude palm oil prices (CPO), a key raw material. PZ Cussons UK, the parent company, stated yesterday after the release of its H2 2015 numbers that the decline in y/y sales and profits in Nigeria were mainly due to difficult trading conditions, insecurity in the North and the naira devaluation. These factors continue to offset meaningful growth in the south of the country, especially in the electrical goods business and food segment joint ventures. Sequentially, sales, PBT and PAT were all up 11% q/q, 23% q/q and 29% q/q respectively. The q/q trend was mainly due to seasonality effects and as such is not surprising.
Compared with our estimates, sales missed by -6%; PBT and PAT also missed by -32% and -35% respectively. The numbers also track behind consensus PBT and PAT estimates of N7.2bn and N5.0bn. Despite the fact that CPO prices have declined -8.2% since end-December, we expect a more challenging H2 2015 for PZ as competition intensifies even more in the South and other headwinds mentioned above persist. As such, we expect consensus estimates to be revised downwards.
On our published estimates, PZ shares are trading on a 2015E P/E multiple of 21.6x for 7.6% EPS growth in 2016E. After shedding -33% in 2014, PZ shares have outperformed the NSE ASI ytd gaining 6.3% (ASI: -13.7%). We believe this recent appreciation is as a result of the market assuming the shares have sufficiently sold off, however, on the back of these numbers we expect a negative reaction from the market.
We rate the stock Underperform; our estimates are under review.
PZ Cussons Nigeria Q2 2015 results: actual vs. FBN Capital Research estimates (N millions)