Unilever Nig Q4 2015 results rated Underperform and estimates now under review

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Tuesday, March 29, 2016 9:50AM /FBNQuest Research 

Event: Unilever Nigeria reports Q4 2015 results

Implications: Modest upward revisions to consensus estimates likely 

Positives: PBT and PAT both up, by 380% y/y and 78% y/y respectively 

Negatives: Net interest charges increased 9% y/y  

Late on Thursday of last week, Unilever Nigeria (Unilever) reported Q4 2015 results which showed that sales and PAT increased by 36% y/y and 78% y/y respectively. PBT increased by a wider margin of 380% y/y.  

The strong y/y sales growth was the primary driver of the PBT increase, helped by a gross margin expansion of 928 bps y/y to 37.4%. These positives more than outweighed a 60% y/y rise in operating expenses and 9% y/y increase in net finance charges. Below the PBT line, Unilever recorded a tax charge of –N518m in Q4 2015, compared with a tax credit of N264m in Q4 2014.  

As such, Q4 2015 PAT grew by a slimmer margin of 78% y/y than the y/y change on the PBT line. Sequentially, while sales increased by 18% q/q, PBT and PAT increased by wider margins of over 1,500% y/y on average.  

On a full year basis, sales grew 6% y/y to N59.2bn, while PBT and PAT both declined, by -38% y/y and -51% y/y to N1.8bn and N1.2bn respectively. FY sales and PBT were ahead of consensus estimates of N57.6bn and N615m respectively.  

 

Compared with our estimates, while sales were ahead by 25%, PBT and PAT came in much stronger. The main reason for the disparity was the better-than-expected sales result. Although Q4 is one of Unilever’s stronger quarters owing to seasonality, which we factored in our model, we did not expect sales growth to be meaningful due to the persistent unfavourable macroeconomic environment.  

We await management’s comment on the drivers and sustainability of the sales growth. On gross margins, Unilever Nigeria has mentioned that it aims to source about 90% of its raw materials locally.  

Unilever declared a dividend of 5kobo per share which implied a dividend yield of 0.2% and a payout ratio of 16%. The dividend came in 50% lower than what the company declared in 2014. (FY 2015 adjusted EPS was down -51% y/y). 

Year to date, Unilever shares have shed -28.5%, underperforming the NSE ASI which has shed -9.6%. Despite the recent sell-off, we still find the shares expensive. Going forward, we expect that consensus estimates will remain fairly conservative as it will take consistently relatively strong results for the market’s view on the company to turn completely positive. We continue to believe that consumer goods names with a significant exposure to non-foods, such as Unilever, are likely to face greater challenges.  

We rate the stock Underperform. Our estimates are under review.   

Unilever Nigeria Q4 2015 results: actual vs. FBNQuest Research estimates (N millions) 

 

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