Cadbury Nigeria’s share price has been on a tear, surging 35.4% year-to-date to N29.10, extending a 59.66% return in 2023.
For investors seeking a turnaround play, the stock’s momentum is enticing.
But does the rally reflect a true recovery, or is this just a sugar rush?
The company’s fourth quarter (Q4) 2024 performance provides a glimmer of hope. A pre-tax profit of N2 billion marked a dramatic reversal from the N17.3 billion loss in the same period a year prior.
However, beneath the headline figures, the broader 2024 performance suggests deeper structural issues, particularly regarding cost efficiency and profitability.
A Parent-driven lifeline
The company’s financial health has long been weighed down by foreign exchange (FX) losses and surging borrowing costs. In response, its parent company, Cadbury Schweppes Overseas Limited (CSOL), extended a much-needed lifeline:
These measures significantly improved balance sheet optics:
Yet, these gains remain a function of restructuring rather than operational strength. The real test lies in sustainable earnings growth.
Revenue growth has been strong, climbing 60.73% YoY to N129.1 billion, buoyed by domestic sales and refreshment beverage demand.
However, this has not translated into sustained profitability.
Unless it sustains Q4 profitability, these accumulated losses will continue to weigh on the balance sheet.
Cadbury Nigeria’s near-term prospects are propped up by parent-company support, but its long-term sustainability depends on better cost controls, improved margins, and lower borrowing costs.
With the Central Bank of Nigeria (CBN) maintaining the Monetary Policy Rate (MPR) at 27.50%, financing costs are unlikely to decline soon. Despite the reduction in debt, interest expenses ballooned, highlighting the strain of elevated borrowing costs.
While a P/S ratio below 1 can sometimes indicate an attractive valuation, in this case, it may be more of a warning sign that investors doubt Cadbury’s ability to turn sales into sustainable profits.
For short-term traders, momentum could drive further gains, but long-term investors should seek clearer signs of operational efficiency, improved margins, and sustainable profitability before committing.
For short-term traders, momentum could drive further gains, but long-term investors should seek clearer signs of operational efficiency, improved margins, and sustainable profitability before committing.
Without these, the current rally could prove fleeting offering more of a sugar rush than a lasting recovery.