Culled—Proshare

April 19, 2018/FBNQuest Research  

Event: Unilever Nigeria reports Q1 2018 results
Implications: Market reaction likely to be neutral to slightly positive
Positives: PBT and PAT up by 80-81% y/y
Negatives: Limited to gross margin contraction of 72bps y/y

Earlier today, Unilever Nigeria (Unilever) reported its Q1 2018 results which showed that sales grew by 16% y/y to N25.8bn. PBT and PAT grew faster by 80-81% y/y. Although gross margin contracted by -72bps y/y to 27.7%, this was not enough to offset the y/y sales growth and a positive swing on the net interest line to N396m from a net finance charge of –N575m in the corresponding quarter of 2017, leading to the stronger bottom line. We attribute the net finance income to the influx of cash from the successful N63bn rights issue of last year.

On a sequential basis, sales advanced by 19% q/q. However, PBT declined by -11% q/q due to a -704bp q/q gross margin contraction and a -35% q/q decline in net finance income. Owing to a relatively softer tax rate of 26% (vs. 40% in Q4 2017), Q1 PAT advanced by 11% q/q. Compared with our estimates, Q1 sales, PBT and PAT were ahead by 6%, 3% and 4% respectively.

For the last three quarters, gross margins were above 30%; we attribute this to the improved macro environment and more particularly, the CBN’s intervention in the fx market through the NAFEX window. Management also said that Unilever was working on attaining 100% sourcing of its packaging materials locally by 2019 and has begun engaging local farmers to reduce importation. As such, the 27.7% figure reported this quarter surprised negatively because we expected that the company would still be enjoying benefits from the aforementioned, particularly the former.

On an annualised basis, Q1 sales and PBT are on track to meeting consensus’ FY 2018 estimates of N101bn and N15bn respectively. We expect the market’s reaction to these numbers to be neutral to slightly positive.

Year to date, Unilever shares have gained 34.2% and are tracking ahead of the index which is up 7.0%.

We rate the stock Underperform. Our estimates are under review.

Unilever Nigeria Q1 2018 results: actual vs. FBNQuest Capital Research estimates (N millions)
Source: NSE, FBNQuest Capital Research estimates