Sunday, January 23, 2022

    PZ Cussons Nigeria Q4 2021 and Q1 2022 Results Review Shows Positive Earnings

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    Naija247news Editorial Team
    Naija247news is an investigative news platform that tracks news on Nigerian Economy, Business, Politics, Financial and Africa and Global Economy.

    Earnings to expand by 20.7% y/y between FY’22 and FY’23

    We believe PZ is strongly on a path to recovery, after it maintained positive earnings in both Q4’21 (end-May) and Q1’22.

    In our view, this progress is largely tied to PZ Global’s announcement in late 2019 that it will restructure the Nigerian business by simplifying its operations and exiting non-core businesses and brands to improve overall profitability.

    Afterwards, PZ (1) changed the company’s leadership in Nigeria by replacing the CEO and CFO; (2) reduced the company SKUs (product packages); (3) sold Nutricima to FrieslandWamco; and (4) introduced a tighter working capital structure.

    The results of these initiatives led to a return to PZ’s profitability since Q2’21.

    During its FY’21 and Q1’21 presentation, management noted that in Nigeria, it will continue to simplify operations and improve its product portfolio mix.

    It also mentioned that PZ increased prices on all its leading brands, which explains the 84.5% y/y and 18.7% y/y increase in sales in Q4’21 and Q1’22 respectively.

    Going forward, we expect a more resilient company, focused on increased efficiency and margin protection.

    In terms of our FY’22 estimates, we have raised our sales forecast by 18.3% to N93.2bn, on the back of sustained growth in demand and supportive prices.

    While we understand that the competitive environment remains tough, especially due to low switching costs for consumers, we think that management is capable of navigating the headwinds.

    We have a new gross margin forecast of 26.5% (+450bps vs prior forecast) in FY’22. We have also raised our opex estimate for FY’22 by 9.9% to NGN18.2bn. Down the P&L, we have a PAT estimate of NGN2.8bn (against prior estimate of NGN2.1bn).

    Over FY’22 and FY’23, we have increased our EPS forecasts by 20.7%.

    The new changes imply a new price target of NGN7.1 (from NGN6.0 previously) and a potential upside of +17.5% from current levels.

    We retain our Neutral rating on the stock. Year-to-date, PZ shares have gained 13.2% vs. the NSE ASI’s 8.5%.

    Positive earnings in Q4’21 and Q1’22
    PZ’s sales grew 84.5% y/y to NGN22.6bn in Q4’21 supported by low base effects on volumes and price increases.

    In Q1’22, sales grew by 18.7% y/y to NGN22.2bn, showing that the business is firmly on a healthy growth trajectory.

    PAT also came in positive at NGN231m (loss of -NGN212m in Q1’21). In FY’21, PZ exited Nutricima (its dairy venture).

    The restructured supplier credit system alongside cash receipts from the Nutricima sale pushed the company’s cash balance to NGN20.6bn (from NGN10.8bn in FY20).

    Management also re-introduced a dividend of 25 kobo/share (already approved by shareholders) which implies a dividend yield of 4.2%.

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