December 7, 2018/FBNQuest Research
Slight changes to EPS forecasts
Unilever Nigeria’s (Unilever) Q3 2018 earnings, which beat our forecast by 29%, were largely boosted by gains recorded from the sale of the spreads business (Blue Band). Stripping this gain out, we estimate that PBT would have shown a negative surprise of 30%. Turning to Unilever’s operating line items, underperformance in sales (-11%) and operating margin (-294bps) negatively impacted normalised earnings for Q3, despite a positive surprise in gross margin (+65bps).
We have made slight changes to our forecasts, with the net effect being a 1% reduction in our average EPS forecasts over the 2018-2020E period. Consequently, our new price target of N43.3 is -4% lower than previous. We nevertheless still hold a positive growth outlook for Unilever over the near-to-medium term with 2018-2020E sales and earnings CAGR forecasts of 16% and 8% respectively.
Year-to-date, Unilever shares have lost 3.7%, but have outperformed the broad index which is down 18.5%. From current levels, our N43.3 price target implies an upside potential of 11.2%. As such, we have upgraded our rating on the stock to Neutral. At current levels, Unilever shares are trading on a 2018E P/E multiple of 17.5x for an average EPS growth of 12% over the 2018-20E period.
Q3 2018 PBT and PAT up significantly
Q3 2018 results showed that sales grew by 7% y/y to N24.2bn. A 5% y/y growth in the Food Products category was offset by a sales decline of -3% y/y in the Home and Personal Care segment. PBT and PAT, both of which grew significantly, were boosted by the one-off gain from the spread business’ sale. Both gross and operating margins contracted by 118bps and 366bps respectively.
On a sequential basis, sales were up 8% q/q while PBT and PAT were up 41% and 42% respectively. Compared with our forecasts, while sales came in 11% behind our N27.1bn estimate, PBT was 25% higher while PAT was 29% higher.