Capital Bancorp Plc (Member of The Nigerian Stock Exchange)

Transcription

1 Capital Bancorp Plc (Member of The igerian Stock Exchange) EQUITY RESEARCH REPORT PZ CUSSOS IGERIA PLC December 5, 2014 Recommendation HOLD Target Price Current Price Upside/(Downside) (14.49%) Company Statistics Symbol PZ Date of Incorporation Dec.4 th,1948 Date of Listing Feb.18 th, 1974 Year End Sector May Consumer Goods 52 weeks High/Low 41.07/16.60 Market Cap. () 126,618,512, HIGHLIGHTS PZ was incorporated in igeria on December 4, 1948 under the name PB icholas & Company Limited. Its name was later changed to Alagbon Industries Limited in 1960 and became a public company in Upon its conversion to a public company, its shares were subsequently listed on the igerian Stock Exchange (SE). However, the name was, again, changed to Paterson Zochonis Industries Limited in 1976 and in compliance with the Companies & Allied Matters Act; the limited in the name was substituted by public liability company in In 2007, its current name of PZ Cussons igeria Plc was adopted. Historical performance analysis shows that PZ has registered a modest Yearon-Year top line growth averaging 3.86% on a 5-year Compounded Annual Growth Rate (CAGR). However, the bottom lines PBT and PAT declined by 3.31% and 2.33% over a period of five years. Outstanding Shares 3,970,477,045 ominal Value () 0.50 Trailing EPS (aira) 1.28 Trailing P/E YTD Return (%) (13.59)% BVPS () ROA (%) 7.16 ROE (%) PB Value (x) 3.36 Dividend (Yield) 9.50% The recently released first quarter results for the period ended August 30, 2014 shows that Turnover came down by 0.31% to 15.02bn from 15.07bn. PBT down by 30.84% to 0.87bn, PAT declined by 30.31% to 0.641bn. The poor result was attributable to the continued insecurity, especially in the orthern part of the country. The Company has continued to invest in strengthening the Supply Chain and improving the operational efficiency and consumer experience, while minimizing the cost base. We arrived at a fair value for the shares using DCF, Enterprise Value Model and the relative valuation model PE Model. Using the simple average of the results of PZ Cussons ig.plc., we arrived at a Fair Price of We therefore place a HOLD recommendation on the shares. Financial Highlights 1 st Qtr Turnover ('000) 15,019,407 72,905,679 71,343,088 72,154,601 65,877,984 62,667,910 EBIT ('000) 872,291 7,091,037 7,868,000 5,403,801 8,150,916 8,093,940 et Income ('000) 641,698 5,082,747 5,321,187 2,538,846 5,697,066 5,584,642 EPS Contact: research@capitalbancorpng.com +234(1) DPS - ** MPS BVPS **The Company paid a Special Dividend of 1.30 and a Final Dividend of 81k CBP Equity Research Page 1

2 OTABLE MOMETS I PZ CUSSOS HISTORY 1899: Paterson Zochonis (PZ) opens a branch office in igeria 1948: PZ acquires its first soap factory of PB icholis & Co. Ltd. 1953: ame changed to Alagbon Industries (Associated Industries in 1960) 1973: PZ enters the detergent and refrigerator markets simultaneously in igeria 1975: PZ acquires Cussons Group Ltd. 1976: Global name change to Paterson Zochonis Industries Plc 2002: Global renaming of Paterson Zochonis Plc to PZ Cussons Plc 2003: PZ Cussons Plc enter into a joint venture (utricima) with Glanbia Plc to supply evaporated milk and milk powder in igeria 2005: utricima JV commences manufacture in igeria 2007: igeria name change to PZ Cussons igeria Plc 2007: PZ Cussons Foundation constituted 2009: utricima Ready-to-drink factory commissioned BUSIESS PZ Cussons igeria Plc is the largest subsidiary of PZ Cussons global group. It has enjoyed tremendous business successes in igeria for over a century and has understandably established unrivalled consumer loyalty to its wide range of products over this period. The Company is principally engaged in the manufacture, distribution and sale of a wide range of consumer products and home appliances, which are leading brand names across the country in detergent, soap, pharmaceuticals, cosmetics, confectionary, refrigerators, freezers and air conditioners. The company also distributes the products of utricima Limited, Harefield Industrial igeria Limited and PZ Wilmar Limited. The Company has twenty-five (25) depots, strategically located, and hundreds of distributors in all crannies of igeria. PZ has also opened a number of electrical retail stores under the brand name Cool World in key cities of the country. CBP Equity Research Page 2

