August 30, 2016/InvestmentOne Research
Topline forecast raised by +6.3% ; Sell rating maintained
Unilever Q2 2016 results showed sustained growth in both top and bottom-line figures, buoyed by lower-base effect. However, input costs pressure resulted in massive contraction in margins across the P& L line. While turnover was up by c.5% y/y relative to our forecast, gross margin of 27% contracted by over 600bps y/y. In addition, both PBT and PAT margins contracted by over 800bps and 500bps y/y respectively. With the positive upturn in topline and the recent growth in core segments (such as Food and Home care products), we have modelled a sales growth of +10.0% for Unilever through 2017. We have also obtained a new target price of N23.74 which offers a downside of -38.5% at current levels. As such, we maintain our SELL rating on the stocks of Unilever. The cut in our new FV was largely influenced by higher risk-free rate of 15% which reflects spike in yield on FGN bond. Unilever’s currently trades at a 2016 P/E multiple of 39.64x for an EPS growth of -50.23x in 2016 compared to sector average PE multiple of 17.54x and EPS growth of -11.49x.
PBT and PAT grew by over 100% in Q2: UNILEVER NIGERIA Plc (UNILEVER) recently released its unaudited Q2 2016 results which showed that PBT and PAT grew by over 100% y/y to c.N68mn c.N52mn respectively. We highlight that this is largely due to lower-base effect given the loss before and after tax of c.-N770mn and c-.N504mn in Q2 2015 The growth in bottom line was driven by a combination of over 600bps and 300bps y/y expansion in both PBT and PAT margin, a +12% y/y uptick in sales, and -824bps contraction in opex/sales which offset the over 600bps contraction in gross margin. However, sequential trend was less-inspiring reflecting the challenging macro situation in Q2:2016. Sales was down by over -7% q/q while PBT and PAT declined by -95% q/q each. Margin wise, Unilever’s gross margin was down by over -800bps q/q suggestive of increased pressure on input costs from difficulty in accessing FX. Similarly, both PBT and PAT margin of 0.4% and 0.3% q/q contracted by -800bps and -600bps q/q respectively.
Going forward, while the company continues to maintain its leading market position in core business segments, we highlight that the future remains dim given the challenges macro headwinds (rising inflation, squeeze in disposable income, volatility in exchange rate as well as higher energy costs) pose to topline and margin performance.
