Category Archives: COMPANIES

Seplat Q2 2018 results: first reaction

Event: Seplat Petroleum Development Company (Seplat) reports Q2 2018 results

Implications: Seplat’s Q2 numbers continued the y/y improvement following the resumption of exports via third-party operated TransForcados System (TFS). While sales of US$162m grew 53% y/y, PBT of US$63m compares with a loss before tax of –US$39m in Q2 2017. Additionally, an annualised basis, H1 PBT of US$121m is currently tracking ahead of consensus forecast of US$221m. However, sales were down -10% q/q due to a higher production downtime of c.24% compared with a management estimate of 15% for the quarter. PBT was up +6% q/q only because of other income (up +269% q/q to US$18m) which more than offset the subdued topline and a 77% q/q rise in opex. Therefore, we expect a neutral reaction from the market as the q/q trend and surprising production downtime is likely to offset the strong y/y trend.

Positives: Q2 sales up 53% y/y to US$162m while Q2 PBT of US$63m compares with a loss before tax of -US$39m in Q2 2017. Realised oil and gas prices were up 54% y/y and 2% y/y to US$69.1/barrel and US$3.04MMscf/d respectively. On the Q2 conference call, management stated that the firm has received a confirmation of approval from the Department of Petroleum Resources for the renewal of licenses on OMLs 4, 38 and 41 for a period of 20 years, subject to a final consent from the minister of petroleum resources.

Negatives: Further delays in the completion of the key Amukpe-Escravos export alternative route. Management now expects the export pipeline to be completed in Q4 2018. Also, Q2 sales and PBT both came in behind our US$205m and US$80m estimates. The variance was driven primarily by a production downtime of 24% which surprised negatively.

Year to date, Seplat shares are flattish outperforming the broad index by 4.2%. We rate the stock Outperforming.

Our estimates are under review.

Seplat Q2 2018 results: actual vs. FBNQuest Capital Research estimates (US$ millions)

Presco Q2 2018 results: first reaction

Event: Presco reports Q2 2018 results

Implications: Slightly negative-to-Neutral reaction by market expected. Although Q2 numbers did not impress, Presco shares have declined by -21% over the last one month, underperforming the broad index by around -17%. As such, we do not expect a significant sell-off following the Q2 earnings release. Additionally, on an annualised basis, H1 PBT currently tracks ahead of consensus’. Compared with our estimates, while sales were behind by -25%, PBT was in line with our N2.6bn forecast.

Positives: Gross margin expanded +459bp y/y to 74.6% while operating expenses declined by -21% y/y to –N1.4bn.

Negatives: All key line items declined both on a y/y and q/q basis. The topline decline was likely driven by weaker volume sales due to increasing palm oil imports. Presco posted an effective tax rate of 39.1% in Q2 vs. 35% in the corresponding quarter of 2017. We await management comments on these lines.

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

Presco Q2 2018 results: actual vs. FBNQuest Capital Research estimates (N millions)

Knorr Taste Quest Season 5 – Battle of Flavours

Knorr Taste Quest Season 5 - Battle of Flavours

Knorr Taste Quest Season 5 – Battle of Flavours

Knorr Taste Quest Season 5 is back for its 5th Anniversary edition! 2018 Registration Now Open. This year, it’s the Battle of Flavours! KTQ is a cooking show sponsored by Unilever Nigeria.

Hey Foodie!
Do you have a passion for cooking?
Do people come back for more after tasting your meals?
Do you dream of becoming a Top Chef?

Then it’s time to test those cooking skills in the fifth anniversary of Knorr Taste Quest and battle for a chance to win N5 million cash and a brand new Chevrolet car.

Knorr Taste Quest is a TV reality show sponsored by Unilever Nigeria. It is created to give food lovers an opportunity to express and showcase their culinary skills to the world. It is the Number One Cooking Show in Nigeria during which a duo of Celebrity Chefs give various tasks to the contestants to test their cooking prowess and creativity.

