Tuesday, January 22, 2019 1:02:34 PM- Nigerian Stock Exchange.

  UNILEVER NIGERIA: Analysts retain Underperform rating


No changes to EPS forecasts

25 July 2018 ( Lagos ) :Unilever Nigeria’s (Unilever) earnings of N2.9bn grew 42% y/y and were in line with analyst's forecast. Analysts deduce from the Q2 figures that the firm restated its Q1 2018 numbers. Given that the results did not spring any major surprises, analysts have made no changes to their earnings forecasts over the 2018-2020E period. However, their new price target of N45.0 is 4.4% higher because analysts have rolled forward their valuation to 2019E. 

Analysts retain their positive growth outlook for the 2018 with sales and earnings growth forecasts of 18% y/y and 10% y/y respectively. Although the trading environment remains difficult, analysts do not foresee a halt to the firm’s current earnings trajectory given that H2 is seasonally stronger. Additionally, analysts continue to expect the influx of cash, following the successful N58.9bn rights issue which was completed last year, to have a positive impact on earnings. 

Unsurprisingly, the firm has successfully deleveraged its balance sheet, following the repayment of intercompany loans – a key reason behind the capital injection. Year-to-date, Unilever shares have gained 27.1%, outperforming the broad index by around 32%. However, from current levels, analyst's N45.0 price target implies a downside potential of -13.6%. As such, analysts are retaining their Underperform rating on the stock. At current levels, Unilever shares are trading on a 2018E P/E multiple of 25.4x for an average EPS growth of 12% over the 2018-20E period.


Q2 2018 PBT and PAT both up 32% y/y and 42% y/y resp.

Q2 2018 results showed that sales grew by 8% y/y to N24.7bn. PBT and PAT grew faster by 32% y/y and 42% y/y respectively. A 19% y/y growth in the Food Products category offset a marginal sales decline of c.-2% y/y in the Home and Personal Care segment. The topline growth and gross margin expansion of +213bp y/y to 35.3% more than offset opex growth of around 49% y/y. 

On a sequential basis, growth for all P&L items was modest. Sales were up 5% q/q while PBT came in flattish q/q. A significant gross margin expansion of +717bp q/q and a net interest income of N1.0bn more than offset a double-digit q/q rise in operating costs. Analysts attribute the net finance income to the influx of cash from the successful N63bn rights issue of last year. Compared with analyst's forecasts, while sales came in behind their N26.4bn estimate by c.-7%, PAT was in line with their forecast.

Source : Gregory Kronsten, Olubunmi Asaolu, Chinwe Egwim from FBNQuest Capital Limited.

Reporting for EasyKobo on Wednesday, 25 July 2018 in Lagos, Nigeria

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