PZ retains Q4 elicits upwards price target forecast
The performance of PZ Cussons Nigeria Plc for the fourth quarter 2017, ended 30th May, has elicited upward price target from a cross- section of market analysts.
A recent report by FBNQuest research pointed that the company delivered decent result, irrespective of foreign exchange losses recorded, and thus has reinforced upwards review of its earnings forecast for the 2018 financial year.
“We are increasing our 2018-19E EPS forecasts by 121.1% on average to reflect stable fx supply and increased utilization of locally produced palm oil. Our new price target of N22.5 is 44.5% higher and implies a potential downside of -10.8%.” the report said.
The report noted that PZ Cussons Nigeria’s (PZ) delivered another set of strong numbers in Q4 2017 similar to the prior quarter. The result showed that sales were 10.8 per cent ahead of the analyst’s forecast, impacted primarily by a favourable price-volume mix.
It however noted that, “Its parent company, PZ Cussons, had stated in its Q4 2017 group trading statement that the Personal Care, Home Care, Food & Nutrition and Electrical businesses for the Nigerian subsidiary performed relatively well. PZ has come a long way from mid-2015 to early 2017 when fx-related issues in Nigeria hampered profitability.
Although recent efforts by the CBN to address fx liquidity problems have been supportive, the effect of the naira devaluation, the report pointed manifested in the company’s results, as Foreign exchange(fx) loss for the year came in at N8.8billion vs N2.9bn in the prior year.
The loss in forex, however, could be attributed to fx-denominated payables. Trade payables grew by 54.5% y/y to N39.7bn in 2017. However, the adverse impact of fx losses on the overall results was more than offset by a robust top line growth and gross margin expansion through the year.
PZ shares currently trade on a 2018E P/E multiple of 11.5x for an EPS growth of 6.7% in 2019E. A risk to our valuation is a further devaluation of the naira. PZ shares have gained 73.9% ytd, compared with the NSE ASI’s 31.6%. Our Neutral rating on the stock is unchanged.
PBT for the period grew by 143.6 per cent y/y in Q4 but down -11.7 per cent q/q: PZ’s Q4 2017 end-May sales grew 19.1% y/y to N22.5bn while PBT and PAT increased by 143.6 per cent y/y and 370.7 per cent y/y to N2.5bn and N1.8bn respectively.
The major driver behind the company’s strong bottom-line was a gross margin expansion of 168bps y/y to 38.8%, which was strong enough to offset a 14.9% y/y rise in operating expenses and a N2.7bn exchange rate loss.
