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PZ CUSSONS NIGERIA PLC Q1'17/18 - FY’18 begins with a loss as FX overhang persists

FY’18 begins with a loss as FX overhang persists                                                                              

After recording a modest revenue growth in FY’17, PZ maintained the positive sales momentum in the first quarter of its FY’18 financial year as topline rose 13% y/y to ₦18.9 billion, 7% above Vetiva estimate of ₦17.7 billion. Despite the impressive topline figures, PZ’s bottom line slipped back into negative after recording impressive performances in the two prior quarters. In line with our conservative estimate, gross margin in the quarter contracted to 32% (Q1’16/17: 35%) retreating from the 39% recorded in the previous quarter.Overall, PZ recorded a loss after tax of ₦123 million for Q1’17/18, compared to our ₦958 million profit estimate but much better than the ₦1.6 billion loss recorded in the corresponding period of the previous year.                                                                        

With PZ’s parent company also stating plans to implement initiatives through the year to cement the robust topline performance – through distribution expansions and new product launches – we remain optimistic on PZ’s revenue growth for the rest of FY’17/18, particularly in the peak selling season in H2’17/18. Consequently, we revise our FY’17/18 revenue estimate higher to ₦87 billion (Previous: ₦84 billion). However, the FX losses remain a dire concern for bottom line performance given that PZ still has about ₦20 billion in Trade payables – a portion of which is presumed to be dollar denominated. Coupled with an upward revision to interest expense estimate, we revise our FY’17/18 EPS to ₦0.82 (Previous: ₦1.03). Also, we revise our Target Price downwards to ₦20.97 (Previous: ₦22.65).                                                                   

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.