3 PRODUCT LIES Personal Care: - Venus, Carex - Premier - Imperial Leather - Joy - Robb - Cussons - Stella Pomade Home Care: - Elephant - Morning Fresh - Zip - Canoe Green - Roberts Antiseptic - Jet Detergent - Duck - Bulk Detergent utrition: - unu - Coast - Yo! - Bliss Home Appliances: - Air Conditioners - Cookers - Freezers - Microwaves - Refrigerators - Washing Machines - Water Dispensers SWOT AALYSIS Strengths - Strong agility to weather the increasing fiercely competitive landscape and tough operating environment - Strong Brand portfolio - Focus on capacity expansion, cutting edge product innovation, distribution and logistics investment Weaknesses - Dwindling revenue growth - Increasing finance costs, operational expenses and cost of sales Opportunities - The indispensible nature of the Company s product - Global brand - Anticipated power supply stability - Operating in one of the fastest growing economy (igeria) in the world offers a very wide market - Favorable government policies towards the industry and political stability Threats - The insecurity being experienced in certain parts of the country makes free enterprise increasingly difficult in the affected States. - The increasing fiercely competitive landscape and tough operating environment - Continuous depreciation of the igerian currency - High cost of generating power and disruptions in the natural gas supply - Bad state of infrastructure continues to impact negatively on distribution and logistics operations and costs CBP Equity Research Page 3

4 DIRECTORS SHAREHOLDIGS AS AT MAY 31ST, 2014 The Board of Directors holdings in the Company goes thus: Director Position Holdings **Professor E.C. Edozien Chairman (Retired) 5,290,153 Mr. C. Giannopoulos CEO il Mr. B. Oyelola Deputy Chairman 244,336 Mr. L. Batagarawa Director 20,706 Mrs. E.Ebi Director 51,500 Ms.J.F.Coker ED, HR 3,889 Mr. A.Goma MD, Family Care SBU 25,000 Mr. M.Hayatu-Deen Director il Mrs. O.T. Ifaturoti Corporate Affairs Director 12,245 Mr. D. Petzer CFO il Mr. A.Raji MD, Distribution Services 163,358 Mr. P.Usoro Director 1,000,000 ** The Company has appointed Chief Kola Jamodu as the new Chairman to replace Professor E.C.Edozien who retired from the Board after 11 years as the chairman AALYSIS OF FIACIALS Trends in Turnover and Earnings Growths PZ Cussons igeria Plc. has maintained a positive turnover growth momentum in the last five years except in 2013, when it witnessed a slight drop. The Company grew its top line from 62.67bn in 2010 to 72.15bn in 2012 but declined by 1.12% in This however, rose to 72.91bn in 2014, translating to a 5-Year CAGR of 3.86%. The Company has seen its bottom line declined in 2012 and PAT went up by 2.01% in 2011 from 5.58bn in 2010 to 5.70bn. However in 2012, the Company s PAT dropped by 55.44% to 2.54bn before inching up by % in The Company was unable to maintain this positive trend in 2014 as PAT dropped again by 4.48% to 5.08bn. The decline in PAT could be attributable to increase in Cost of Sales (CS) and Operating Expenses (OE). Over a 5-Year period, CS and OE grew by 4.30% and 8.82% respectively. Year-on-Year, the Return on Equity (ROE) has not been impressive. ROE went down from 14.43% in 2010 to 5.92% in 2012 but moving northwards to 11.95% in PZ s GP Margin decreased to 21.83% in 2012 from 27.58% in CBP Equity Research Page 4