HP Pavilion 24-G014 23.8-Inch Intel Core i3

  1. You must be Twenty One (21) years of age or older;
  2. You must be a Nigerian Citizen residing in Nigeria;
  3. You must be in good health and able to withstand the physical and mental rigour of participating on the Program.
  4. You cannot currently work nor have ever worked as a professional chef.
  5. All Knorr Taste Quest participants must be amateurs and you cannot have earned money from preparing food and/or cooking fresh food in a professional kitchen environment (i.e. restaurant, café, take-away, etc.) for more than six (6) weeks at a time in the last fifteen (15) years;
  6. Answer all questions honestly and to the best of your ability. Do not leave any questions unanswered.

Submission of an application form and compliance with the above does not in any way constitute an offer to appear on the program. The producers may (but may not) invite you to attend an interview at their discretion
Read the full terms and conditions.

Click here to register.

 

Computer Dealers in Lagos

FBNQuest Capital Unilever Nigeria Q4 2017 results review: Rating downgrade due to cuts to our forecasts

FBNQuest Capital Unilever Nigeria Q4 2017 results review: Rating downgrade due to cuts to our forecasts

Rating downgrade due to cuts to our forecasts

· PT and earnings cut; downgrading to Underperform: Unilever’s Q4 2017 results came in behind our forecasts. Consequently, we have cut our EPS estimates over the 2018-19E period by 15% on average. Management guided that the funds raised (N58.9bn) from its recently concluded right issue will be channeled towards the repayment of intercompany loans, working capital support and expansion plans. However, no additional information was provided regarding the exact figures/proportions as to the use of proceeds. On the back of the cuts to our earnings forecasts, we have reduced our price target by 6% to N39.8. Unilever shares are trading on a 2018E P/E of 25.4x for 2019E EPS growth of 19% y/y. This year, Unilever’s shares have returned 26.8% and outperformed the broad index by 19.8%. From current levels, our price target implies a downside potential of -23.5%. As such, we are downgrading the stock to Underperform from Neutral.

· Q4 2017 PBT and PAT up significantly: Q4 2017 results showed growth on major key P&L items. Sales of N21.6bn grew by 9% y/y while PBT and PAT advanced by 69% y/y and 74% y/y to N4.4bn and N2.6bn respectively. The stronger y/y growth seen on the bottom line was driven by a +659bp y/y gross margin expansion to 35% and net finance income of N610m versus a net finance charge of –N98m in the corresponding quarter of 2016. These positives were strong enough to offset a 23% y/y increase in operating expenses. PAT grew faster (relative to PBT) due to a lower tax rate of 40% versus 42% in Q4 2016.

· Outlook: cautiously optimistic: Unilever has shown consistent signs of recovery over the last few quarters in terms of topline growth, gross margin expansion and softer finance charges – thanks to the influx of cash from the rights issue and the pick-up in the economy. To support its operating margins, the company recently announced its intention to source 100% of its packaging materials locally by 2019 and has begun engaging local farmers to reduce importation. For FY 2018, we see sales and PBT growing by 17% y/y and 48% y/y respectively. Nonetheless, we continue to believe that the major risk the company faces is increased competition arising from importers who were crowded out when FX was not readily accessible and rates were not favorable.

FBNQuest Capital Dangote Sugar Refinery Q4 2017 results review: Lower input costs to drive earnings in 2018

FBNQuest Capital Dangote Sugar Refinery Q4 2017 results review: Lower input costs to drive earnings in 2018

Lower input costs to drive earnings in 2018

· Neutral rating maintained: Dangote Sugar Refinery’s (DSR) Q4 2017 earnings of N13.3bn were up 210% y/y and well ahead of our estimate.

Looking ahead, we have retained our capacity utilisation forecast of 55% for the Lagos Refinery because we are more assured of relatively improved gas supply through 2018 and better evacuation on completion of road works at Apapa. On the Q4 2017 conference call, management guided to a gas-to-LPFO ratio of 90:10 for 2018E compared with 50:50 in 2017.

We believe this target is achievable in the event that the calmness in the Niger Delta is maintained. For 2018, we do not expect a significant cut in prices even though relatively low finished sugar prices in Q4 have helped DSR recover lost market share gradually and raw sugar (a key raw material) prices have declined by c.30% to US$270/tonne over the last year.

