Cadbury: Sinking Share Price Not Reflective Of Fundamentals | Independent Newspapers Limited
Newsletter subscribe

Company Analysis

Cadbury: Sinking Share Price Not Reflective Of Fundamentals

money markets; NSE Index
Posted: Sep 20, 2016 at 4:30 am   /   by   /   comments (0)



Kirk Leigh


Cadbury’s share price has been trading flat at N14 since last Thursday, September 16, losing half its value since June.

The new price, however, is above analysts’ low estimate of N11.46 reflecting lower prices on the Nigerian Stock Exchange (NSE) since the economic recession.

The current price leaves room for price growth, leading analysts to advise holding the stock. As at September 16, 2016, the consensus forecast amongst eight polled investment analysts covering Cadbury Nigeria Plc advised investors to hold their position in the company, according to the Financial Times.

“This has been the consensus forecast since the sentiment of investment analysts improved on August 18, 2016. The previous consensus forecast advised that the company would underperform.

“The four analysts offering 12-month price targets for Cadbury Nigeria Plc have a median target of N14.85, with a high estimate of N26.55 and a low estimate of N11.46. The median estimate represents a 6.07 percent increase from the last price of N14.00”, says FT.

But the last available result of the maker of Bournvita shows a company growing profits. Second quarter results ending June 2016 indicate a quantum leap in profit to N147. 15 million from a negative N250.72 million achieved in the equivalent quarter of 2015.

This result though was in the face of dropping revenues to N13.92 billion from N14.14 billion, a 1.6 percent decline. The decline is as a result of the combined effects of rising inflation and slowing growth. Inflation jumped to 15.6 percent in May from 9.62 percent in January while GDP sank, quarter to quarter, from 0.36 in the first quarter to 2.1 percent in the second.

Gross profit was slower in the period even if cost of sales improved in the period. Gross profit fell marginally to N4.05 billion from N4.12 billion. Cost of sales or how much the company spends to sell its products reduced by 2.6 percent from N10.13 billion to N9.87 billion.

The company demonstrated efficient use of resources by managing down selling, distribution and administration expenses in the period, resulting in a marked improvement in operating margin. Selling and distributing expenses fell 6.82 percent to N2.9 billion from N3.11 billion and administration expenses followed same trajectory, falling 21.1 percent from N1.34 billion to N1.057 billion. The amount of money gained from efficient management, in marginal terms, thus rose to 0.95 percent from a negative 2.23 percent.

The efficient management of costs resulted in a rise in operating profit to N132.7 million from a negative figure of N314.6 million incurred in the equivalent quarter in 2015.

Improved finance income helped push up pre-tax profit in the period.

Finance income or interests accruing to the company from its investments leapt by 31 percent to N83.68 million from N63.87 million, leading to a whopping 186 percent jump in pre-tax profit to N216.4 million from a loss of N250.72 million incurred earlier.

Despite a 100 percent rise in tax paid to fiscal authorities, the company still managed 158 percent improvement in net profit from a loss of N250.72 million to N147.15 million.

Cadbury’s performance looks good against the background that it suffered a streak of losses prior to 2010. At that time, David Adonri, chief executive officer of Lambeth Trust & Investment Co., a Lagos-based brokerage told Bloomberg that “there was nothing to support demand for the stock”. But with a 158 percent improvement in profits, they could have a rethink going forward.