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PZ CUSSONS NIGERIA PLC FY'18 - FX Losses To Moderate In FY’19

FX losses to moderate in FY’19                                                                                 

PZ Cussons Plc (PZ) recently released its FY’18 financial results (for the period ended 31 May 2018) showing a modest 3% y/y revenue growth to ₦80.6 billion, while profit after tax recorded a disappointing 48% y/y decline to ₦1.9 billion (Vetiva: ₦2.2 billion), its lowest level in recent history. Revenue for the year came in 5% below our estimate following disappointing figures in the typically stronger Q4 period. Notably, Q4’18 revenue came in 23% lower y/y and at the lowest level since 2007 at ₦17.3 billion. According to management, the peak-season flop was due to sustained weakness in consumer sentiment across most of its categories. Looking at the major business segments, Electricals recorded a third consecutive year of revenue decline, down 6% y/y amidst reduced consumer spend. Meanwhile, PZ’s Branded Consumer Products segment recorded a 6% y/y revenue growth, supported by new product launches and growth in Morning Fresh.                                                                   

Though PZ’s Q4 revenue performance is quite discouraging, we forecast a modest 4% y/y revenue growth in FY’19 with most of the improvement happening in the latter part of PZ’s financial year, amidst expected increase in spending during the election period. We however forecast a significant rise in FY’19 bottom line to ₦4.9 billion (Previous: ₦4.8 billion) driven by a sizable reduction in foreign exchange losses to FY’19E: ₦2.0 billion (FY’18: ₦5.4 billion). Overall, we forecast a modest improvement in FY’19 EBIT margin to 11.0% (FY’18: 10.4%). All in all, our 12-Month Target Price for PZ is revised lower to ₦23.79 (Previous: ₦24.37), BUY.