PZ Cussons Nigeria reports Q3 2018 (end-Nov) results

Event: PZ Cussons Nigeria reports Q3 2018 (end-Nov) results

Implications: Negative reaction expected by the market

Positives: Q3 PBT and PAT up 5% q/q and 6% q/q to N1.1bn to N668m respectively

Negatives: Sales declined -7% y/y to N22.1bn while PAT fell -64% y/y

Today, PZ Cussons Nigeria (PZ) reported Q3 2018 (end-Feb) results. While sales of N22.1bn fell by -7% y/y, the decline in PBT and PAT was more significant. PBT and PAT declined by -61% y/y and -64% y/y respectively. Positives coming through from relatively lower net finance charges and forex-related losses were completely offset by the topline decline and a -583bps y/y contraction in gross margin to 26.7%. PZ Cussons UK (the parent company) issued a profit warning for its Q3 2018 (end-Feb) results. According to the statement, continued weak consumer discretionary spending in Nigeria took a toll on unit volumes in Q3. Therefore the expectation was that Q3 results for its Nigerian operations would be materially lower than expected. PZ shares gained +2% today to close at N23.45. Given the statement by its parent it is possible the market might have anticipated a far worse Q3 results. Sequentially, while sales came in flattish q/q, PBT and PAT were both up by around 5% q/q.

Compared with our estimates, sales and PBT both missed by -23% and -64% respectively. The major drivers of the variance were a weaker-than-expected topline growth and a negative surprise on the fx-related loss line. On an annualised basis, 9M 2018 PBT is tracking well behind consensus FY 2018 estimate of N6.9bn. Hence, we expect downward revisions to these estimates. PZ shares have gained 10.9% ytd (vs 8.5% ytd for the ASI).

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

PZ Cussons Nigeria Q3 2018 results vs. FBNQuest Capital Research estimates (N millions)

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