July 25, 2018/FBNQuest Capital
No changes to EPS forecasts
Unilever Nigeria’s (Unilever) earnings of N2.9bn grew 42% y/y and were in line with our forecast. We deduce from the Q2 figures that the firm restated its Q1 2018 numbers. Given that the results did not spring any major surprises, we have made no changes to our earnings forecasts over the 2018- 2020E period.
However, our new price target of N45.0 is 4.4% higher because we have rolled forward our valuation to 2019E. We retain our positive growth outlook for the 2018 with sales and earnings growth forecasts of 18% y/y and 10% y/y respectively. Although the trading environment remains difficult, we do not foresee a halt to the firm’s current earnings trajectory given that H2 is seasonally stronger. Additionally, we continue to expect the influx of cash, following the successful N58.9bn rights issue which was completed last year, to have a positive impact on earnings.
Unsurprisingly, the firm has successfully deleveraged its balance sheet, following the repayment of intercompany loans – a key reason behind the capital injection. Year-to-date, Unilever shares have gained 27.1%, outperforming the broad index by around 32%.
However, from current levels, our N45.0 price target implies a downside potential of -13.6%. As such, we are retaining our Underperform rating on the stock. At current levels, Unilever shares are trading on a 2018E P/E multiple of 25.4x for an average EPS growth of 12% over the 2018-20E period.
Q2 2018 PBT and PAT both up 32% y/y and 42% y/y resp.
Q2 2018 results showed that sales grew by 8% y/y to N24.7bn. PBT and PAT grew faster by 32% y/y and 42% y/y respectively. A 19% y/y growth in the Food Products category offset a marginal sales decline of c.-2% y/y in the Home and Personal Care segment. The topline growth and gross margin expansion of +213bp y/y to 35.3% more than offset opex growth of around 49% y/y. On a sequential basis, growth for all P&L items was modest.
Sales were up 5% q/q while PBT came in flattish q/q. A significant gross margin expansion of +717bp q/q and a net interest income of N1.0bn more than offset a double-digit q/q rise in operating costs. We attribute the net finance income to the influx of cash from the successful N63bn rights issue of last year. Compared with our forecasts, while sales came in behind our N26.4bn estimate by c.-7%, PAT was in line with our forecast.