Stock & Analyst Updates | |
Stock & Analyst Updates | |
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Tuesday,
Oct 24, 2017 8:53AM/Vetiva Research
·
Impressive
revenue growth persists, 9M’17 Topline up 39% y/y
·
Stronger
growth recorded in HPC segment – up 22% q/q
·
9M’17
PAT shows strong improvement, albeit slightly below estimate
·
Slight
revision to FY’17 PAT estimate, Target price
Revenue
growth remains strong as HPC takes the lead
UNILEVER
maintained a strong positive sales momentum in its third quarter, with 9M’17
revenue up 39% y/y to N69 billion – 5% above Vetiva estimate. Though top line
performance remains largely supported by strong double-digit price increases
from prior quarters, we believe the 5% q/q revenue increase in Q3’17 reflects
higher volume contribution in the period (amidst stable prices).
Across
product lines, the Home and Personal Care (HPC) segment continues to drive
revenue (up 22% q/q) amidst a 9% decline in the Food products segment. On a y/y
basis however robust top line growth has been recorded from both segments; HPC
(up 50% y/y), Food Products (24% y/y). With an even stronger boost expected
from the traditionally stronger Q4 season, we estimate a 37% y/y topline growth
from UNILEVER for FY’17 with revenue rising to N95.7 billion (Previous: N88.8
billion).
Y/Y
rise in 9M’17 PAT, albeit marginally misses amidst softer Q3
UNILEVER
reported net earnings of N4.8 billion in 9M’17, much higher than the N1.6
billion recorded in the same period last year, but 7% below our N5.2 billion
estimate. This underperformance was largely driven by a 388bps q/q contraction
in operating margin to 12% (Vetiva: 13%) and 29% q/q rise in net finance costs
to N1.0 billion (Vetiva: N619 million).
Operating
margin was impacted by a sharp rise in Marketing costs, as well as a 188bps q/q
moderation in gross margin. Overall, Q3’17 PAT declined 40% q/q to N1.2 billion
– 18% below Vetiva estimate – however much higher than the N388 million from
the same period last year.
Optimistic
on seasonally stronger Q4; FY’17E PAT to surpass records
Following
the moderation recorded in Q3’17, we cautiously revise our FY’17 operating
margin estimate to 13% (Previous: 14%, Q3’17: 12%). Despite the spike in
financing costs in the quarter, we foresee a moderation in net interest expense
in Q4’17 given the 63% q/q decline in borrowings to N7.6 billion at the end of
9M’17. Similarly, we highlight UNILEVER closed its c.N59 billion equity capital
raise, which was earmarked for the repayment of outstanding debt obligations.
Hence,
we expect finance cost to come in softer in the coming quarters. Overall,
following the upward revision to our revenue estimate, our FY’17E PAT is
revised slightly higher to N6.92 billion (Previous: N6.89 billion) amidst lower
margin expectation. This translates to a 125% y/y rise in bottom line to
potentially the highest PAT on record by the HPC leader. Our FY’17 DPS estimate
is unchanged at N0.30 (2016: N0.10).
Consequently,
we revise our Target Price to N26.10, SELL (Previous: N25.01). Major downside risk
to this valuation would be a much lower boost from the seasonally stronger
festive season in Q4, whilst upside would be a tighter control of operating
expenses.
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