EUR 53.02 For Business Accounts Only

PZ CUSSONS NIGERIA PLC - Weak Q4 slows FY'16 earnings

Amidst a highly challenging operating environment, PZ released FY’16 results (ended 31 May) showing a 5% y/y decline in revenue to ₦69.5 billion, largely in line with Vetiva’s ₦69.7 billion estimate. With topline depressed in all preceding quarters, the FY performance was sealed by a further slump in Q4, posting the lowest Q4 revenue figure in 6 years. Looking at the operating segments, Branded Consumer Goods (contributed 66% of revenue) recorded a fourth consecutive y/y revenue decline, down 2.5% amidst tepid consumer demand. Revenue in the White Goods (Electricals) segment fell 9% y/y, down from a 6% growth in 2015.With an over 80% exposure to imported raw materials, the persistent FX challenges continues to weigh on PZ’s cost as gross margin contracted 3 ppts to 25%, reflecting the impact of currency depreciation within the period. Whilst rising cost in the Electricals segment (fully imported) was immediately transferred to consumers, we believe management might have struggled to pass on higher costs in the Branded Consumer Goods segment amidst a highly competitive terrain. We are of the opinion that the moderation in margin must have been largely driven by more elastic demand in some of PZ’s product categories. Overall, net earnings recorded a third consecutive yearly decline, down 53% to ₦2.1 billion (Vetiva: ₦2.8 billion). On this result, the Board of Directors proposed a final dividend per share of 50 kobo (ahead of our 44 kobo estimate) – translating to a dividend payout ratio of 106%. Given this, we have revised our FY’17 revenue forecast to ₦73 billion (Previous: ₦70.4 billion). However, after revising our cost of sales (as % of sales) assumption upwards, our EPS forecast came to ₦0.61 (Previous: ₦0.82). Consequently, our 12-month target price is revised lower to ₦20.33 (Previous: ₦22.21).​