UNILEVER: Strong Q4'15 Performance Lifts Earnings Marginally


Wednesday, April 06, 2016 11:55AM /Vetiva Research


·         EPS down 51% despite improved Q4 performance

·         Strong top line growth improves margins

·         Board of Directors propose N0.05 DPS vs. our N0.10 estimate


EPS down 51% despite improved Q4 performance
UNILEVER reported FY’15 financial results showing a 6% y/y revenue growth (above our 2% estimate) but a 51% decline in bottom line. On the back of a very weak 9M run rate, Q4’15 performance came in strong across key line items. Tracking historical trend, Q4’15 contributed 30% and 88% to FY’15 top and bottom line respectively.

Amidst the q/q improvement in earnings, Gross Margin improved to 37.4% (strongest quarterly margin recorded in 2015) – lifting FY’15 Gross Margin to 35.5% (50bps better than our 35.0% estimate, albeit weaker than the 36.2% recorded in FY’14). Furthermore, Operating Expense moderated 9% in Q4, coming in 6% better than our estimate.

However, despite relatively flat Operating Income y/y, PBT was down 38% as Net Finance Cost remained elevated in line with earlier quarters (up 65% y/y). Overall, with a 33% effective tax rate (FY’14: 16%), PAT came in 51% weaker y/y at N1.19 billion, better than our N0.42 billion. The Board of Directors proposed a dividend of 5kobo per share.

Revenue recovers, up 18% q/q
As stated in our earlier reports, we have been cautious on the strength of UNILEVER’s brand portfolio, noting that the company has relied more on promotional campaigns recently than on innovation to boost revenue. That said, the marketing drive seems to have paid off in Q4 as Revenue rose 18% q/q amidst the weak macro environment.

With a stronger 8% y/y growth, the Food segment (Home & Personal Care segment: 4% growth), now contributes 50.5% of Revenue (highest contribution in the last 10-years). Overall, we are not optimistic about Q1’16 revenue growth as weak economic activities take its toll on historically weak quarter.

Forecasts revised downwards, SELL rating retained
We updated our model to reflect the Q4 variances. Whilst we raise our FY’16 Revenue forecast to N61.2 billion (Previous: N60.6 billion), we cut our EPS forecast to N0.60 (Previous: N0.66) pressured by an upward revision in OPEX. Consequently, our 12-month target price is also revised slightly downwards to N15.75 (Previous: N16.76).

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