Economy
Investors Advised to Hold PZ Cussons Shares
By Modupe Gbadeyanka
Recently, one of the companies trading its securities on the floor of the Nigerian Stock Exchange (NSE), PZ Cussons Nigeria Plc, released its financial statements for first quarter of 2019 and the firm posted a loss of N204.6 million versus the N123.1 million loss recorded in Q1-18.
Not too many investors were happy with their performance, which was sadly disappointing.
But analysts at Cordros Research have said investors having shares of the company in their portfolio can still keep them because PZ Cussons’ “revenue performance will be better over the remaining quarters.”
However, in a report released last week, Cordros Research said compared with 2018, it expects the group’s earnings in Q2, and indeed the rest of 2019E, to be weaker, with the trading update also released last week by the parent company guiding to still challenged conditions in Nigeria ahead of the general elections.
“We recently spoke to some PZ’s distributors in Lagos and they confirmed to us that the ‘market has been subdued since June across all segments,’ with new HPC launches gaining only little traction,” the report said.
At -14% y/y and -8% q/q in Q1-19, PZ Cussons’ revenue has declined y/y and q/q for the third quarter in a row. June-August is off-peak period for the group, and management had in June, guided to continued difficult trading conditions in the local market.
“We had expected revenue will decline by low single-digit over the low base of Q4-18, and given new products had just been introduced to the market.
“While revenue performance will be better over the remaining quarters, in the historical pattern, following the last result, we believe upside is limited compared with 2018FY, against a backdrop of still subdued consumer spending (reinforced by the September trading update),” the report stated.
Higher like-for-like (LFL) gross margin in Q1-19 driven by lower FX loss:
At 24.3%, reported LFL gross margin was higher by 167bps vs. Q1-18. The gross margin is consistent with our expectation, and also an improvement over the last two quarters of 2018FY. We believe the lower FX loss of N670 million (-63% vs. Q1-18 and -68% vs. Q4-18) was supportive of the improved gross margin, but while FX – and broadly, gross margin – outlook is positive, risk is that PZ’s FX loss is somewhat unstable and pricing pressure persists (we learnt from distributors that the prices of Joy and Imperial Leather bar soaps were recently returned to their pre-hike levels).
Sticky opex and lower revenue squeeze EBIT:
Despite lower revenue, opex grew by 0.2% y/y and 11% q/q, with the corresponding ratio to revenue at a record-high of 26%. On LFL basis, we estimate that PZ recorded operating loss of N250 million (Q1-2018: N90 million) in the review period. While the focus for PZ must be on maintaining cost control, we are afraid that increasing competition will force the group to retain opex around current level (N4 billion average quarterly spend since Q1-18) to maintain market share across product segments. On our forecast 2% decline in revenue, we reduce our 2019E EBIT margin estimate to 3.5% (previously 4.1%).
Changes to earnings estimates and TP:
Our adjusted PBT estimate is N2.4 billion in 2019E, (previously N3.2 billion), equating to 4% growth vs. 2018FY. Save for materially lower opex and finance costs compared to our estimates, we see no catalysts for PZ’s earnings in the near term.
On our revised TP of N12.18/s (previously N14.60/s), the stock trades at 3% downside, and expected total return of -1% after incorporating 2019E dividend yield of c.2%. HOLD.
Economy
Crude Oil Down on Steady US Energy Demand Forecast
By Adedapo Adesanya
Crude oil went down on Tuesday after a projection showed steady demand in the world’s largest oil producer, the United States, for 2025, Brent futures declining by $1.09 or 1.35 per cent to settle at $79.92 a barrel and the US West Texas Intermediate (WTI) crude losing $1.32 or 1.67 per cent to finish at $77.50 a barrel.
On Tuesday, the US Energy Information Administration said the country’s oil demand would remain steady at 20.5 million barrels per day in 2025 and 2026, with domestic oil output rising to 13.55 million barrels per day, an increase from the agency’s previous forecast of 13.52 million barrels per day for this year.
Also, the oil market shrank a few days after prices gained following new US sanctions on Russian oil exports to India and China.
On Monday, prices jumped 2 per cent after the US Treasury Department on Friday imposed sanctions on Gazprom Neft and Surgutneftegas as well as 183 vessels that transport oil as part of Russia’s so-called shadow fleet of tankers.
Analysts say this move could have a significant price impact on Russian oil supplies from the fresh sanctions, however, their effect on the physical market could be less pronounced than what the affected volumes might suggest.
