Unilever Nigeria Plc - Profits Surge on Improved Sales


Tuesday, Oct 24, 2017 11:53AM/Capital Bancorp 

Riding on the back of improvement in general economic and business conditions in the Nigerian economy, Unilever Nigeria has continued to post better earnings in the course of the year 2017. 9M’17 earnings release came in with a revenue growth of 38.01% to
69.12 billion (vs. 49.87 billion in 9M’16). For the period under review, the company continued to report higher sales volumes in both of its business segments, though the home and personal care segment recorded a higher growth for the 9M’17 period. 

9M’17 segment revenue reported a 23.39% growth in its food products business to
32.26 billion (vs. 26.14 billion in 9M’16) while its home and personal care segment reported a 55.07% growth to 36.86 billion (vs. 23.77 billion in 9M’16). Similarly, cost of sale for the period also grew significantly by 35.61% to 47.69 billion (vs. 35.17 billion in 9M’16) while gross profit for the period grew by 45.79% to 21.43 billion (vs. 14.70 billion in 9M’16). Gross margin mildly increased to 31.00% for the period from 29.48% reported in 9M’16 on the back of a slower rising cost of sale for the period. 

Given that the company recently concluded a rights issue of which the proceeds have been projected to be used in liquidating intercompany loans which are dollar denominated as well as used to support other working capital needs, we expect to see significant improvement in other income, a reduction in finance cost and a gradual elimination of foreign exchange loss on financing. Going forward, we have revised our target price slightly higher to
46.99 with a HOLD recommendation on the company shares. 

Finance cost still on the rise but projected to ease;
while the company reported a 39.74% rise in selling and distribution expenses, marketing and administrative expense eased mildly by 2.35% to 9.15 billion (vs. 9.37 billion in 9M’17). Operating profit was then reported at 9.17 billion (vs. 3.11 billion in 9M’16) representing a massive rise of 194.84%. Given the high interest rate regime under the review period, Unilever Nigeria reported a significant increase in finance cost for the period to 2.98 billion (vs. 1.74 billion in 9M’16) representing an increase of 70.75%. 

Though the company reported slight moderations in other line items under finance cost, Interest on intercompany loans to the tune of
1.15 billion against nothing reported for 9M’16 was mainly responsible for the significant rise reported in finance cost. This significant rise in finance cost reduced the growth reported in profit before tax despite the 351.57% increase in finance income for the period. 

Profit after tax expected to impress into FY’17;
Though coming from a difficult operating year 2016, Unilever’s 2017 profits have excited shareholders. For 9M’17, profit before tax grew by 351.57% to 6.82 billion (vs. 1.51 billion in 9M’16). Profit after tax for the period was reported at a slower growth rate of 207.98% to 4.82 billion (vs. 1.56 billion in 9M’16) on the back of a tax charge of 1.99 billion in 9M’17 against a tax credit of 56.16 million in 9M’16. PBT and PAT margins improved to 9.87% and 6.98% respectively (vs. 3.03% and 3.14% respectively in 9M’16). Net asset per share also improved having grown by 72.03% to 4.27 (vs. 2.48 in 9M’16). 

Going forward we believe that the company is on the right path to improving its earning capacity and we expect shareholders to be pleased in the long term.

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