PZ Cussons Nigeria Plc FQ1 18 - Cost pressures inform downward earnings review
- PZ Cussons Nigeria Plc (PZ) reported its first quarter 2018 result (FQ1 2018), posting pre-tax and post-tax losses of N181 million and N123 million respectively. Despite an increase in revenue (13% YoY) mainly due to higher prices, input cost pressure and foreign exchange loss (net short FCY position from trade payables) clouded the strong top-line story to batter earnings.
- For the rest of the year, we have revised our input cost higher to N6 billion (previously N55 billion) to reflect higher petrochemical prices. Consequently, we expect a contraction in gross margin to 32% (-3pps YoY). Similarly, we have revised PZ’s operating costs higher to N17 billion (+16% YoY) in line with FQ 18 performance to leave EBIT 24% lower YoY at N10.2 billion. In addition, we forecast finance expense at N1.1 billion (+3.8x YoY) to reflect the company’s elevated level of borrowing relative to prior year. Thus, our revised EPS of N1.04 (previously N1.83) is now 24% higher YoY. In view of the foregoing, we lower our rating from BUY to SELL with our fair value estimate (FVE) at N22.16 (vs N28.81 previously).
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ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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