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UNILEVER NIGERIA PLC FY'20 - An uphill battle to profitability

Unilever Nigeria’s stable progress on improving volumes should continue into the new year, endorsing our 7% y/y expansion expectation to ₦66.2 billion in FY’21, especially given the still low base in the first half of the year - although we note that the expected divestment of the company’s tea business by the end of the year would dampen Revenue growth. With respect to the AfCFTA and the re-opened borders, we expect a limited impact on the seasonings market, given that the imported products that had competed with local seasoning makers do not originate from African regions and do not fall under the scope of the AfCFTA. Based on this, we renew our gross margin projection of 21% for the full year. Despite an expected 5% y/y increase in Opex, we estimate that the company’s operating margin will improve 2% y/y as we do not expect further impairment losses on receivables. Furthermore, we expect the company’s stability in working capital management to influence operating cash flows positively. Unilever Nigeria’s stable progress on improving volumes should continue into the new year, endorsing our 7% y/y expansion expectation to ₦66.2 billion in FY’21, especially given the still low base in the first half of the year - although we note that the expected divestment of the company’s tea business by the end of the year would dampen Revenue growth. With respect to the AfCFTA and the re-opened borders, we expect a limited impact on the seasonings market, given that the imported products that had competed with local seasoning makers do not originate from African regions and do not fall under the scope of the AfCFTA. Based on this, we renew our gross margin projection of 21% for the full year. Despite an expected 5% y/y increase in Opex, we estimate that the company’s operating margin will improve 2% y/y as we do not expect further impairment losses on receivables. Furthermore, we expect the company’s stability in working capital management to influence operating cash flows positively.