ING analysts estimated the new sanctions had the potential to erase the entire 700,000 barrels per day surplus they had forecast for this year, but said the real impact could be lower.
Uncertainty about demand from China, the world’s largest oil importer, could impact tighter supply this year.
China’s crude oil imports fell in 2024 for the first time in two decades outside of the COVID-19 pandemic, official data showed on Monday.
Meanwhile, the American Petroleum Institute (API) estimated that crude oil inventories in the US fell by 2.6 million barrels for the week ending January 10.
For the week prior, the API reported a draw of 4.022 million barrels in US crude oil inventories amid build season, while product inventories saw a hefty build.
In 2024, crude oil inventories dropped by more than 12 million barrels, according to the API’s inventory data. In the first few weeks of 2025, crude inventories have shed more than 6.6 million barrels.
Official data from the US EIA will be due later on Wednesday, confirming the actual level of stockpiles.
Economy
Stock Exchange Suffers Heavy Loss as Investors Pull Out N1.1trn
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited came under heavy selling pressure on Tuesday, going down by 1.66 per cent as investors embarked on profit-taking after most stocks on the trading platform gained in the past few trading sessions.
It was observed that the industrial goods sector was the most affected yesterday as it went down by 4.99 per cent due to the decline suffered by Dangote Cement and others.
The insurance continued its downward trend during the day as it lost 2.80 per cent, the consumer goods counter fell by 0.27 per cent, and the banking index shed 0.10 per cent, while the energy sector appreciated by 0.29 per cent.
At the close of business, the All-Share Index (ASI) deflated by 1,745.16 points to settle at 103,622.09 points compared with the previous trading day’s 105,367.25 points and the market capitalisation moderated by N1.1 trillion to finish at N63.188 trillion versus Monday’s N64.252 trillion.
Business Post reports that investor sentiment remained weak on Tuesday after the bourse ended with 41 depreciating equities and 23 appreciating equities, representing a negative market breadth index.
Honeywell Flour lost 10.00 per cent to trade at N9.54, Dangote Cement declined by 9.98 per cent to N431.00, Julius Berger crashed by 9.98 per cent to N139.80, Sovereign Trust Insurance decreased by 9.68 per cent to N1.12, and Prestige Assurance tumbled by 9.30 per cent to N1.17.
On the flip side, Northern Nigerian Flour Mills appreciated by 10.00 per cent to N45.10, Livestock Feeds grew by 9.91 per cent to N6.10, Academy Press expanded by 9.90 per cent to N3.22, University Press increased by 9.82 per cent to N4.81, and Neimeth gained 9.76 per cent to quote at N3.15.
During the session, market participants bought and sold 503.3 million shares valued at N12.6 billion in 12,900 deals compared with the 505.8 million shares worth N8.1 billion traded in 14,259 deals a day earlier, indicating a rise in the trading value by 55.56 per cent and a drop in the trading volume and number of deals by 0.49 per cent and 9.53 per cent, respectively.
The most active stock for the session was GTCO with 54.4 million units worth N3.2 billion, Nigerian Breweries transacted 32.2 million units for N1.0 billion, Universal Insurance traded 30.8 million units valued at N22.6 million, AIICO Insurance exchanged 26.6 million units worth N47.2 million, and Chams transacted 20.0 million units valued at N40.9 million.
Economy
FG Offers 18% Interest on Savings Bonds
By Adedapo Adesanya
The federal government is offering two new savings bonds with interest rates between 17 and 18 per cent through the Debt Management Office (DMO).
In a statement by the agency, the country said retail investors can purchase the two-year bond maturing in January 2027 at 17.23 per cent interest, while the three-year paper maturing in January 2028 at a coupon rate of 18.23 per cent.
Bonds are very safe financial instrument that serve as investments because they are backed by the federal government, which promises to pay back the money.
According to the DMO, people can buy these bonds starting January 13, 2025, until January 17, 2025, with allotment expected on January 22, 2025, and the interest to be paid to investors every three months – in April, July, October, and January.
These bonds have some special features. They are tax-free under both company and personal tax laws.
Big investors like pension funds and trustees are allowed to buy them and each bond costs N1,000 each.
However, interested investor can only buy at least N5,000 worth, and can’t buy more than N50 million.
This comes after the Ms Patience Oniha-led debt office said the Nigerian government was offering three bonds worth N150 billion in September 2024.
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