Cadbury Nigeria Plc Grew OPEX by 18% YoY in Q3 2017 Results

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Event: Cadbury Nigeria (Cadbury) reports Q3 2017 results

Implications: Upward revision to consensus estimates likely

Positives: PBT and PAT of N702m versus losses in Q3 2016

Negatives: Opex grew by 18% y/y
Earlier this afternoon, Cadbury Nigeria (Cadbury) reported its Q3 2017 results. Sales of N8.1bn were up by 9.3% y/y. Recording a zero tax expense, Q3 PBT and PAT of N702m compare with pre-tax and post-tax losses of –N1.1bn and –N989m recorded in Q3 2016 respectively. In addition to the sales growth, the company recorded a gross margin expansion of 2,428bps y/y to 30% and a -98% y/y decline in net finance costs.

These positives more than offset an 18% y/y rise in operating expenses, leading to the pre-tax profit vs the loss recorded in the corresponding quarter of last year. Sequentially, sales were flattish q/q. Gross margin expanded by 1,267bps q/q and operating expenses declined by -17% q/q. These positives led to the profits recorded versus the losses of –N862m (pre tax) and –N859m (post tax) recorded in Q2 2017 respectively.

On a 9M basis, sales grew by 14% y/y to N24.4bn. 9M pre-tax and post-tax losses narrowed by -92% y/y to –N64bn. Although net finance charges grew to –N206m (versus net finance income of N185m in 9M 2016), this was not strong enough to offset the strong sales growth and a 206bp y/y gross margin expansion to 23%, and led to the stronger bottom line. The company reported zero tax expense.

Compared with our estimates, Q3 sales were in line. PBT and PAT surprised positively. We had forecast a pre-tax loss of –N251m. On an annualised basis, 9M sales are tracking behind consensus’ FY estimate by 8% but the company is likely to meet consensus’ FY 2017 PBT and PAT estimates of N450m and 314m respectively.

Cadbury shares have gained +3.5% ytd but have underperformed the NSE ASI by -32.4%. On the back of these results, we expect a positive reaction by the market.

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

Cadbury Nigeria Q3 2017 results vs. FBNQuest Research estimates (N millions)

 

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