The consumer goods sector is almost always a win amongst others on the Nigerian Stock Exchange, mainly because of its stability with very little seasonal restrictions. In other words, consumer goods are important during Valentine’s as much as they are important at Christmas. Yet, the COVID-19 pandemic era has been an entirely different ball game for one of Nigeria’s leading consumer brands — Cadbury Nigeria Plc.
Having lost a lot of its grounds to competitors like Nestle years ago, the company had set off on a path to recovery trying to expand its market share and increase its revenue. Revenue had grown at a steady pace all through the years, moving from N27.8 billion in 2015 to N39.3 billion in 2019. The company’s 2019 financials had also continued the seemingly smooth sail to growth with a 26% increase in profit, following a fair 9% increase in revenue at N39.3 billion in the year.
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Not hesitating to show its appreciation to its shareholders who had not received dividends for three years, before 2019, the company declared a dividend per share of 49 kobo this year, which was almost double the 25 kobo it had paid last year. It was also the first time the company had been paying two-consecutive dividends after a 3-year break. Needless to say, the dividends are still far from exciting.
However, 2020 has come with challenges that have had the company already dropping in revenue for 2 out of 2 quarters. Its Q1 2019 financials reveal that the company earned a total revenue of N8.5 billion, representing an 8% decline from the N9.2 billion it recorded in Q1 2019. It was able to still attain a profit after tax of 26% from N506.7 million to N638.9 million, owing to improved other income and a slight reduction in expenses. However, in its recently released Q2 results, its revenue took an even lower plunge of 27.6% to 7.4 million. In the same trajectory, the company recorded a loss for the quarter of N102 million, representing a whopping 162.7% drop in profits from the corresponding quarter in 2019 all from the reduced revenue. Expenses did not reduce as much.
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The steady progression
Top on the list of the company’s challenges is that it is over-due for a rebrand. The company’s top brands, Bournvita, TomTom, Trebor/Peppermint, Eclairs and more have one thing in common and it is that they are almost nostalgic. We know and love them, but they’re not necessarily with us on a daily basis. Another way to look at it is that they have attained the same scarcity as luxury items, only at a low price point. Consequently, it is only natural that headwinds of the COVID-19 pandemic and all the other challenges 2020 has not been bereft of, got it on a downward spiral as they became less exciting given the limited financial resources of most Nigerians.
Another challenge that rests on its shoulders is the less than proportionate reduction in expenses despite the reduced revenue – and it didn’t start this quarter. Since the year 2015, analysis reveals that the company’s revenue has risen by 9% on an annualized basis. For some reason, cost of sales and operating expenses have also risen by 9% over the same period. What is more alarming is that these cost of sale makes up a huge amount of the total expenses. This could mean input prices have been rising without a similar increase in prices. It might also not have the required brand equity to survive a significant increase in price given the availability of close substitutes and alternatives that could even transcend the consumer goods industry.
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For a company which was quoted on the Nigerian Stock Exchange (NSE) as far back as 1976, its current share price of N6.60 which is low on its 52-week average of N4.95 and 11.65 is underwhelming. An earnings per share of 0.51, show that its performance has not been stellar. With the overall economy further expected to plunge before only marginally recovering over the next few years, we cannot expect much of a difference in the state of its revenue. Its high price to earnings ratio of 13.07 could also mean many investors either have faith in the future of the company or are simply hanging on to its past victories.
Either way, what is clear is that investors in the company are going to need to be in a long hold position with very little gains in dividends. Whether the duration of the waiting period is longer or shorter rests on the back of its management to work out strategies to remain in the line of sight of the average consumer at low costs. Its growth is particularly important as it just does not have the option of being a value stock.