August 31, 2018/Cordros Report
Update: Today, PZ released Q4-18 and 2018FY results, with the Board proposing NGN0.15/share dividend on 2018FY net profit of NGN1.93 billion (-48% vs. 2017FY; Cordros estimate: -44%).
Q4-18 rounds off a disappointing year: In the three months to May 2018, reported net profit was lower by 67% y/y and 8.5% q/q. A disappointing revenue performance (-23% y/y and -22% q/q) and FX loss of NGN2.1 billion (highest in all quarters of the year), offset the only positive we saw in the result –slightly better (normalized) gross margin vs. Q3-18, but lower vs. Q4-17.
Concern for 2019E: Although management had given guidance to a challenging H2-18 through a profit warning in March this year, the Q4-18 revenue raises concern about the performance of the crucial Branded Consumer Goods segment (73% of total revenue), and leaves much to worry about 2019E. For context, the NGN17.3 billion revenue reported in the three months period – which has historically contributed the most to the company’s revenue, after Q3 – is the lowest in seven quarters.
On normalized basis, gross margin only grew by a marginal 23bps q/q. Overall, however, with 23.7% in 2018FY, gross margin has now declined for the third year in a row, and recovery prospect is not promising, amidst subdued selling price outlook and still-high inflation.
The stock closed flat today: PZ’s stock – closed flat at NGN15.00/share – is yet to reflect the latest result, given the result was released close to the end of trading. That said, it is likely the stock will trade flat through most of next week, (1) as we believe the results have been largely factored in (the stock was flat for over a week after the disappointing Q3-18 result) and (2) given 36% (vs. NSEASI’s -16%) of its value has been lost since the Q3-18 result was published.
Estimates under review: We rated the stock SELL as at our last update in March, given 34% downside on our NGN15.13 TP. The stock is currently trading around our TP. Our estimates are under review.
| Income Statement (N’bn) | 2018FY | 2017FY | y/y | y/y1 | May’18 | Feb’18 | Nov’17 | Aug’17 |
| Revenue | 80.55 | 78.22 | 3.0% | 1.2% | 17.29 | 22.14 | 22.22 | 18.90 |
| Cost of sales | -56.10 | -50.27 | 11.6% | 8.5% | -11.07 | -16.23 | -15.89 | -12.91 |
| Gross profit | 24.46 | 27.95 | -12.5% | -12.5% | 6.22 | 5.91 | 6.33 | 5.99 |
| Operating expenses | -16.23 | -14.73 | 10.1% | 10.1% | -3.72 | -4.06 | -4.31 | -4.14 |
| Other income | 0.13 | 0.20 | -35.2% | -35.2% | 0.05 | 0.02 | 0.03 | 0.03 |
| Net finance cost | -6.04 | -8.60 | -29.8% | -29.8% | -2.20 | -0.77 | -1.01 | -2.07 |
| Profit before tax | 2.31 | 4.81 | -51.9% | -51.9% | 0.35 | 1.10 | 1.05 | -0.18 |
| Taxation | -0.39 | -1.12 | -65.6% | -65.6% | 0.24 | -0.35 | -0.34 | 0.06 |
| Profit after tax | 1.93 | 3.69 | -47.7% | -47.7% | 0.59 | 0.75 | 0.71 | -0.12 |
| Ratio | 2018FY | 2017FY |
|
| May’18 | Feb’18 | Nov’17 | Aug’17 |
| Gross margin | 30.36% | 35.73% | 35.97% | 26.70% | 28.50% | 31.71% | ||
| Normalized gross margin | 23.67% | 24.48% | 23.74% | 23.51% | 24.99% | 22.22% | ||
| OPEX margin | 20.15% | 18.84% | 21.52% | 18.34% | 19.38% | 21.90% | ||
| Cost of sales margin | 69.64% | 64.27% | 64.03% | 73.30% | 71.50% | 68.29% | ||
| Normalized COS margin | 76.33% | 75.52% | 76.26% | 76.49% | 75.01% | 77.78% | ||
| EBIT margin | 10.21% | 16.90% | 14.44% | 8.36% | 9.12% | 9.81% | ||
| Normalized EBIT margin | 3.52% | 5.65% | 2.22% | 5.17% | 5.61% | 0.32% | ||
| PBT margin | 2.87% | 6.15% | 2.01% | 4.96% | 4.72% | -0.96% | ||
| PAT margin | 2.39% | 4.71% |
|
| 3.41% | 3.38% | 3.21% | -0.65% |
NB: y/y1 – Restated numbers.
