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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Ezeadichie Onyeka Michael is the Co-Founder of Haelsoft, a Professional Services Company in Nigeria that provides Information and Technology Services for small and big size companies in Nigeria(Africa). He is an Entrepreneur and Venture Capitalist with Expertise in Web Technology and Digital Marketing. He has developed & Implemented Digital Marketing Strategies(Campaigns) for top brands across sectors in Finance, Telecommunication, Ecommerce who operate in the African market. His professional experience includes key roles at Google Business Group(Nigeria), Google Women on the Web (Nigeria), Edubridge Consultant and Wild Fusion where he has trained over 500 Entrepreneurs on how to use various Web Technology products to succeed online. Customer centricity, User Experience, Conversion optimization are 3 pronged framework he applies around the often-frenetic world of web analytics to ensure that clients stay competitive in the market. He believes that investing in talent is the key to long term success for brands across Nigeria (Africa).

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