UNILEVER Records 85% PBT Decline in Q3'15 Results as Analyst Rates Stock Underperform


Monday October 28, 2015 / 2.20PM /FBN Capital Research

Unilever Nigeria reports Q3 2015 results

Implications: Significant cuts to consensus estimates expected

Positives: No obvious positives

Negatives: PBT down -85% y/y

This morning,
Unilever Nigeria (Unilever) reported Q3 2015 results which showed that sales of N14.0bn were down -2.6% y/y while PBT and PAT were down -86.7% y/y and -90.2% y/y respectively. Although opex declined -10% y/y, this was not strong enough to offset a -354bp y/y gross margin contraction and a 44% y/y rise in finance costs.

These led to the significant y/y decline in PBT. PAT fell by a wider margin owing a higher tax rate of 48% versus a tax rate of 24% in Q3 2014. Sequentially, while sales were flattish q/q, PBT and PAT of N107m and N55m respectively, compare with losses of –N771m and –N505m reported in the preceding quarter.

Compared with our estimates, while sales came in 6% behind, PBT and PAT missed by an average of 89%. The main reason for the variance was due to opex coming in 21% higher than we modeled despite gross margin surprising by around 209bps compared to what we modeled.. Given the challenging macro environment, which has restricted the company from growing its topline, we expected to see an ease off in marketing expenses. We believe that perhaps distribution costs are taking more of a toll on the company’s fortunes. We await management’s comments on this.

Unilever’s 9M numbers also track behind consensus estimates. While sales are broadly in line, PBT and PAT are lagging behind by 85% and 91% respectively.

Year to date, Unilever shares have gained 13.7%, outperforming the NSE ASI which has shed -14.7%. The stock’s appreciation this year is mainly due to Unilever Overseas Holdings increasing its stake in Unilever Nigeria, at a tender price of N45.50. Following the tender offer, which was completed around the end of Q2, the stock has shed around 5%.

Despite the recent mild sell off, we still find the shares expensive.
On our published estimates, the shares are trading on a 2015E P/E multiple of 132.5x (compared with an average of about
25x for our universe of consumer goods stocks) for a 2016E EPS growth of 19.8% y/y.

We do not expect a turnaround in Unilever’s fortunes in the near to medium term given the weak macro environment. We continue to believe that consumer goods names with a material exposure to non-foods, such as Unilever, would struggle even more.

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

Unilever Nigeria Q3 2015 results: actual vs. FBN Capital Research estimates (N millions)

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