October 18, 2022/CSL Research

PZ Cussons set off the 2023 financial year with a decent 23.4% y/y growth in Revenue to N27.39bn in Q1 2023 from N22.20bn in Q1 2022. In the same vein, Revenue grew 9.7% q/q to N27.39bn in Q1 2023 from N24.96bn in Q4 2022. There was no additional information on the breakdown of Revenue between the Home and Personal Care (HPC) and Durable Electrical Appliances (DEA) segments.  Also, there was no disclosure with regards to any increment in prices in the period under review particularly for the Home and Personal Care Products, however, we believe Revenue growth was driven by a mix of volume and base effect of earlier price increment.

Cost of Sales (adjusted for depreciation) outpaced the growth (23.4% y/y) in Revenue, up 30.9% to N21.02bn from N16.05bn in Q1 2022. The faster growth in Q1 2023 could be attributed to the prevailing impact of the Naira devaluation amid global inflationary pressures as the company imports all the electrical appliances sold by the DEA segment while also relying on imported raw materials for the HPC segment. Consequently, Gross Profit climbed slower, rising by 3.6% y/y while Gross Margin shed 4.4ppts to 23.3% in Q1 2023 from 27.7% in Q1 2022.

The company’s Operating Expenses remained largely under control as Administrative Expenses (adjusted for depreciation) declined by 4.2% to N1.61bn in Q1 2023 from N1.68bn in Q1 2022.  Selling and Distribution Expenses (adjusted for depreciation) increased slightly by 6.2% (well below the prevailing double-digit inflation rate) to N2.43bn in Q1 2023 from N2.29bn in Q1 2022. Consequently, OPEX Margin declined by 3.0ppt to 15% in Q1 2023 from 17.9% in Q1 2022.

The higher growth in Cost of Sales weighed on EBITDA as it grew slightly by 4.9% to N2.27bn in Q1 2023 from N2.17bn in Q1 2022. Hence, EBITDA Margin contracted by 1.5ppts to 8.3% in Q1 2023 from 9.8% in Q1 2022. However, given a 16.5% y/y decline in Depreciation & Amortisation, Operating profit grew by 14.3% y/y to N1.72bn in Q1 2023 from N1.51bn in Q1 2022. 

The company recorded a 560% increase in Interest Income, but this was outpaced by a jump in Interest Expense to N1.44bn in Q1 2023 from N14,000.00 in Q1 2022 while Net Loss on Foreign Exchange transactions moderated by 21.4% to N0.99m in Q1 2023 from N1.26bn in Q1 2022. There was no additional disclosure on the N1.44bn Interest Expense as the N17.03bn (US$40m) loan is an interest free facility from the parent company. Consequently, Profit Before Tax jumped by 262.5% to N1.44bn in Q1 2023 from N398m in Q1 2022. 

Effective Tax Rate reduced by 32.3ppts to 9.7% in Q1 2023 from 42% in Q1 2022 which further enhanced a 464.1% y/y growth in Net Profit to N1.3bn in Q1 2023 from NN231m in Q1 2022. EPS was also up by 464.1% y/y to N0.31/s in Q1 2023.

Our estimates are under review. Current Price: N9.20

PZ Cussons Nigeria Q1 2023 (Nm)

Source: Company, CSL Research