We forecast an average price of N14,500/50kg bag, down -7% y/y. We believe funding requirements for backward integration projects would be prioritised in decisions going forward.

Within the next five years, management expects to locally produce 1 million tonnes of sugar annually from projects in Adamawa, Taraba and Nassarawa States. According to management, project funding is now expected to exclude any form of additional equity capital.

We have raised our EPS forecast over the 2018-19 period by 21% on average, largely on the back of our expectations of stable pricing and an 18% y/y growth is sales volume to 773,170 tonnes. However, we anticipate a persistent rise in operating expenses over the next three years as land cultivation progresses.

Our new price target of N24.0 is up 26% and implies an upside potential of 8% from current levels. We retain our Neutral rating on the stock. At current levels, DSR shares are trading on a 2018 P/E multiple of 5.2x for an EPS decline of -6% over the next two years. Ytd, DSR shares are up +11.3% compared with the broad market’s gain of +7.0%.

· Marked improvement in profitability, driven by GM expansion: In Q4 2017, while sales declined -24% y/y to N41.4bn, both PBT and PAT grew significantly. PBT was up 234% y/y to N14.3bn and PAT grew 210% y/y to N13.3bn.

A gross margin expansion of 1,566bps y/y to 23.0% and a significant rise in net finance charges completely offset the topline decline to lead to the PBT growth. Net finance charges were boosted by fx-related gains of N3.9bn during the quarter.

Sequentially, while sales fell -7% q/q, PBT and PAT were both up 3% q/q and 41% q/q respectively. DSR proposed a final dividend of N1.25 (interim of 50 kobo paid earlier) vs. our N1.1 forecast. This implies a total dividend yield of c.8% and a 53% payout ratio.

Consumer stocks such as Unilever(-8.03%) and Guinness(-0.96 %) also closed lower.

The equities market started the week on a bearish note as a combination of weak full year earnings and increased risk aversion fueled weakness across the board. Cement stocks were a major drag – investors sold off Wapco(-7.24%) in disappointment at its recently released weaker-than-expected fy 17 results. Weak demand in Dangcem(-1.14%) allowed light offer easily depress prices. The banks were subdued – Zenith(-1.47%), Guaranty(-1.36%) and UBA(-0.42%) dropped on weak demand. Consumer stocks such as Unilever(-8.03%) and Guinness(-0.96 %) also closed lower. Glaxo was today’s sole notable gainer, appreciating +3.45% on speculative demand following last week’s profit taking.

Market activities was light for most part of today’s session, albeit a 20mn cross in NB ($6.9m) by foreign investors helped buoy turnover to N4.9b ($13.7m). Today’s -1.01% loss cut ytd return to +5.72%, we expect the market to find support in coming sessions on bargain hunting and dividend re-investment

FBNQuest Capital Lafarge Africa Q4 2017: first reaction

Event: Lafarge Africa reports Q4 2017 results

Implications: Downward revision to consensus 2018E PBT forecasts likely; shares expected to sell-off

Positives: Sales up 29% y/y

Negatives: Lafarge reported a pretax loss of –N35.1bn, driven by a negative gross margin of -9.5% and a spike in opex

Lafarge Africa’s (Lafarge) Q4 2017 results which were published over the weekend showed that the company reported a pre-tax loss of -N35.1bn compared with a PBT of N17.5bn in Q4 2016. Excluding the topline which grew by 29% y/y, the results were weak across the P&L. The weak earnings were mainly driven by a negative gross margin of -9.5% in Q4 (vs.38.4% Q4 2016) and a 63% y/y spike in opex. The notes to the accounts show that that company took an impairment loss of N19.2bn on fixed assets in 2017 (we suspect this explains the negative gross margin). Further down the P&L, the after-tax loss narrowed to –N29.4bn (vs. +N43.2bn Q4 2016), thanks to a positive result of N6.1bn in other comprehensive income. Sequentially,  sales grew by 10% q/q. However, the pre-tax and after-tax losses compare with losses of -N17.1bn and –N21.2bn that the company reported in Q3 2017. Compared with our forecasts, sales were only slightly ahead of our N73.8bn forecast. However, earnings missed our PBT and PAT forecasts of N5.2bn and N5.0bn respectively, because of negative surprises in gross margin, opex and net interest expense. The shortfall in earnings was greater compared with the N12.5bn Q4 PBT implied by consensus 2017 PBT forecast of N13.6bn.

