Equity Report - Unilever Nigeria Plc 9M 18: Upgrade to BUY on compelling valuations
- Unilever Nigeria (Unilever) 9M 18 results came in ahead of our expectation, although largely as a result of the N2.2 billion gain on disposal of the spread business which was effective 01 July 2018. Excluding the gain, EPS for the nine-month period underperformed our estimate due to slower than expected sales and higher than forecasted operating expenses.
- Revenue in 9M 18 underperformed our estimate (-1.9% deviation) due to a further slowdown in Home & Personal Care (HPC) sales in Q3 18. After rising double-digit in Q1 18, HPC sales contracted in Q2 and Q3 which we link to increased importation of HPC alternatives helped by the improved availability of FX. We had earlier thought that the latest approval from its parent company to distribute its deodorant product – ‘Rexona’ under the popular name “Sure” will support HPC sales over the rest of the year, but it appears the phase out process would take a while and thus see this benefitting revenue beyond 2018. Given this, we have revised our FY 18 sales expectation lower by 3% to N99.6 billion but left our FY 19-23F sales forecast unchanged with a CAGR growth of 7%. Over our forecast horizon, we expect the food segment to drive topline growth majorly from its popular seasoning product – “Knorr”. We highlight the resilience of Unilever’s food division which since Q1 18 has remained in double digit growth (+20% YoY in 9M 18) despite the sale of its spread business.
- Net impact of the above translates to an EPS at N2.11 in 2018, but N2.04 in FY 19. Our lower EPS forecast in 2019 is due to the high base of FY 19 which has in it the one-off disposal of the spread business. Excluding the spread business, our revisions translate to a PBT of N14.6 billion and N17.2 billion in FY 18 and FY 19 respectively. Over our forecast horizon, we forecast EPS to rise by a 5-year CAGR of 6.7%. On this numbers, we forecast dividend of N0.60 in FY 18 and FY 19 which translates to an expected dividend yield of 1.5% based on the stock current market price.
- Following revision to our forecasts, we cut our FVE to N47.58 (previous: N50.98) which implies a 20.4% premium to current pricing thus, we upgrade our recommendation to a STRONG BUY. On our numbers, Unilever trades at a 2019 P/E of 19.2x, a discount to 5-year historical average of 29.8x and Bloomberg MENA peer average of 21.6x
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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