Following a record performance in 2021, Cadbury (“the Company”) started off the financial year with a strong 43% revenue growth to N12.79bn in Q1 2022. Also, Cadbury reported a marked increase in profit before tax by 538% to N2.20bn. Profit after tax also grew by 538% YoY at N1.54bn.


Cadbury’s Q1 2022 performance was significantly above what we expected. Although we expected the Company to increase prices, the magnitude of the actual price increase was higher than our expectations. The material decline in the Company’s cost margin evidenced this. The need to make the price adjustments became necessary following the cumulative impact of rising input costs due to supply chain disruptions and geopolitical conflict in Eastern Europe. Both developments have led to higher prices in the global commodities market. In addition, heightened domestic inflationary pressures do not bode well for most manufacturing companies in Nigeria.

In the subsequent quarters, we project an improved revenue growth and net margin expansion. We expect a combination of operating leverage and cost optimisation to drive the net margin expansion. In the medium term, however, we see topline growth moderating from high single-digit to low double-digit. This is because we expect consumers to react to higher prices. We also foresee increased competitive pressures in the industry. Operating expense grew by 14% to N1.32bn on the back of higher selling & distribution expense (+14% to N1.01bn) and administrative expense (+14% to N312mn).

Despite the rise in operating expenses, the operating margin expanded by 1,100 basis points to 15%, underscoring the Company’s operating efficiency and the impact of operating leverage. On the back of margin expansion, operating profit grew by 496% YoY to N1.92bn in Q1 2022.

Our FY 2022 earnings per share forecast is N1.75 (previous: N0.50), with an expected N1.00 dividend (FY 2021: N0.40)–which implies a 60% dividend payout. At the current profitability trend and robust liquidity levels, we believe that the Company can declare as much as our dividend forecast.

We estimate a N12.82 fair value for the stock, using a blend of discounted cash flow, discounted dividend, and enterprise valuation methodologies. Based on our fair value estimate, the justified price to earnings ratio (P/E) of the stock is 7.33x. At current market price of N17.00, the stock trades at a forward P/E of 9.72x. Effectively, the stock currently trades at a premium to our fair value. Therefore, we recommend a SELL. Since the beginning of the year, the stock has risen by 93%.

Please click the link “Cadbury Nigeria Plc Q1 2022 – Strong Topline Growth Improves Profitability” to view the whole report on Cadbury Nigeria Plc.

Thank you.

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