On a full year basis, sales grew by 36% y/y. However, the pre-tax loss of -N34.0bn was worse than the loss of –N22.8bn reported in 2016. Lafarge also reported an after-tax loss of –N16.2bn in 2017 compared with a N18.3bn profit in 2016. Compared with our full year estimates, sales were in line. However, PBT and PAT missed our forecasts. The management of the company has proposed a dividend of N1.50 per share which is 29% higher than ourN1.16 DPS forecast (N1.24 consensus). The DPS implies a dividend yield of N3.4%.

Given that Lafarge’s 2017 PBT came in well below consensus 2017 PBT forecast of N13.6bn, we expect to see marked downward revision to consensus 2018E earnings forecast and a significant sell-off in the shares over the next few days.

We rate Lafarge Neutral. Our estimates are under review.

UAC of Nigeria (UACN) reports Q4 2017 results.

Event: UAC of Nigeria (UACN) reports Q4 2017 results

Implications: Downward adjustments to consensus 2018E EPS forecast likely

Positives:  No obvious positives

Negatives: Sales down -21% y/y to N20.4bn while PBT declined -88% y/y to N202m; opex grew 80% y/y to N3.5bn.

Late last week, UACN published Q4 2017 results. The results were hit by rising input, finance and operating costs as well as increasing competition across key businesses. Group sales of N20.4bn declined -21% y/y while PBT fell by c.-88% y/y to N202m. The drivers behind the significant decline in PBT were an 80% y/y rise in operating expenses to N3.5bn, a -64% y/y decline in other income to N756m and a 130% y/y rise in net finance charges. UACN also posted a large loss on the income from associates line. UACN posted a loss of -N561m after tax taxes of –N1.1bn. Sales for the food and beverages segment are now more important to the business. Combined, this segment accounted for c.86% and 83% of group sales in Q4 2017 and FY 2017 respectively. As such, increasing challenges within this segment, especially for the animal nutrition businesses, is likely to impact profitability going forward. On a sequential basis, while sales were flattish q/q, PBT declined -86% q/q. The decline in profitability was driven by higher operating costs, other income and significantly higher finance costs.

In 2017, Grand Cereals accounted for c.54% of group sales (the highest on record). Sales were up 30% y/y to N48.2bn, driven by both pricing and unit volume growth. However, price increases were not enough to offset rising input and finance costs which weighed on profitability and led to a -39% y/y decline in PBT to N1.8bn. PBT margin also contracted by –c.433bps y/y to 4%. For Livestock Feeds, sales declined -8% y/y to N10.2bn in 2017 following a shrinkage in demand for poultry feeds due to the declining bird population. The bird flu epidemic has been out of control for several quarters. In addition, competition within that segment of the animal nutrition business has grown. Livestock Feeds reported a loss before tax of –N726m, citing higher finance and input costs. Besides UAC Foods and UAC Restaurants, all other UACN businesses recorded PBT margin contraction. UAC Foods and UAC Restaurants benefitted from improved working capital and controlled costs. UPDC, UACN’s real estate business, continued to be a drag on the group. The firm posted a loss before tax of -N3.1bn, weighed down by lower housing sales and relatively higher finance costs. UACN proposed a dividend of 65 kobo (ahead of our forecast of 60 kobo) which works out to a dividend yield of 3.5%.

Compared with our estimates, sales and PBT both missed by -22% and -89% respectively. The major drivers of the variance were a weaker-than-expected topline growth and negative surprises on both operating expense and other income lines. Sales in the food & beverage segment came in -21% behind our forecast. Full year 2017 PBT of N3.3bn came in significantly behind consensus estimate of N4.7bn. Hence, we expect significant downward revision to consensus estimates. UACN shares have gained 8.9% ytd, slightly ahead of the ASI’s +8.5% gain.

