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Unilever Nigeria Q1 2017 Results - Gross Margin Contracted by 756bps YoY

Proshare

Tuesday, April 18, 2017/5:56 PM/FBNQuest Research

Event: Unilever Nigeria reports Q1 2017 results

Implications: Upward adjustments to consensus estimates likely

Positives: Sales up 32% y/y; PBT and PAT both up 54% y/y

Negatives: Gross margin contracted by -756bps y/y 

This afternoon, Unilever Nigeria (Unilever) reported Q1 2017 results which showed positives on major key P&L items.

Sales of N22.2bn grew by 32% y/y while PBT and PAT of N2.2bn and N1.6bn respectively both advanced by 54% y/y. Although gross margin contracted by -756bps y/y and net finance costs grew 18% y/y, these were more than offset by the strong y/y sales growth and a -14% y/y decline in operating expenses, leading to the strong bottom-line.  

Sequentially, sales were ahead by 11% q/q while PBT was behind by -16% q/q. The reason for the decline in PBT was a significant q/q growth in net finance costs.  

A lower tax rate of 27% compared with tax rate of 42% recorded in Q4 2015 led to a PAT growth of 7% q/q.  

Compared with our estimates, Q1 sales were ahead by 17% while PBT and PAT were ahead by wider margins, mainly due to the positive surprise on the sales line.  

On an annualised basis, while sales are tracking ahead of consensus full year estimate of N76bn by 16%, PBT and PAT are ahead by 87% on average. 

Although fx sourcing for raw material importation remains a challenge, any adverse effect has been offset by positives seen in the topline.  

We continue to believe that the larger consumer goods companies (like Unilever) are benefiting from weaker competition and thus able to grow market share. 

Last week, Unilever announced plans to raise N63bn via a rights issue. We believe the company intends to de-lever its balance sheet and partly raise funds for planned local manufacturing capacity expansion for its personal care business in the South-West region.

The shares have declined by -6% since the announcement. 

Year to date, Unilever shares have shed -5.3% and have marginally outperformed the NSE ASI which has shed -6.2%. We expect the market to react positively to these numbers.

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

Unilever Nigeria Q1 2017 results: actual vs. FBNQuest Research estimates (N millions)


 

Actual

Y/y

Q/q

FBNQuest est.

Act. vs FBNQuest est (%)

Sales

22,172

32.1%

11.4%

   18,964

16.9%

Cost of sales

-15,879

47.7%

11.0%

-13,464

17.9%

Gross profit

6,293

4.3%

12.5%

5,500

14.4%

-Gross margin

28.4%

-756bps

27bps

29.0%

-62bps

Operating expenses

-3,543

-14.1%

17.3%

-3,888

-8.9%

Other operating income

5

n/a

-95.7%

25

-79.9%

Operating profit

2,755

44.4%

2.3%

1,637

68.3%

Net int. and similar chgs

-575

17.6%

488.7%

-600

-4.2%

PBT

2,180

53.6%

-16.0%

1,037

110.2%

-PBT margin

9.8%

138bps

-321bps

5.5%

436bps

Tax

-577

52.7%

-47.1%

-280

106.1%

Tax rate

26.5%

-16bps

-1556bps

27.0%

-53bps

PAT

1,603

53.9%

6.5%

757

111.8%

-PAT margin

7.2%

102bps

-33bps

4.0%

324bps

Source: NSE, FBNQuest Research estimates

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