August 5, 2019/Cordros Report

Results summary (Q2/H1-19): UNILEVER reported H1-19 EPS of NGN0.61 was down 37.2% y/y due to lower revenue, downwardly sticky input costs, and lower net finance income. Overall, H1-19 EPS is tracking behind market’s expectation for 2019FY (NGN1.53) and Cordros’ estimate of NGN1.27. Q2-19 revenue declined by 1.7% following lower volume outturn in the HPC segment (HPC revenue declined 9.0% y/y). The segment, especially Laundry products, continues to suffer from competitive pressures from low cost producers and illegal imports. Notably, the contribution of the Food segment (52%) to total revenue surpassed that of the flagship HPC segment (48%), with the current mix not seen since Q3-16. On quarter-on-quarter basis however, revenue recovered strongly from the election-disrupted Q1, growing 21.8% q/q.
 
Q2-19 revenue missed estimate; estimate for 2019E is revised lower: UNILEVER’s Q2-19 revenue of NGN23.42 billion missed our estimate for the period (-7% variance), following continued weakness in the HPC segment. At NGN42.66 billion, achieved revenue in H1-19 is 11.4% lower vs. H1-18. Considering H2 periods have been the seasonally weaker half in 3 out of the last 5 years, revenue growth expectation for H2 19 is not expected to make up for the significant decline in Q1. Thus, we revise 2019E revenue lower by 3.4% to NGN88.96 billion.
 
Valuation: The net impact of the changes to our model is a downward revision in our TP to NGN25.25/share (from NGN26.78). This represents a 21.1% downside to the current share price of NGN32.00. As a result, we downgrade the stock to ‘SELL’ from the previous ‘HOLD’ rating. At the current price, we estimate that UNILEVER will trade at 2019E and 2020E forward P/Es of 26.3x and 22.3x, respectively, with EV/EBITDA for the respective years settling at 13.9x and 10.3x, respectively.

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