PZ Cussons Nigeria Plc FY 2017 – Impressive End to FY’17, EPS Up 73% YoY


September 8, 2017/Vetiva Research

·         FY’17 revenue beats estimates, up 15% y/y

·         Strong margin improvement cushions huge FX loss

·         FY’17 PAT up 73% y/y to ₦3.7 billion, above Consensus ₦2.8 billion

Better than expected Q4 drives revenue beat
PZ released FY’17 results (year ended 31 May) posting a 15% y/y revenue growth to ₦79.6 billion vs. Vetiva’s ₦78.3 billion estimate. Whilst we had expected revenue in the seasonally slower Q4 to decline 11% q/q, the income line came in only 6% lower in the quarter. Looking at the operating segments, growth was solely driven by the Home and Personal Care segment (up 22% y/y) as the Electronics segment continued to bear the brunt of the pressured consumer wallets.

Aside from the price increase impact, growth in the HPC segment was also supported by volume expansion amidst new product offerings (such as Tempo detergent powder) and other initiatives (like adapting product sizes and packaging) undertaken to effectively win in the highly competitive terrain.

Strong margin improvement offsets 8.8 billion FX loss
Whilst we had expected the relatively improved foreign exchange market to cap FX losses in the last quarter of the year, PZ recorded another ₦2.7 billion FX loss on dollar denominated trade payables in Q4’17, bringing total FX loss to ₦8.8 billion for FY’17 (FY’16: ₦2.9 billion, Vetiva: ₦6.1 billion).

The impact was however cushioned by sustained improvement in production and operating costs through the year amidst significant operational restructuring to optimize supply chain and routes to market. FY’17 EBIT margin rose 761bps y/y to 16.8% (Vetiva: 14.7%).

With this, PZ recorded its first bottom line growth in four years as PAT rose 73% y/y to ₦3.7 billion, slightly below Vetiva’s ₦3.8 billion estimate. Overall, the Board of Directors declared a dividend per share of ₦0.50 (below our ₦0.65/share estimate) – translating to a 60% dividend payout ratio.

FY’18 EPS, Target Price revised upwards – SELL rating maintained
We are more optimistic about PZ’s performance going forward given its ability to grow revenue in spite of tepid consumer demand. Also we note the margin expansion recorded in the past two years despite the high operating cost environment.

Particularly, we revise our FY’18 revenue estimate higher to ₦84.0 billion (Previous: ₦82.2 billion). Whilst we have reviewed our cost estimates downwards, we are more cautious around FX losses.

As such, our FY’18 EPS is little changed at ₦1.03 (Previous: ₦1.01). Overall, we revise our Target Price upwards to ₦22.65 (Previous: ₦21.40).