Culled—Proshare
October 3, 2017/FBNQuest Research
Event: PZ Cussons Nigeria reports Q1 2018 (end-August) results
Implications: Negative reaction by the market likely
Positives: Sales up 12.8% y/y
Negatives: Pre and post-tax losses of N181m and N61m respectively driven by fx loss of –N1.8bn
PZ Cussons Nigeria (PZ) reported Q1 2018 (end-Aug) results this morning. While sales of N18.9bn grew 12.8% y/y, the bottom line showed losses of –N181m and –N61m on the PBT and PAT lines respectively. PZ has now delivered topline growth for 4 consecutive quarters since Q1 2017. This suggests that management may have found a winning formula for its price-volume mix.
However, gross margin contraction of -281bps y/y to 31.7% comes as a surprise given that the last time there was a contraction in gross margins was in Q4 2016. We shall seek further clarification from management. Further down the P&L, although opex was 15.9% higher y/y, it was the foreign exchange loss of –N1.8bn during the quarter that impacted the bottomline more, albeit, 61.8% lower than the -4.7bn loss declared in prior year. As such, the pre- and post-tax losses were significantly lower y/y.
Sequentially, sales fell by -15.9% q/q while gross margin contracted by -710bps q/q. Opex rose by 12.8% q/q while other operating income declined by -37.9% q/q. Both bottom line losses compare with PBT and PAT of N2.5bn and N1.8bn in Q4 2017. Compared with our estimates, sales are in line but we had expected underlying PBT and PAT of N2.7bn and N1.7bn respectively. The annualised Q1 2018 sales are -11.4% behind consensus FY 2018 sales estimate. PZ shares have gained 79.3% ytd (vs 31.9% ytd for the ASI). We expect the stock to shed some these gains on the back of these results.
We rate the stock Neutral. Our estimates are under review.
PZ Cussons Nigeria Q1 2018 results vs. FBNQuest Research estimates (N millions)
| Q1 2018 (end-Aug) | ||||||
| Actual | Y/y | Q/q | FBNQuest est. | Act. vs FBQuest est (%) | ||
| Sales | 18,899 | 12.8% | -15.9% | 18,763 | 0.7% | |
| Cost of sales | -12,907 | 17.6% | -6.2% | -12,384 | 4.2% | |
| Gross profit | 5,992 | 3.6% | -31.3% | 6,379 | -6.1% | |
| – Gross margin | 31.7% | -281bps | -710bps | 34.0% | -229bps | |
| Opex | -4,139 | 15.9% | 12.8% | -3,771 | 9.7% | |
| Other operating income | 32 | -45.8% | -37.9% | 50 | -36.1% | |
| Net interest expense | -273 | n/a | n/a | 49 | n/a | |
| Foreign exchange gain/(loss) | -1,794 | -61.8% | -33.4% | 0 | n/a | |
| PBT | -181 | -92.6% | n/a | 2,706 | n/a | |
| – PBT margin | -1.0% | 1355bps | -1188bps | 14.4% | -1538bps | |
| Tax | 58 | -93.1% | n/a | -812 | n/a | |
| -Tax rate | 32.0% | -277bps | 4710bps | 30.0% | 200bps | |
| PAT | -123 | -92.2% | – n/a | 1,895 | n/a | |
| – PAT margin | -0.7% | 881bps | -993bps | 10.1% | -1075bps | |
| Minority interest | 62 | -58.7% | -125.5% | -237 | n/a | |
| PAT ex -MI | -61 | -95.7% | n/a | 1,658 | n/a | |
Source: NSE, FBNQuest Research estimates
