PZ Posted an FX-Related Loss of –N779m in Q2 while OPEX Grew by 23% YoY

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December 15, 2017/FBNQuest Research

Event:                       PZ Cussons Nigeria reports Q2 2018 (end-Nov) results

Implications:        Neutral to slightly positive reaction by the market likely

               Q2 sales up 42% y/y to N22.2bn; PBT and PAT both up 73% y/y and 110% y/y to N1.1bn and N628m respectively

Negatives:               PZ posted an fx-related loss of –N779m in Q2 while opex grew by 23% y/y 

Yesterday, PZ Cussons Nigeria (PZ) reported Q2 2018 (end-Nov) results. While sales of N22.2bn grew 42% y/y, PBT and PAT were up 73% y/y and 110% y/y to N1.1bn and N628m respectively. Gross margin expansion of +172bps y/y to 28.5% and the topline growth delivered during the period more than offset negatives coming through from a double-digit y/y rise in operating expenses and an fx-related loss of –N779m, leading to the PBT growth. 

Fx loss compares to a loss of –N1.8bn in Q1 2017 (end-Aug). Following the Q1 results, management had guided to more fx-related losses during this financial year on account of fx-denominated account payables. PZ has now delivered topline growth for 5 consecutive quarters since Q1 2017. This confirms our view that management may have found a winning formula for its product price-volume mix.

Sequentially, PBT of N1.1bn compares with a loss before tax of –N181m. Sales growth of 18% q/q and a relatively smaller fx loss in Q2 more than offset negatives from a gross margin contraction of -321bps q/q. Additionally, operating expenses grew by low single digits q/q. Compared with our estimates, sales beat by 19%, while PBT came in ahead by c.28%. 

The major drivers of the variance were a stronger-than-expected topline growth and a positive surprise on the fx-related loss line. On an annualised basis, H1 2018 sales and PBT are tracking well behind consensus FY 2018 estimates of N85.6bn and N9.7bn respectively. Hence, we expect downward revisions to these estimates. PZ shares have gained 55.2% ytd (vs 41.2% ytd for the ASI). 

We rate the stock Underperform. Our estimates are under review. 

PZ Cussons Nigeria Q2 2018 results vs. FBNQuest Research estimates (N millions)

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