NIGERIA – Following disappointing revenue posted by Cadbury Nigeria Plc and other fast moving consumer goods companies, analysts at Renaissance Capital has lowered their Cadbury Nigeria Plc FY14 headline earnings per share (HEPS) forecast from N3.21 to N1.75 (-45 per cent).

Renaissance Capital also reduced the company’s revenue forecast from 15 per cent growth to a 5 per cent decline and operating margin from 18.8 per cent to 12.1 per cent. In 1H14 Cadbury reported a 50 per cent decline in HEPS to 67 kobo.

According to analysts, “Nigerian consumer companies’ 1H14 results have been disappointing across the board. This, they said, was a continuation of the downtrend seen since FY12.

Following the upward revision of Nigerian GDP, growth rates have been restated lower. According to new data from the IMF, GDP growth dipped to 4.2 per cent in 2012 from 5.3 per cent in 2011.

“Growth accelerated to 5.5 per cent in 2013 and we forecast a further improvement to 5.7 per cent in 2014. Aside from slower GDP growth there has been an increase in competition in the market”, said analysts.

“YtD Cadbury reported a revenue decline of 12 per cent and its operating margin declined from 15.7 per cent in1H13 to 9.7 per cent. We reduce our TP from N91 to N53 on our revised earnings forecasts. With a one-year implied return of -1 per cent we maintain our SELL rating.”

On increased investment in selling and distribution, the analysts pointed out that most companies reported increases in selling and distribution costs in 1H14, greater than their revenue growth.

“In our view, this is a combination of increased investment in selling and distribution and revenue growth falling short of most companies’ targets.

Cadbury reported a 17 per cent increase in sales, marketing and distribution expenses in FY13 and in contrast to other companies has reported a 3 per cent decline in sales, marketing, distribution, admin and other expenses in 1H14, but then it did report a 12 per cent decline in revenue, “they added.

On why they maintained their SELL rating for Cadbury, they stated that, “In this challenging consumer environment, we prefer the more defensive consumer names in which we perceive the forecast risk to be lower.

We value Nestle Foods Nigeria (BUY, TP: N1,200),on a one-year forward exit P/E of 30x and Cadbury at a 20 per cent discount to this as we believe there is a higher forecast risk in Cadbury and we have had no access to management.

We have reduced our Cadbury target price from N91 to N53 due to our revised earnings forecasts. “

September 9, 2014;