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April 14, 2022/FSDH Research

Key Performance Highlights:

• PZ Cussons published its 3Q22 numbers on March 25, with robust operating performance and solid bottom-line results compared to the prior year. PZ Cussons recorded a strong 21.5% YoY revenue growth to N27.5 billion in 3Q22, as against N22.6 billion in 3Q21. The company outperformed last quarter’s performance, with the revenue up by 10.3% QoQ against 2Q21.
   
• The increase in revenue was offset by a 31.0% YoY increase in the cost of sales, resulting in a 572 bps contraction in gross margin to 21.6% in 3Q22. The Selling & Distribution expenses jumped 21.7% YoY to N2.9 billion in 3Q22, and the impairment of trade receivables grew substantially by 177.6% to N101 million in 3Q22 as against N36 million in 3Q21. This increase in the operating expenses was offset by a 14.6% YoY drop in Administrative Expenses to N1.6 billion in 3Q22 and a 49.5% YoY decline in Exchange Loss to N883 million in 3Q22. This resulted in a massive 171.7% YoY growth in operating profit to N496 million.
   
• Other income jumped 891.9% YoY to N2.6 billion in 3Q22 compared to N261 million in 3Q21. Other income rose primarily due to a massive increase in the Net Profit realised from the Disposal and impairment of fixed assets.
   
• The net interest income soared 591.7% YoY to N229 million in 3Q22 compared to N33 million in the prior-year period, due to a massive 437.8% YoY increase in the Interest income, which was further buoyed by a 33.8% YoY decrease in the interest costs. Thus, strong revenue growth and a sharp increase in other income propelled profit after tax up by a whopping 1468.1% YoY to N3.1 billion in 3Q22 from N196 million a year back. The net income margin increased a whopping 1031 bps YoY to 11.2% in 3Q22. The profits also grew handsomely compared to the 2Q21 results (+31.0% QoQ), owing to higher other income in 3Q22. The EPS was reported at N77.00/share in 3Q22 against N36.00/share in 3Q21, a 113.9% YoY increase.
   
• In H1 FY22, the company recorded revenue from joint venture PZ Wilmar of N2.2 billion as compared to N1.2 billion in H1 FY21. The gross profit margin of PZ Wilmar improved by 70 bps YoY in H1 FY22. PZ Wilmar improved its profitability versus the prior year primarily due to expanded distribution and successful pricing activity. The Ukraine-Russia war has caused a shortage of other edible oils such as soybean oil, corn oil, and sunflower oil, creating a demand for palm oil. This has led to higher prices in the market, which have helped PZ Cussons counter inflation. The increased international demand coupled with Nigeria’s existing US$500 million palm oil deficit bodes well for the Nigerian palm oil producers.
   
• PZ Cussons announced on March 21 that the company had acquired the entire issued share capital of Childs Farm. PZ Cussons now holds a c.92% interest in Childs Farm for a total consideration of £36.8 million, with an agreed path to full ownership by the end of May 2025. The consideration will be fully funded by cash from existing facilities, reflecting the Group’s strong financial position.

Market Reaction: Investor reaction to 3Q22 results was overwhelming as the PZ Cussons stock closed 6.9% higher at N9.30 on the day of results (25/3). The stock further spurted 20.4% over the next two days to close at N11.20 on March 29, 2022. The PZ Cussons stock has remained at elevated levels since then. On 13/4, the stock closed 3.00% down at N9.70 versus a 0.34% gain for the All-Share Index.

PZ Cussons Earnings Highlight 3Q22

Source: Company data, FSDH
Note: PZ Cussons’ financial year started on June 1, 2021, and will end on May 31, 2022