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.
Investors Gain N1.09bn as NASD Share Price Rises 9.1%
By Adedapo Adesanya
The unlisted securities market closed the last trading session of the week on a positive note after it appreciated by 0.18 per cent on the back of growth in the share price of NASD Plc.
Business Post reports that the NASD Over-the-Counter (OTC) Securities Exchange returned to the bulls’ territory on Friday after it closed flat on Thursday.
NASD Plc was the major driver of the return of the bourse to the green region as its value went up during the session by N2.45 or 9.1 per cent to close at N26.99 per unit in contrast to N24.54 per unit it closed at the previous session.
As a result of this, the NASD unlisted security index (NSI) moved up by 1.32 points to 745.44 points from 744.12 points, while the market capitalisation gained N1.09 billion to wrap the day at N615.86 billion in contrast to the previous day’s N614.77 billion.
On the activity chart, there was an improvement as the trading volume surged by 34,985.6 per cent because of the 2.3 million units of shares exchanged by market participants compared with the 6,688 units transacted at the previous session.
In the same vein, the trading value rose by 17,680.6 per cent to N63.4 million from the previous day’s N356,563.60, while the number of deals witnessed a 100 per cent rise as investors carried out 12 deals compared to the six deals executed at the previous session.
At the close of trades, Food Concepts Plc was the most traded stock by volume (year-to-date) with 11.4 billion units of its shares worth N14.4 billion, Lighthouse Financial Service Plc followed with 1.1 billion units valued at N546.2 million, while Geo Fluids Plc was in third place with 1.0 billion units worth N700.1 million.
Food Concepts Plc was also the most traded stock by value on a year-to-date basis with 11.4 billion units worth N14.4 billion, trailed by Nigerian Exchange (NGX) Group Plc with 456.4 million units valued at N9.2 billion, VFD Group Plc with 10.4 million units valued at N3.5 billion.
Naira Trades N414.73/$1 as Cryptos Bleed Heavily
By Adedapo Adesanya
The Naira appreciated against the US Dollar at the Investors and Exporters (I&E) window of the foreign exchange (forex) market by 0.02 per cent or 7 kobo on Friday, December 4.
Data showed that the local currency was sold for N414.73/$1 at the investors’ window yesterday compared with the N414.80/$1 it traded on Thursday.
At the final trading session of the week, the turnover was $103.01 million as against $139.67 million achieved at the preceding session, indicating a $36.66 million or 26.62 per cent decline.
Also, the exchange rate of the Naira to the United States currency recorded a movement on Friday, though downward as the Nigerian currency depreciated by 4 kobo as it closed at N411.74/$1 versus the preceding day’s N411.70/$1.
The local currency, however, appreciated by N2.17 against the British Pound Sterling to settle at N546.26/£1 compared to N548.43/£1 it traded at the previous trading session and 57 kobo against the Euro to trade at N465.68/€1 compared to the preceding day’s N466.25/€1.
At the cryptocurrency market, investors counted a heavy loss as the new variant of the coronavirus called Omicron and hawkish comments by the US Federal Reserve that it could raise interest rates have raised serious concerns, causing cryptos to bleed heavily.
The heaviest loss was suffered by Dash (DASH), which plunged by 35.3 per cent to sell for N66,595.85. Ripple (XRP) depreciated 30.6 per cent to trade at N381.85, while Litecoin (LTC) sold for N66,595.85 after declining by 24.1 per cent.
Dogecoin (DOGE) went down by 22.7 per cent to sell at N90.29, Cardano (ADA) depreciated by 20.8 per cent to N652.82, Bitcoin (BTC) depleted by 16.9 per cent to quote at N26,800,504.20, Ethereum (ETH) equally saw a 16.9 per cent depreciation to trade at N2,100,100.39, Binance Coin (BNB) recorded a 12.9 per cent depreciation to trade at N218,577.24, Tron (TRX) went down by 12.7 per cent to trade at N48.00, while the US Dollar Tether (USDT) recorded a 0.1 per cent marginal loss to sell for N554.76.
Crude Mixed as Market Remains Unsettled by Omicron Jitters
By Adedapo Adesanya
Crude prices closed mixed on Friday, December 3 after erasing earlier big gains on growing worries that rising coronavirus cases and a new variant could reduce global oil demand.
Brent crude gained 21 cents or 0.3 per cent to trade at $69.88 per barrel while on the other hand, the United States West Texas Intermediate (WTI) crude lost 24 cents or 0.36 per cent to sell at $66.26 per barrel.
Both benchmarks declined for a sixth week in a row for the first time since November 2018.
Oil prices had witnessed one of the most troubled weeks as the market reeled from the fear brought about by the Omicron variant of the coronavirus with speculations that it could spark new lockdowns and dent fuel demand.
The World Health Organization (WHO) urged countries to vaccinate their people to fight the virus, saying travel curbs were not the answer.
Even with this, the Organisation of the Petroleum Exporting Countries and allies (OPEC+) surprised the market on Thursday when it stuck to its plans to add 400,000 barrels per day supply in January.
However, it said it will continue to monitor the market and this could make it change course if demand suffered from measures to contain the spread of the Omicron coronavirus variant.
The alliance said they could meet again before their next scheduled meeting on January 4.
Analysts noted that with the coronavirus cases rising, the US jobs report for November also didn’t help demand outlook even as the unemployment rate plunged to a 21-month low of 4.2 per cent, suggesting the country’s labour market was rapidly tightening.
US employment growth slowed considerably in November amid job losses at retailers and in local government education.
Meanwhile, in Vienna, diplomats attempting to restore the nuclear deal between Iran and world powers face substantial challenges that need urgent solutions, the top European envoy said Friday. Talks are set to resume next week.
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