5 2010, inched up to 26.77% in 2013 before declining again to 26.33% in This development was attributed to rising commodity prices and the Company s resolve not to pass on the growing cost to consumers who were already under huge income pressure. PBT Margin dropped from 10.72% in 2013 to 9.53% in 2014 while PAT Margin also came down to 6.97% in 2014 from 7.46% in Return on Assets (ROA) moved southwards by 2.72% to 7.16% in The continued insecurity in the orthern part of the country contributed to the huge decline that the Company suffered in the recently released Q1, PZ s PBT Margin declined to 5.81% from 8.37% in the corresponding period of 2013 while PAT Margin also came down to 4.27% from 6.11% in Q1, CAPITAL STRUCTURE Total Shareholders Funds (SHF) of PZ Cussons Plc. grew from 38.71bn in 2010 to 46.44bn in 2013, representing a 3-Year CAGR of 6.19%. However, SHF dropped in 2014 to 42.54bn, representing a decline of 8.39%. Total Assets grew by 6.96% over a 3-Year period; 2010 to 2013 and went down by 1.84% in The Company has not utilized its assets efficiently.. This is reflected in the total assets turnover ratio which came down from 1.06x in 2010 to 1.02x in Current assets turnover has not fared well too over the last five years as it has been trending southwards; from 1.83x in 2010 to 1.57x in This implies that the Company has not utilized its assets to generate revenue very well. CBP Equity Research Page 5

6 The total assets of the Company were financed by a mix of Equity and Liabilities in the proportion of 59.94% and 40.06% respectively. The total debt ratio, which is a proportion of the Company s total assets that is financed by long and short term liabilities went up to 40.06% in 2014 from 35.77% in PZ Cussons igeria Plc. working capital position has been very good over the years. The working capital position has always been on a rising path. The Company has seen its working capital position rose from 18.96bn in 2010 to 26.53bn in 2013 before moving southwards to 22.53bn in The current ratio and the quick ratio stood at 1.94x and 1.09x respectively as at financial year ending This high working capital ratio implies that the management of the Company is being efficient in using a firm s shortterm assets and liabilities to support its business. LIQUIDITY PZ Cussons s liquidity trend has not experienced a stable performance in the last five years. The level of current assets maintained in 2010 could cover % of its current obligations. However, this depreciated to % in Without taking the level of inventory into consideration, PZ Cussons s current assets were % of its current liabilities in 2014, a decrease of 22.14% over the % figure of The Company has continued to maintain high cash and bank balances though this dropped in 2014 to CBP Equity Research Page 6

7 4.48bn from 8.87bn in As a corollary, the Company could pay off only 18.69% of its current liabilities with its most liquid asset. An analysis of the cash flow statement shows that the net cash flow from operating activities decreased by 23.49% from 9.74bn in 2013 to 7.45bn in The cash and cash equivalent as at May 31, 2014 stood at 4.48bn, a decrease of 49.53% over the 2013 figure of 8.87bn. we arrive at a value of 27.27, which is our fair value. We therefore place a HOLD on PZ Cussons igeria Plc. s shares SHAREHOLDERS RETURS Records of shareholders returns have not been impressive. Earnings Per Share (EPS) dropped from 1.78 in 2011 to 0.64 in 2012 before inching up to 1.34 in The Company s EPS in 2014 stood at The et Asset Per Share (ASP) also moved southwards from in 2013 to in The Company also has a good dividend history. In 2010, PZ Cussons paid 86k as dividend but could only pay 56k in However in 2014, the Company paid 81k dividend and a special dividend of 1.30 to its shareholders. VALUATIO, ASSUMPTIOS AD RATIGS To arrive at the intrinsic value for PZ Cussons igeria Plc., we employed the discounted cash flow model (DCF), Enterprise Value (EV) model and the relative valuation model PE Model. Our risk-free rate is 12.17% (premised on 30-Year FG Bond), a risk premium of 7.53% and a volatility index (beta) of The CAPM-derived cost of equity is 21.13%. We adopted a terminal growth rate of 6.50% consistent with our perceived growth potential of the Company as well as forecast long run economic growth rate. Using 3,970.48mn shares in issue, the DCF Model generates The EV Model generates while the PE generates Premised on the above analysis, coupled with appropriate consideration of comparable pricings and attached weights, our fair value for PZ Cussons igeria Plc. gives This implies that the current price is at a 17.24% premium to valuation. We therefore place a HOLD recommendation on PZ Cussons igeria Plc. CBP Equity Research Page 7

