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Analysts see PZ Cussons turn a profit in subsequent quarters


October 9, 2017 | 1:05 am
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Analysts are upbeat that PZ Cussons will return to profit in subsequent quarters as the Nigerian consumer goods firms continues to records double digit growth in sales.
For the first quarter year ended 31 August 2017, Pz Cussons’ sales spiked by 12.80 percent to N18.89 billion from N16.75 billion the previous year.
The growth in revenue was driven by the Home and Personal Care (HPC) segment. The consumer goods firm has been reaping gains from hike in the price of key products as it passed high costs to consumers in order to fend off the effects of imported inflation.
“From the loss in Q1 (discussed in our first glance released on Tuesday), we expect PZ will return to profit in the coming quarters, and close 2018F with N3.52 billion net profit (vs. N3.69 billion in 2017FY),” said analysts at Cordros Capital Limited.
“The assumptions driving our forecast are (1) continued revenue growth, (2) modest margin recovery, and (3) higher opex (ratio of revenue to increase by 70 bps) and effective tax rate (to increase by 448 bps). After contracting in 2018F, we expect earnings to grow from 2019F and reach the N5 billion mark (last attained in 2014FY) in 2021F,” said analysts at Cordros Capital.
Drilling down the figures of Pz Cussons shows foreign exchange loss reduced by 61.80 percent to N1.79 billion in 2017, this compares with N4.70 billion in 2016, at the zenith of a severe dollar scarcity and a weak naira.
The naira lost 40 percent of its value in June 2016 when thje central bank adopted the flexible exchange rate. A weak currency balloon the naira denominated debt in the balance of firms.
Inflation figure for the month of August fell to 16.01 percent from 16.05 percent in July, which is below the 6 percent and 9 percent central bank’s 6 percent and 9 percent target range.
Pz Cussons cost of sales increased by 17.60 percent to N12.10 in the period under review as against N10.97 billion the previous year.
Cost of sales ratio moved to 68.60 percent in the period under review from 65.49 percent the previous year. This means the consumer goods firm has spent more on input costs to produce each unit of product.

The improved dollar supply is expected to bolster the sales of Pz Cussons and other consumer goods firms, thanks to the introduction of the Investors’ and Exporters’ window by the central bank and subsequent liberalization of the foreign exchange market.
Nigeria’s economy has emerged out its first recession in 25 years, thanks to a rebound in oil production and a benign foreign exchange policy.
In the second quarter of 2017, the nation’s Gross Domestic Product
(GDP) grew by 0.55 percent (year-on-year) in real terms, indicating the emergence of the economy from recession after five consecutive quarters of contraction since Q1 2016.
Nigeria, Africa’s largest economy and oil producer, has been hard hit by a sharp drop in oil price since mid-2014 that stoked a sever dollar shortage, thus hurting many businesses.
The economy shrank by 1.5 percent in 2016 for its first annual contraction as many businesses were unable to access dollars to import raw materials and equipment.
Pz Cussons shares have gained 62.41 percent since the start of the year while it has a market capitalization of N93.50 billion.
“Latest economic data (rising PMI, consumer confidence, and business expectation) suggest that the pressure that Nigerian consumers face may be over-exaggerated. With prices largely stable and economic activities improving, we think consumers are actually better-off now, compared to a year ago” said analysts at Cordros.




October 9, 2017 | 1:05 am
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