Monday, July 17, 2017 10:35AM / FBNQuest Research
Event: Unilever Nigeria reports Q2 2017 results
Implications: Upward revisions to consensus estimates expected
Positives: Sales up 48% y/y, PBT and PAT up significant
Negatives: Net interest charges up 318% y/y
Late on Friday of last week, Unilever Nigeria (Unilever) reported Q2 2017 results which showed positives on major key P&L items. Sales of N22.9bn grew by 48% y/y. PBT and PAT of N2.9bn and N2.1bn compare with Q2 2016 PBT and PAT of N68m and N52m respectively.
Although net interest charges advanced by 318% y/y, this was not strong enough to offset the strong y/y sales growth, a 532bp y/y gross margin expansion and a minuscule y/y decline in operating expenses, leading to the strong bottom-line.
Sequentially, sales were ahead by 3% q/q while PBT and PAT grew by 31% q/q and 29% q/q respectively. Operating expenses and net finance charges grew by 12% q/q and 35% q/q respectively. However, these were not strong enough to offset the sales growth and a 482bp q/q gross margin expansion to 33%.
On a half year basis, sales of N45.1bn grew by 40% y/y. PBT and PAT of N5.0bn and N3.7bn advanced by 238% y/y on average. Although gross margin contracted by -124bps and net interest charges doubled y/y, these were more than offset by the strong sales growth and an -8% y/y decline in operating expenses.
Compared with our estimates, Q1 sales were ahead by 18% while PBT and PAT were ahead by wider margins, mainly due to the positive surprise on the sales line. On an annualised basis, Unilever’s H1 2017 sales are tracking ahead of consensus’ FY estimate of N82bn by 10%. PBT and PAT are ahead by 60% on average. As such, we expect to see upward revisions to consensus’ FY 2017 estimates.
This quarter marks the third consecutive quarter that Unilever will deliver PBT in the N2bn range - the usual run-rate before the economic challenges started in 2014. We believe this is as a result of weaker competition stemming from crowding-out of importers.
Also, gross margin was above 30%, the second time since 2015 which can be attributed to the CBN’s intervention in the fx market which has made fx more accessible for importation of raw materials. As such, it is safe to say that the company is well on its road to recovery.
Last quarter, 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.
Year to date, Unilever shares have shed -5.7% and have significantly underperformed the NSE ASI which has gained 23.8%. We expect the market to react positively to these numbers.
We rate the stock Neutral. Our estimates are under review.
Unilever Nigeria Q2 2017 results: actual vs. FBNQuest Research estimates (N millions)
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