By NIyi Jacobs
Cadbury Nigeria’s stock has been on a strong upward trajectory, gaining 35.4% year-to-date, following a 59.66% surge in 2023. The rally has caught the attention of investors seeking a turnaround play, but whether this momentum signals a genuine recovery or just temporary market sentiment remains a key question.
The company’s fourth-quarter results for 2024 provided some optimism, with a ₦2 billion pre-tax profit, a stark improvement from the ₦17.3 billion loss recorded in the same period in 2023. However, despite the encouraging headline figures, deeper structural challenges persist.
For years, Cadbury Nigeria has struggled under the weight of foreign exchange losses and rising borrowing costs, issues that prompted its parent company, Cadbury Schweppes Overseas Limited (CSOL), to step in with financial support. This included a $40 million intercompany loan to clear overdue FX obligations, $20 million in debt forgiveness, and a $7.72 million loan-to-equity conversion. These interventions significantly improved the company’s financial position, reducing total debt from ₦43.2 billion in 2023 to ₦32.73 billion and helping shareholders’ funds return to a positive ₦1.44 billion, after sinking to negative ₦6.51 billion the previous year. FX losses also moderated from ₦37 billion to ₦15 billion, providing further relief.
While these measures stabilized the balance sheet, profitability remains a major concern. Revenue grew by 60.73% year-on-year to ₦129.1 billion, driven largely by increased domestic sales, yet this growth did not translate into improved margins. Gross profit margin declined to 13.54%, the lowest in six years, while operating profit margin dropped by 49.38% year-on-year to 4.96%, as rising costs continued to erode earnings. Interest expenses surged by 342.33% to ₦6 billion, leaving the interest coverage ratio at a fragile 1.07x, meaning the company’s operating profit barely covers its interest payments. Retained losses still stand at ₦30.15 billion, limiting Cadbury’s ability to reinvest in growth or reward shareholders.
BusinessNG notes that Market sentiment appears to be running ahead of fundamentals. The price-to-sales ratio of 0.51 suggests the stock is valued at a discount relative to revenue, reflecting doubts about its ability to convert sales into sustainable profits. Meanwhile, a price-to-book ratio of 37x signals an inflated valuation driven more by investor optimism than financial strength.
Despite the recent rally, Cadbury Nigeria’s long-term sustainability remains in question. With the Central Bank of Nigeria (CBN) keeping the Monetary Policy Rate at 27.50%, borrowing costs are unlikely to ease soon. While short-term traders may find opportunities in the stock’s momentum, long-term investors will need to see clearer signs of cost efficiency and margin improvements before committing. Without these, the current optimism could prove fleeting, making the stock’s rise more of a market-driven sugar rush than a true financial revival
