Nairametrics staff subscribe to some analysts report online and once in a while, we like to share with our readers. This particular article from Leading Investment Banking Firm and Fund Managers, CSL Stockbrokers Limited caught our attention and we thought to share with our readers.
The investment firm in its report titled Still no soft landing for electricals analysed the performance PZ Cussons in the light of its recently released financial results.
Here is a summary of the highlights in the report:
PZ Cussons Nigeria (PZ) reported FY18 results with Revenue increasing by 3% y/y to N80.6 billion (US$223.9 million), keeping below our forecast of N81.6 billion. FY18 Net Income attributable to equity holders of the parent decreased by 44% y/y to N1.8 billion, coming largely in-line with our estimate. FY18 Revenue came in below our estimates mainly due to intensive industry competition, weak disposable income levels and under-performance in the company’s electronics business.
Growth driven by consumer goods
We expect revenue growth to be driven primarily by the Branded Consumer Goods segment given the in-elasticity of demand and strong customer and brand loyalty for personal care products when compared with other segments of the company.
However, still weak consumer demand and higher inflow of imported Branded Consumer Goods products (due to rise in dollar liquidity) are likely to constrain recovery in volumes in the near-term.
Why the home electrical business may continue to lag behind
The Home electrical business will most likely continue to under-perform, given the elastic nature of demand for electrical products, despite the marginal price cut during FY18 to boost sales volumes. In 4Q18, the company’s Cool-world electrical retail stores announced that it is introducing a new range of energy-saving home appliances, including refrigerators and air conditioners in the Nigerian market.
PZ has also taken several initiatives including launching new product offerings at attractive price points, e.g. in the Fabric Care category, the Tempo multipurpose detergent was relaunched in a new pack size, keeping the brand within reach of consumers. The company’s revenue-driving Morning Fresh dish wash liquid continues to maintain the no.1 spot in Nigeria and Kenya markets and customer choice has increased with the introduction of a new small 25ml packet in this category.
Recommendation
We lower our price target for PZ to N18.2/s from N24.7/s previously. However, we retain our Hold recommendation, given the 21% potential upside from last closing price of N15.0/s. Our target price is based on a combination of DCF valuation and DDM valuation in a ratio of 60:40.
