26 October 2018
Unilever Nigeria Plc (UNILEVER) 9M'18 results "" top line advanced by 10.7% YoY to N72.3 billion, in line with our estimate (+0.4% deviation). In the same vein, profit-after-tax surged more than two-fold to N9.4 billion (+105.2% YoY). The company's performance during the period was principally driven by lower finance costs (-90.3% YoY), as well as one-off gains relating to the sale of its spreads business amounting to N2.2 billion.
Other highlights:
· In Q3'18 standalone, UNILEVER grew its revenue by 6.6% YoY to N24.2 billion. Going by provided breakdown, much of the growth recorded in top line was driven by higher sales in the food products segment (+18.9% YoY), which offset the 3.3% contraction witnessed in the Home & Personal Care segment to N12.1 billion. We understand that the HPC segment has continued to face intense competition from importers, following increased availability of FX.
· Elsewhere, we observed that cost-of-sales grew at a faster pace (+8.5% YoY) than revenue "" despite the decline recorded in global crude palm oil prices (-3.8% QoQ) in Q3'18. Consequently, gross margin contracted by 1.2 ppts YoY and 4.2 ppts QoQ to 31.2%.
· In addition, we note that Selling, General and Administration expenses were elevated during the quarter under review, up by 17.7% YoY to N5.5 billion. According to breakdown, the increase in OPEX was as a result of the 24.9% YoY increase in admin expenses, stemming from higher service fees of N1.2 billion in the quarter.
· Furthermore, the company completed the sale of its spread business (Blue Band) during the period. This resulted to one-off gains amounting to N2.2 billion, which boosted overall earnings (the sale of the spreads business was in a bid to focus more on other categories which are presumed to be performing better).
· Onto finance costs, we continue to observe respite in the line item, following the rights issue conducted in the past year. For context, finance costs declined significantly to N104.7 million (vs. N1.2 billion in Q3'17), while finance income increased by 298.1% YoY to N950.7 million. Consequently, the company recorded net finance income of N846.0 million in the period (vs. net finance expense of N945.9 million in Q3'17).
· All in, the company grew its after-tax profit by more than three-fold to N3.9 billion in the period, representing a YoY increase of 224.8%.
Analyst take: We expect sales to remain robust in Q4'18 despite the sale of the spread business. On 9M'18 numbers, the discontinued business contributes c.3.2% and 1.3% to sales and earnings apiece, we reason that this will not have a significant impact on earnings going forward. Also, the company's plan to market its deodorant product under the brand name of ...SURE" from the current ...Rexona" , is one we think will boost sales in the HPC segment, given that the former name is a familiar one with Nigerian consumers. Furthermore, the ability of the company to continuously grow its revenue, despite still weak consumer wallets, speaks to the brand loyalty enjoyed by the company.
Elsewhere, we highlight that the company has robust cash of about N46.8 billion sitting on its balance sheet. Management has indicated plans to use the idle cash to either acquire a business in the same product line as UNILEVER or a supplier of key raw materials; with the former translating to sturdier revenue growth, while the latter should result to cost savings for the firm.
Based on our last review, our target price for the counter is N35.30 (SELL) |