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PZ CUSSONS NIGERIA PLC Q1'18/19 - New quarter, same story for HPC player

New quarter, same story for HPC player                                                                              

PZ Cussons released its Q1’18/19 financial statements showing a 14% y/y moderation in revenue to ₦15.9 billion (Vetiva estimate: ₦17.5 billion) and beginning the year with a ₦205 million loss after tax (Vetiva estimate: ₦1.0 billion PAT). Revenue for the quarter came in as the lowest Q1 performance in three years and 9% below our estimate amidst sustained difficult trading conditions according to the company. Though Management has alluded to the implementation of innovative marketing strategies to strengthen growth for the past three quarters, recent performances are yet to show any benefits from these plans. Whilst we understand that tighter disposable income has subdued sales in PZ’s Electricals segment, the tepid performance across home and personal care products is quite unimpressive given the stronger turnover trend observed across its competitors. We believe a mix of intense competition, slow response to market developments and seemingly weaker brand equity on its HPC products have contributed in reducing market share and limiting pricing power.                                                                              

We revise our FY’18/19 revenue estimate 10% lower to ₦75.1 billion (FY’17/18: ₦80.6 billion) as reduced product prices and a lower volume rollout weigh on the top line figure. Whilst we have left our gross margin estimate for the year unchanged, we revise our OPEX to sales ratio 200bps higher following the Q1’18/19 surprise. As such, we forecast a 22% y/y decline in operating profit for the year to ₦6.4 billion (Previous: ₦9.2 billion). Meanwhile, having revised our FX losses higher to ₦2.5 billion (₦2.0 billion), our FY’18/19 PAT forecast is revised sizably lower to ₦2.6 billion (Previous: ₦4.9 billion, FY’17/18: ₦1.9 billion). Following this, our 12-Month Target Price of PZ is revised lower to ₦20.15 (Previous: ₦23.79). Despite the unappealing earnings results for the financial year, the stock remains a BUY at the current market price of ₦12.55.                                                               

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.