Culled—Proshare

August 30, 2019/CSL Research

PZ reported a 7.7% y/y decline in Revenue for FY 2019 to N74.3bn from N80.6bn for FY 2018. On a q/q basis, Revenue declined 3.8% to N19.3bn in Q4 2019 from N20.0bn in Q3 2019. Reported Revenue of N74.3bn in FY 2019 missed our 2019 estimates of N76.9bn. Significant weakness in Home and Personal Care segment (down 19.3% y/y) weighed on Revenue eroding the recovery in Electricals business (up 23.0% y/y). The company continues to wrangle with increasing competition from cheaper unbranded products as well as products from unrecognized smaller players which continues to exert pressure on HPC business.

Cost of Sales (adjusted for depreciation) climbed 2.1% y/y to N55.3bn in FY 2019 from N54.2bn in FY 2018 while declining 9.1% q/q to N14.3bn in Q4 2019. Consequently, Gross Profit declined by 27.9% y/y to N19.0bn for FY 2019 from N26.3bn in FY 2018. Gross margin dipped significantly, down 7.2ppts y/y to 25.6% for FY 2019 from 32.7% in FY 2018.

Along Operating Cost line items, Administrative Expenses (adjusted for depreciation) recorded a significant decline of 39.0% y/y to N3.9bn for FY 2019 from N6.4bn in FY 2018. However, Selling & Distribution Expenses climbed 12.1% y/y to N10.2bn for FY 2019 in the face of an intense competitive environment. Overall, Operating expenses (excluding depreciation) declined 9.0% y/y to N14.1bn in FY 2019 from N15.5bn in FY 2018. Despite this, EBITDA slumped 54.8% y/y to N4.9bn for FY 2019 from N10.9bn in FY 2018, while EBITDA margin dipped 6.9ppts to 6.6% for FY 2019 from 13.5% in FY 2018. Depreciation and Amortisation recorded a marginal decline of 0.5% y/y to N2.7bn. Nevertheless, Operating Profit for FY 2019 plunged 72.4% y/y to N2.3bn.

In what serves as a major positive, Foreign exchange loss declined significantly by 91.8% y/y to N444.3m for FY 2019 from N5.4bn recorded in FY 2018. Furthermore, Net Finance cost declined significantly by 98.6% y/y to N9.0m for FY 2019 from N651.7m FY 2018.

Profit Before Tax thus benefitted from the decline in Finance Cost and FX loss, declining 16.0% y/y (compared to a 72.4% decline in operating profit) to N1.9bn for FY 2019 from N2.3bn for FY 2018 while Net Income declined 40.0% y/y to N1.2bn for FY 2019 from N1.9bn for FY 2018 due to significant climb in Tax Expense (up 103.6% y/y). Earnings per share (EPS) was down to N0.25/s for FY 2019 from N0.46/s for FY 2018. The company declared a dividend of N0.15/s implying a dividend yield of 2.5%.

We have a HOLD recommendation on the stock with a target price of N14.90. Our numbers are currently being reviewed for the FY 2019 numbers. Current Price – N5.90/s