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

UACN Q4 2017 results vs. FBNQuest Capital Research estimates (N millions)

Dangote Sugar Refinery Q4 2017 results: first reaction

Event: Dangote Sugar Refinery (DSR) reports Q4 2017 results

Implications: Positive reaction by the market likely

Positives: Q4 PBT and PAT of N14.3bn and N13.3bn up 234% y/y and 210% y/y respectively

Negatives: Limited; sales declined by -24% y/y to N41.4bn

Late last week, DSR published strong Q4 2017 results. Although sales declined -24% y/y to N41.4bn, both PBT and PAT grew significantly. While PBT was up 234% y/y to N14.3bn, PAT grew 210% y/y to N13.3bn. Unit volume sales came in at 657,775 tonnes, indicating that Q4 volume sales were flattish. This implies that DSR implemented further price cuts during the quarter. Sugar production at the Lagos refinery declined by -17% y/y to 654,723 tonnes, implying a capacity utilisation of c.45%, in line with our forecast. Sugar production at Savannah Sugar Company (SSC) was flattish y/y at around 17,000 tonnes. A gross margin expansion of 1,566bps y/y to 23.0% and a significant rise in net finance charges completely offset the topline decline to lead to the PBT growth. Net finance charges were boosted by fx-related gains of N3.9bn during the quarter. Sequentially, while sales fell -7% q/q, PBT and PAT were both up 3% q/q and 41% q/q respectively. DSR proposed a final dividend of N1.25 (interim of 50 kobo paid earlier) vs. our N1.1 forecast. This implies a total dividend yield of c.8% and a 53% payout ratio.

Compared with our estimates, while sales was in line with our N41.1bn forecast, PBT beat by 25%. The variance was driven by the fx-related gain of N3.9bn and a positive surprise on the other income line. The variance on the PAT line was even more significant due to a relatively low tax rate of 7.6% compared with the 36.5% that we were modelling. On a full year basis, while sales were in line with our forecast, PAT came in 18% ahead of our N33.8bn estimate. Full year PBT came in ahead of consensus estimate of N50.4bn. We expect a positive reaction to these numbers beyond today’s initial weakness (-3.7% vs ASI’s -1.6%). DSR shares have gained 5.0% ytd, broadly in line with the market.

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

Dangote Sugar Refinery Q4 2017 results vs. FBNQuest Capital Research estimates (N millions)

Dangote Cement Q4 2017 results review: Maintaining Neutral rating.

Maintaining Neutral rating

 

  • Price target up slightly despite 7% avg. cut to our EPS forecasts: Dangote Cement’s (DangCem) Q4 2017 PBT was broadly in line with our forecast. However, PAT surprised negatively because of a higher-than-expected tax rate of 84% (vs. our 11% estimate) and a negative result of –N21.8bn in other comprehensive income (OCI). On its Q4 2017 results conference call, management disclosed that the tax rate was due to delays in getting approvals for pioneer tax reliefs for Ibese lines 3&4 and Obajana line 4. Although management is optimistic that approval will be granted, the firm had to take additional tax provisions of N62.2bn in 2017. In Nigeria, despite lower volumes, 2017 EBITDA margin expanded by c.850bps y/y, driven by; i) strong pricing (+ c.50% y/y) ii) the utilisation of locally mined coal vs. imported coal and iii) the near elimination of low-pour-fuel-oil in the fuel mix of Obajana and Ibese. Going forward, management sees a strong demand outlook for 2018 in the 5-10% range driven by a combination of government infrastructure spend and strong private demand. Although we have cut our 2018 unit volume forecast for Nigeria by -3%, our y/y growth forecast of 10% is broadly in line with guidance. We have also cut our unit volume forecast for the Group by a similar margin of -3%. Our 2018-19E EPS forecasts are 7% lower on average (we expect that the tax provisions which weighed on Q4 2017 results will be reversed). However, our price target is up by just a touch because we have increased the P/E multiple driving our price target to 16.8x from 16.1x, in line with peer multiples.  Our new price target implies a potential downside of -4% from current levels. We retain our Neutral rating on the stock.