8 Ratings Specification BUY: Fair value of the stock is above the current market price by at least 15 percent HOLD: Fair value of the stock ranges between -15 percent and 15 percent from the current market price. SELL: Fair value of the stock is more than 15 percent below the current market price. PZ CUSSOS IGERIA PLC S KEY RATIOS RATIO AALYSIS Growth Performance Turnover Growth 5.12% 9.53% (1.12%) 2.19% Operating Profit Growth 0.70% (46.12%) 62.95% (11.94%) Pre-tax Growth 0.93% (46.33%) 77.63% (9.15%) Post-tax Growth 2.01% (55.44%) % (4.48%) Total Assets Growth 16.89% (6.56%) 12.25% (1.84%) Shareholders' Funds Growth 6.42% 4.07% 8.33% (8.39%) Profitability Gross Margin 28.01% 21.83% 26.77% 26.33% Operating Margin 12.37% 6.09% 10.03% 8.64% et Profit Margin 8.65% 3.52% 7.46% 6.97% Return on Equity (RoE) 13.83% 5.92% 11.46% 11.95% Return on Asset (RoA) 8.45% 4.98% 7.66% 7.36% Operating Efficiency Cost-Income Ratio 15.64% 15.75% 16.74% 17.68% Asset Utilization Rate Cost of sales/turnover (71.99%) (78.17%) (73.23%) (73.67%) Liquidity Current Ratio Acid Test Ratio Operating Cashflow/EBIT (0.05) Long-term Stability Debt-Equity Ratio 67.32% 50.24% 55.69% 66.83% Interest Cover (Times) CBP Equity Research Page 8

9 Disclaimer & Disclosure The value of any investment is subject to fluctuations, i.e. may arise and fall. Past performance is no guide to the future. The rate of exchange between currencies may cause the value of investment to increase or decrease. Hence investors may not get back the full value of their original investment. This document is not an offer to buy or sell any security. This document does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The appropriateness of a particular investment will depend on an investor s individual circumstances and objectives. The investments and shares referred to in this document may not be suitable for all investors. This document is based on information Capital Bancorp Plc received from publicly available reports and industry sources. Capital Bancorp Plc may not have verified all of this information with third parties. either Capital Bancorp Plc nor its advisors, shareholders, directors or employees can guarantee the accuracy, reasonableness or completeness of the information received from any sources consulted for this publication, and neither Capital Bancorp Plc nor its advisors, shareholders, directors or employees accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document. This document is not to be relied upon and should not be a substitute for the exercise of independent judgment. This document includes certain statements, estimates and projections with respect to the anticipated future performance of securities listed on the igerian Stock Exchange and as to the market for these shares. Such statements, estimates and projections are based on information that we consider reliable and may reflect various assumptions made concerning anticipated economic developments, which have not been independently verified and may or may not prove correct. o representation or warranty is made as to the accuracy of such statements, estimates and projections or as to their appropriateness for the purpose intended and it should not be relied upon such. Opinions expressed are current opinions as of the date appearing on this material only and may change without notice. Other third parties may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysis who prepared them. CBP Equity Research Page 9