Cadbury Nigeria Plc's flagship brand, Bournvita may be losing its market share to Nestle Nigeria's Milo, following the uninspiring performance recorded by the former in its half year results for the period ended June 30, 2014, a report has stated.
This was attributed to the weak sales reported by the company. According to a report by CSL Stockbrokers Limited, Bournvita contributed about 50 per cent of Cadbury Nigeria's sales in the domestic cocoa-beverage market.
Cadbury Nigeria had reported a lacklustre sales and net profits in its unaudited half year results as at June 2014.
The company sales of N15.3 billion were down by 12.1 per cent year-on-year while net profits fell by 49.8 per cent year-on-year.
The investment company stated that Cadbury's current results showed that both sales and net profits lagged behind its full year 2014 estimates of both N39.8 billion and N6 billion respectively. "In our opinion, Nestle Nigeria has invested more in product improvement and penetration in Milo than Cadbury has done for its Bournvita brand," it added.
Cadbury reduced its capital in the first quarter of 2014 as it paid out N11.9 billion in cash to shareholders, "so it is not surprising that more money has not been spent supporting its key Bournvita brand.A"
The report argued that given that Cadbury's current share price of N66.70 per share has fallen below its target price of N71.9 per share, "we have placed both our target price and our recommendation (previously Sell) under review."
Furthermore, it pointed out that despite recent upward trend in international prices of cocoa and sugar (the two main inputs used in the production of Bournvita), Cadbury's cost of sales were well contained in the period as it fell by 10 per cent year-on-year.
The fact that the company now sources all of its cocoa requirements from its fully-owned subsidiary company, Stanmark Cocoa Processing Limited Nigeria, was also cited as a possible reason for the improvement in sales costs.
Cadbury Nigeria's profit before tax (PBT) fell 50 per cent year-on-year to N1.8 billion in the first half of the year on the back of a slowdown in interest income, which declined by 66.8 per cent year-on-year to N302.7 million in the period under review. Analysts believed that the reduced interest income reflected the significant decline in the company's cash position over last year's figures.