  • Q4 2017 PBT up 116% y/y: DangCem’s Q4 PBT grew by a stellar 116% y/y to N69.4bn. The underlying drivers behind the marked y/y growth in earnings were a 17% y/y expansion in sales, a 799bp y/y expansion in gross margin to 54.7% and an -86% y/y reduction in net interest expense. To a lesser extent a N2.2bn profit from associates related to DangCem’s investment in Onigbolo Cement in Benin Republic also contributed. These positives completely offset a 53% y/y rise in opex. In contrast to the stellar earnings growth posted above the tax line, DangCem reported an after-tax loss of –N16.1bn, driven by a negative result of –N21.8bn in OCI and a significant increase in  income tax rate to 84% (vs. 11%  Q4 2016). Sequentially, Sales and PBT grew by 6% q/q and 7% q/q respectively. However, the after-tax loss of –N16.1bn was a complete divergence from the PAT of N43.2bn that the company reported in Q3 2017.

Popular Stamped Concrete Companies in Nigeria

Popular Stamped Concrete Companies in Nigeria

Are you in search of reliable stamped concrete installers and dealers in Nigeria? Read below on the ten most popular installers of decorative stamped concrete in Nigeria.

Decorative stamp concrete is one of the most recent techniques applied to flooring system in Nigeria. It is a unique flooring system that reproduces the distinctive texture and details we find in our environment into a gallery with incredible realism.

Decorative stamped concrete could be found in a wide array of patterns of ranging from stone, granite, brick, wood imitation texture to illusionary effects. It is a must have floor enhancer that you could add to your dream house or building project.

Wondering where to find reliable installers of decorative stamped concrete? This article lists the ten most popular stamped concrete companies in Nigeria. Find them below.

List of stamp concrete companies in Nigeria

1. FRANGIPANI

Frangipani is a leading company in exterior, interior and decorative wall and flooring designs. Frangipani is well known for their excellent services, designs and attention to details when it comes to the use of decorative concrete.

Frangipani attains its finishing with style and class through the application of its latest technology. Their flooring experts are always available to provide professional consultation and solutions to help you reflect your personal concept of style and elegance.

You can be sure that the results you get would be better than you could imagine. To reach out to them, here are the details provided below:

Website address: www.frangipanigroup.com.ng

2. ROMACRETE

Romacrete has been in existence since 2007. Romacrete specializes in distinctive decorative flooring concrete. They offer designs with luxurious appeal and with added creativity while doing so at a cost effective rate.

Guinness Nigeria’s Q2 2018 (end-Dec) results showed marked y/y growth on all key headline items.

Guinness Nigeria’s Q2 2018 (end-Dec) results showed marked y/y growth on all key headline items. While sales grew by 12% y/y to N40.7bn. PBT and PAT advanced to N3.5bn and N2.1bn compared with pre-tax and after-tax losses both of which came in at -N2.4bn in the corresponding period of 2017 respectively. The strong growth in earnings was driven by a gross margin expansion of 601bps y/y to 33.5% and a 70% y/y reduction in interest expense. While we attribute the marked y/y expansion in gross margin to lower input costs due to the improvement in fx liquidity, we believe that the significant reduction in interest expense is likely related to the deleveraging of the firm’s balance sheet, with the proceeds of its N40bn rights issue.

On a sequential basis, sales grew by 36% q/q, largely driven by seasonally stronger sales in the final quarter of the year. Thanks also to the clean-up of the firm’s balance sheet, PBT and PAT accelerated by between 50x to 85x. We note that Guinness’ total debt (including overdrafts) declined by around 64% y/y following the rights issue.

Compared with our estimates, sales were broadly in line. Although, PBT beat our forecast by around 22%, the beat on the PAT line was weaker at 4% due to a higher effective tax rate of 40.3% compared with the 30% tax rate that we had in our model.

When annualised and adjusted for seasonality, Guinness Nigeria’s H1 2018 PBT tracks slightly behind consensus’ FY PBT forecast of N8.2bn. Consequently, we expect to see slight downward revisions to consensus PBT forecast and a Neutral reaction from the market.

