NIGERIA| CONSUMER GOODS| UNILEVER

Quick Take: Discontinued operations contribute to positive bottom-line growth

Unilever Nigeria Plc. (Unilever) reported a 45.8% y/y Revenue growth in its 9M 2024 earnings release, with Revenue rising to ₦103.85 billion from ₦71.21 billion in 9M 2023. This growth was driven by improved asset optimization, as well as increases in both sales volumes and prices. The company's food products segment remained the largest contributor to total Revenue, accounting for approximately 59.1% of the total. Revenue from this segment grew by 42.2% y/y to ₦61.40 billion in 9M 2024, compared to ₦43.18 billion in 9M 2023, when it contributed around 60.6% to overall Revenue. Significant growth was also seen in the personal care and beauty & wellbeing segments, with y/y revenue growths of 48.1% and 68.6% to ₦34.67bn and ₦7.77bn respectively. This growth was partly due to increased spending on brand marketing and media to boost product visibility. Domestic sales reached ₦100.61 billion, reflecting a 45.3% y/y increase from ₦69.24 billion in 9M 2023. Export sales also saw a notable rise, surging 65.1% y/y to ₦3.24 billion, up from ₦1.96 billion in 9M 2023. Unilever's annualized asset turnover improved to 1.02x in 9M 2024, up from 0.89x in FY 2023, indicating the company's enhanced ability to efficiently utilize its asset base to generate higher Revenue during the period.

Cost of Sales for Unilever grew at a slower pace to Revenue, increasing by 25.8% y/y to ₦60.96bn in 9M 2024, up from ₦48.45bn in 9M. This growth was moderated by revaluation gains of circa ₦4.73bn on the company's foreign currency-denominated balances. As a result, the cost-to-sales ratio improved to 58.7% in 9M 2024, from 68.0% in the previous year. Unilever's Gross Profit for 9M 2024 surged by 88.4% y/y to ₦42.89bn, up from ₦22.76bn in 9M 2023 while Gross Profit Margin also increased notably, rising by 9.3 percentage points to 41.3%, compared to 32.0% in 9M 2023

Unilever's Total Operating Expenses jumped to ₦38.42bn in FY 2024, compared to ₦12.54bn in FY 2023. This increase was primarily driven by a significant 153.1% y/y rise in Marketing and Administrative Expenses to ₦30.07bn in FY 2024 from ₦11.88bn the previous year as the effect of Naira devaluation on foreign denominated obligations impacted overheads, and the company engaged in extensive brand marketing through various projects and campaigns to improve product visibility and trade in its personal care and food products categories in the period.

Also, Selling and Distribution Expenses grew by 51.4% y/y to ₦6.19bn in FY 2024, up from ₦4.09bn in FY 2023 due to higher price levels driven by high inflation while the company booked Impairment Loss on Trade & Other Receivables to the tune of ₦2.16bn in FY 2024 compared to a writeback of ₦3.43bn in FY 2023. Overall, OPEX Ratio for Unilever in FY 2024 settled at 25.7%, up from 12.1% in FY 2023.

Due to the high Operating Expense in 2024, Unilever's EBITDA for FY 2024 dropped to ₦20.13bn, a 12.8% decrease from ₦23.07bn in FY 2023. The EBITDA margin also declined by 8.8 percentage points to 13.4%, down from 22.2% in 2023. Operating profit also dipped, down by 13.1% y/y to ₦17.61bn in FY 2024 compared to ₦20.26bn in FY 2023. Unilever's EBIT margin moderated to 11.8% for FY 2024, 7.7 percentage points lower than the 19.5% recorded in FY 2023.

Finance Income for Unilever in FY 2024 was ₦7.16bn, higher than ₦4.67bn in FY 2023. This was mainly driven by FX gains on the company's bank accounts, which came in at ₦3.44bn in the period compared with ₦880.39m in FY 2023. On the flip side, Finance Cost dipped slightly by 0.4% y/y to ₦3.03bn in FY 2024, down from ₦3.04bn in FY 2023. This was supported by lower interests on third-party bank loans, which pared to ₦2.82bn in FY 2024 from ₦2.89bn in FY 2023. Consequently, Net Finance Income for Unilever rose by 153.2% y/y to ₦4.13bn in FY 2024, up from ₦1.63bn in FY 2023.

Unilever's Profit Before Tax declined slightly by 0.7% year-over-year (y/y) to ₦21.74 billion in FY 2024, compared to ₦21.89 billion in FY 2023. After accounting for an Income Tax Expense of ₦5.83 billion (FY 2023: ₦5.48 billion), Profit from Continued Operations dipped by 3.1% y/y to ₦15.91 billion, down from ₦16.41 billion in FY 2023. However, with no Loss from Discontinued Operations in FY 2024 (compared to a ₦7.98 billion loss recorded in FY 2023), Unilever's Net Profit surged by 88.5% y/y, rising from ₦8.44 billion in FY 2023 to ₦15.91 billion in FY 2024

We currently have a BUY recommendation on the stock, with a target price of ₦44.02 per share. Current Price: ₦38.00 per share

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