EUR 53.02 For Business Accounts Only

PZ CUSSONS NIGERIA PLC Q1'17 - Starts FY’17 with a ₦1.6 billion loss

• Succumbing to the foreign exchange challenge facing most manufacturing companies in Nigeria, PZ Cussons Nigeria PLC recorded a ₦1.6 billion loss after tax in its recently released Q1’17 financial results. Though helped by an ₦845 million tax credit, this loss was mostly driven by a whopping ₦4.7 billion foreign exchange loss that we presume was a result of PZ’s dollar denominated payables – noting that the “Trade and Other payables” balance rose to ₦33.9 billion compared to ₦25.7 billion as at FY’16. FX related challenges remain a major risk to earnings given the sustained weakness in the naira in the official market. Also, as demand continues to trump dollar supply in the official market we believe PZ Nigeria could again resort to fulfilling its FX needs from the parallel market (currently trading at a 54% premium) as it did in the previous year.
• Although annualizing the Q1’17 revenue figure puts FY’17 topline below our current revenue estimate (₦67 billion vs ₦73 billion), we note that Q1 historically has the lowest contribution to FY figure (c.21%) and also we see possibility of further price increases this year as the company moves to further protect margins. However, given our assumption of a further depreciation in the currency by FY’17, we expect the FX loss will grow to c.₦5.6 billion, therefore our EPS forecast is revised downwards to N0.02 (Previous: ₦0.61). Consequently, our 12-month target price is revised lower to N14.26 (Previous: N20.33).
• PZ Cussons Nigeria PLC is amongst Nigeria’s top three HPC companies with the Nigerian business representing parent company, PZ Cussons PLC’s largest market. The company’s sales span two main business segments – Consumer Branded Goods (home & personal care (HPC)) and Durable Electronic Appliances (White Goods). PZ also distributes the products of Nutricima Limited, Harefield Industrial Nigeria Limited and PZWilmar Limited.