Guinness’s shares have broadly tracked the index this year. The shares have returned 19% ytd compared with the 16% return delivered by the broad index.

We rate Guinness Nigeria shares Underperform. Our estimates are under review.

Guinness Nigeria Q2 2018 (end-Dec) results: actual vs. FBNQuest Research estimates (N millions)

PZ Cussons Nigeria (PZ) posted H1 2018 (end-Nov) PBT of N869m vs –N425m in H1 2017; the result beat our estimate by 36%

FX-related losses weigh on 2018 outlook

  • 2018E EPS decline of -53% y/y driven by fx-related loss: PZ Cussons Nigeria (PZ) posted H1 2018 (end-Nov) PBT of N869m vs –N425m in H1 2017; the result beat our estimate by 36%. As such, we have raised our EPS forecasts by around 5% over the 2018-20E period. A favourable price-volume mix in both the Personal Care and Home Care categories continue to drive sustained sales growth. Looking ahead, we note that the business environment is becoming more competitive and consumer demand remains soft following significant cost inflation in recent quarters. Following discussions with management, we believe that PZ’s White Goods segment and sales of bulk milk due to pricing pressures are likely to continue to struggle in the near term. We also understand that naira credit availability which was tight in H1 2018 (end Nov) may persist through the year. However, we expect already rolled-out initiatives at the start of H2 2018 (end-May), which is PZ’s peak season, such as distribution expansion and new product launches will help to improve performance during the period. We forecast sales growth of 21% y/y to N96.1bn. However, we forecast an EPS decline of c.-53% y/y to N1.69 in 2018E due to the adverse impact coming through from fx-related losses this year. PZ posted fx-related losses of -N2.6bn in H1 2018 alone. Excluding fx-related losses, EPS growth was 36% y/y. Our new price target of N20.5 is up 24% and implies a downside potential of -7% at current levels. Our new PT is driven by market-reflective adjustments to our risk-free rate and equity risk premium assumptions. While we lowered the former by 150bps to 14% we cut the latter by 50bps to 6.0%. We have also rolled forward our valuation to 2019. In 2017, PZ shares appreciated by +42%, in line with the broad market. We retain our Underperform rating on the stock. PZ shares are trading on a 2018E P/E multiple of 13.0x for average EPS growth of 5% y/y over the 2019-2021E period.

  • Q2 2018 PBT up 73% y/y to N1.1bn:In Q2 2018 (end-Nov), 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 opex and an fx-related loss of –N779m, leading to the PBT growth. The 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.

Lafarge Africa’s (Lafarge) Q3 2017 results surprised negatively, mainly due to a net fx loss of –N9.9bn

Maintaining Neutral rating

 

