Culled—Proshare

March 24, 2017/FBNQuest Research

Event: Unilever Nigeria reports Q4 2016 results
Implications: Upward adjustments to consensus estimates likely
Positives: Sales, PBT and PAT up 21% y/y, 65% y/y and 43% y/y respectively
Negatives: No obvious negatives

This afternoon, Unilever Nigeria (Unilever) reported Q4 2016 results which showed positives on major key P&L items. Sales of N19.9bn grew by 21% y/y while PBT and PAT of N2.6bn and N1.5bn respectively advanced by much wider margins.

Although gross margins contracted by -932bps y/y, this was more than offset by the strong y/y sales growth and declines of -23% y/y and –86% y/y in operating expenses and net finance costs respectively, leading to the strong bottom-line. A tax rate of 42% was 900bps higher y/y and weighed on PAT.

Sequentially, sales were up 13% q/q while PBT and PAT advanced significantly q/q. The drivers of the strong q/q bottom-line were the q/q sales growth, a 340bp q/q expansion in gross margins and declines of -11% q/q and -90% q/q in operating expenses and net finance costs respectively.  

Compared with our estimates, Q4 sales were ahead by 7% while PBT and PAT were ahead by wider margins, mainly due to positive surprises on the opex and net interest expense lines.

On a FY basis, sales of N69.8bn grew by 18% y/y. PBT and PAT of N4.1bn and N3.1bn advanced by 132% y/y and 158% y/y respectively. Despite a y/y gross margin contraction of -645bps y/y, the positives – strong y/y sales growth and declines of -11% y/y and 41% y/y in opex and net interest expense – more than offset this setback. The FY sales were broadly in line with consensus’ estimate of N67.9bn. However, PBT and PAT were higher than consensus estimates by 64% and 44% respectively.

Unilever declared a dividend of 10kobo (versus 5kobo in 2015) which implies a yield of 0.3%. We forecasted a dividend of 8kobo (versus consensus estimate of 29kobo).

Last year, fx sourcing for the importation of raw materials was a major challenge faced by the consumer goods names. However, we believe the impact of this challenge was greater for the smaller competitors. As such, the likes of Unilever appear to have gained market share, offsetting the negative impact of fx importation issues on cogs.

Year to date, Unilever shares have shed -7.7% and have underperformed the NSE ASI which has shed -5.1%. We expect the market to react positively to these numbers. We rate the stock Underperform. Our estimates are under review.

Unilever Nigeria Q4 2016 results: actual vs. FBNQuest Research estimates (N millions)