The earnings season so far as failed to boost market performance as companies with impressive 2018 results and strong fundamentals have gotten trapped in investor’s irrational responses to the season, failing to reflect performance based on fundamentals.
Cadbury not an exceptiondipped 10 percent to N9.90 as at the close of trading on Friday, after closing flat the previous day, underperforming the consumer staple sector despite impressive earnings report released the previous day.
Cadbury recorded a whooping loss in value of N2.068 billion on Friday as market capitalization stood at N18.594 billion at the close of trading.
This is however despite a second consecutive record and growth in profit after tax (PAT) since loss recorded in 2016, one would expect the bulls having upper hand than the bears on Cadbury stocks.
‘‘Investors are probably not confident in the sustainability of performance by Cadbury,’’ Gbolahan Ologunro, equity analyst at CSL Stockbrokers.
In consideration of the dividend yield on the stock, Ologunro explained that, ‘‘dividend yield on the stock is about 2.53 percent which is far below the market average of about 5 percent.’’ This he regards as a major drawback for investors who are looking for cash flows from dividend payments.
Share price of Cadbury Plc rose 9.09 percent to N12 from N11 on investors’ response to impressive result released by the consumer goods firm in the early hours of Thursday; however gains reversed to N11 despite a significant increase in earnings for the period ended 2018.
“Intense bargain hunting in the early hours of the day drove prices up,” Gbolahan Ologunro, equity analyst at CSL Stockbrokers explained, more so, “bears return into the market as profit takers cash in on opportunity as prices has long hovered around N10 and N11.”
Since July 2018, share price of Cadbury had moved between N10 and N11, while at points when prices hit N12, profit taking at that point causes a reversal in price.
Cadbury recorded a surge in profit after tax (PAT) by 174 percent year on year in 2018 as shown in its full year financial report released on the Nigerian stock exchange (NSE) on Thursday.
Profit for the year ended 2018 stood at N823.08 million against N299.99 million recorded in the previous year. Meanwhile profit before tax (PBT) grew significantly by 249 percent to N1.22 billion from N350 million recorded in 2017.
This was largely driven by a 9 percent growth in revenue for the period under review to N35.97 billion from N33.07 billion in 2017.
According to report, revenue growth was driven by a significant growth in export sales revenue by 33.68 percent to N4.93 billion from N3.69 billion, although larger chunk of revenue is realised from domestic sales. However, domestic sales for the period grew marginally by 5.6 percent to settle at N31.03 billion from N29.38 billion in 2017.
Recorded growth in revenue in 2018 however was a slowdown by 1 percent compared to 10 percent growth recorded in 2017 from 2016. In the last five years, Cadbury had grown its revenue at an average annual growth rate of 3 percent.
In 2018 however, Cadbury recorded its highest revenue in the last five years.
Since 2015, Cadbury had struggled to record a PAT of N1 billion as earnings entered the million zone after company recorded a loss after tax of N296.4 million in 2016.
Our analysis shows that in the last 5 years, Cadbury plc has recorded an average annual growth rate of -17 percent; hence performance in the last 5 years has not been impressive.
Analysis of a 5 year trend has shown that stock price of Cadbury is down 85.89 percent.
Year to date analysis of Cadbury plc shows that stock is down 1 percent outperforming the consumer goods index which is down by about 6 percent YTD.
Considering where Cadbury is coming from and future growth prospect in earnings, ‘‘prospect aren’t looking too bright when we compare them to the likes of Nestle and Unilever in the FMCG space,’’ Ologunro explained.
Cadbury tend to have a more narrow product range and given current weak consumer spending, higher operating cost, ‘‘investors’ confidence on earnings prospect is bleak.’’ He concluded