  • Positive earnings outlook in 2018E: Lafarge Africa’s (Lafarge) Q3 2017 results surprised negatively, mainly due to a net fx loss of –N9.9bn, arising from the hedging cost of N2.6bn from the US$220m shareholder loan that was converted to quasi-equity and settled at N385/US$ vs an initial rate of N375/US$, a net fx loss of N4.6bn related to the settlement of fx liabilities and a quasi-equity loan conversion cost of N2.7bn. Furthermore, one-off costs of N2.3bn related to the restructuring and the delisting of Ashaka Cement also contributed. Given the magnitude of the one-off items in the Q3 results, our models exclude the impact of further one-offs in Q4 2017. As such, our Q4 forecasts imply PBT of N6.3bn for N2017E (vs. a pretax loss of –N22.8bn in 2016). We see sales growth of 35% y/y to N297.5bn in 2017E. Beyond 2017, we forecast healthy sales growth of 13% y/y to N335.6bn, underpinned by an 11% y/y growth in unit volumes. Further down the P&L, we see PBT growing by 277% y/y to N23.6bn on the back of base effects. We await management’s communication of the results of its rights issue of N131.65bn. Consequently, our new price target of N72.5 excludes the impact of the anticipated issue proceeds of N38.5bn. According to the rights circular, the issue proceeds will be used to deleverage the firm’s balance sheet, effectively paying down c.US$270m of its shareholder loans. Despite the sizable upside implied by our new price target, we are keeping our Neutral recommendation because the shares have not yet been adjusted for the rights issue which was priced at N42.50. Assuming full subscription, we estimate a +30% reduction to our price target.
  • Pre-tax loss of –N17bn in Q3 2018 due to spike in costs: Lafarge’s Q3 2017 results showed a pre-tax loss of –N17.1bn (vs. –N10.2bn in Q3 2016). Further down the P&L, the after tax loss widened to -N21.2bn, mainly due to a negative result of -N2.3bn in other comprehensive income (OCI). Given significant negative base effects in Q3 2016 and the marked improvements seen in Lafarge’s H1 2017 results, the sequential comparisons are more relevant than the y/y trends. Sequentially, sales declined by 6% q/q. However, the key drivers behind the pre-tax loss include a gross margin contraction of -1,248bps q/q to 19.6%, a 35% q/q rise in opex and 22% q/q increase in net interest expense. A negative result of –N9.3bn in other operating expense (vs. +N1.4bn in Q2 2017) also contributed. In terms of the y/y trends, sales were up by 28% y/y. However, significant spikes in opex, net interest expense and other operating expense which were up by 73% y/y, 159% y/y and 300% y/y respectively were the major factors underpinning the pre-tax loss of –N17.1bn.

Guinness Nigeria (GN) successfully raised N40bn via a rights issue, adding 648m shares to its existing 1.5bn shares.

Potential impact of capital raise priced in

  • EPS and PT upgrade; downgrading to Underperform: Late last year, Guinness Nigeria (GN) successfully raised N40bn via a rights issue, adding 648m shares to its existing 1.5bn shares. The company used much of the proceeds from the rights issue to deleverage its balance sheet and to reduce its foreign currency debt exposure. Due to the macroeconomic headwinds which persisted between 2014 and 2016, GN struggled to grow its earnings and reported pre-tax losses for four consecutive quarters between Jan and Dec 2016. However, over the last three quarters, GN has reported an average PBT of N2.5bn – gradually reaching pre-2014 levels. We attribute the recent recovery in earnings to the steady-pick up in the economy and government policies which have made FX sourcing more favorable. These have resulted in more consistent topline growth and reduced FX-related losses. In the latter part of 2015, GN acquired distribution rights for international premium spirits from Diageo, its parent company. In addition, the company launched five spirit brands recently. On its most recent conference call, management stated that the spirits segment has recorded strong growth and contributed about 13% to its topline in FY 2017. As such, we expect to see y/y topline growth in the mid-teens range in FY 2018. We also see PBT growth of 200% y/y over the same period, underpinned by anticipated marked reductions in finance charges and FX-related losses. Consequently, we have raised our earnings estimate over the 2018-19E period significantly and our price target by 26% to N91.3. Our PT increase also reflects our decision to reduce our risk free rate assumption by 150bps to 14% and our equity risk premium by 50bps to 6%. GN shares are trading on a 2018E P/E of 40.0x for a 2019E EPS growth of 74% y/y. From current levels, the shares show a downside potential of -24%. As such, we are downgrading the shares to underperform.

  • Profits recorded in Q1 2018 vs. losses in Q1 2017: GN’s Q1 2018 (end-Sep) results showed that sales of N29.9bn grew by 30% y/y. PBT and PAT of N41m compare with pre-tax and post-tax losses of -N2.2bn in Q1 2017. Although gross margins contracted by -153bps y/y to 34.7%, this was not strong enough to offset the strong sales growth and a -10% y/y decline in net finance costs, leading to the company still reporting a profit. Q4 2017 (end-Jun) results showed that PBT grew to N5.1bn from a pre-tax loss of –N3.6bn in Q4 2016. The strong recovery seen on the PBT line was driven by an 11% y/y expansion in sales, a gross margin expansion of 910bps to 44.8%, a 5% y/y reduction in opex and an 80% y/y decline in net interest expense. Further down the P&L, PAT grew to N4.5bn from an after-tax loss of –N2.9bn in Q4 2016.