UNILEVER Rated Underperform in Q1'16 Results as Both PBT & PAT Grow by 64% & 76% YoY


Friday, April 15, 2016 3:27PM /FBNQuest Research

Event: Unilever Nigeria reports Q1 2016 results

Implications: Upward revisions to consensus estimates likely

Positives: PBT and PAT both up, by 64% y/y and 76% y/y respectively

Negatives: Opex increased 18% y/y

Early this afternoon, Unilever Nigeria (Unilever) reported Q1 2016 results which showed that while sales of N16.8bn were up 13% y/y, PBT and PAT increased by wider margins of 64% y/y and 76% y/y to N1.4bn and N1.0bn respectively. In addition to the strong sales growth, the PBT increase was also driven by a 200bp y/y gross margin expansion to 36% and a -36% y/y decline in net finance charges.

We attribute the softer net finance charges to a c.30% decline in short term loans and borrowing over the January to March period. These positives more than offset an 18% y/y increase in operating expenses. The PAT growth was stronger than that of PBT due to a lower tax rate of 26.6% vs. 31.7% in Q1 2015.

On a sequential basis, sales and PAT were flattish q/q, while PBT declined by -10% q/q. The PBT q/q regression was driven by a -148bp q/q gross margin contraction and a 5% q/q rise in opex – both of which more than offset a 30% q/q decline in net finance costs. A -639bp q/q decline in the tax rate helped to limit the decline in PAT. As such, PAT was flattish q/q.

Compared with our unrevised estimates (since the better-than-expected Q4 2015 were published), sales came in 19% ahead while PBT and PAT were significantly stronger. The wide variance was due to the better-than-expected sales growth as well as net finance charges coming in 35% softer than what we forecast.

Unilever management has not guided the market on their outlook for some time, hence the wide disparity between our forecasts (and consensus) and the actual reported figures. However, the company released a statement last month stating that it plans to source up to 90% of its raw materials locally. It appears this strategy may have started paying off. Q1 2016 gross margin expanded by 200bps y/y.

Year to date, Unilever shares have shed -32.4%, underperforming the NSE ASI which has shed -13.9%. Given the second consecutive positive set of results from the company, consensus is likely to cautiously raise its estimates. Although we continue to believe that consumer goods names with a significant exposure to non-food, such as Unilever, are likely to face greater challenges, it appears that the company may have started making some adjustments to soften the negative impact of the macro challenges which are still being felt. We hope to obtain some comments/clarification from management on this.

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

Unilever Nigeria Q1 2016 results: actual vs. FBNQuest Research estimates (N millions) 

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