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UNILEVER NIGERIA PLC 9M'17 - Solid earnings performance; set to beat PAT record

Solid earnings growth; set to beat PAT record                                                                   

UNILEVER maintained a strong positive sales momentum in its third quarter, with 9M’17 revenue up 39% y/y to N69 billion – 5% above Vetiva estimate. Though top line performance remains largely supported by strong double-digit price increases from prior quarters, we believe the 5% q/q revenue increase in Q3’17 reflects higher volume contribution in the period (amidst stable prices). With an even stronger boost expected from the traditionally stronger Q4 season, we estimate a 37% y/y topline growth from UNILEVER for FY’17 with revenue rising to N95.7 billion (Previous: N88.8 billion). UNILEVER reported net earnings of N4.8 billion in 9M’17, much higher than the N1.6 billion recorded in the same period last year, but 7% below our N5.2 billion estimate. This underperformance was largely driven by a 388bps q/q contraction in operating margin to 12% (Vetiva: 13%) and 29% q/q rise in net finance costs to N1.0 billion (Vetiva: N619 million). Overall, Q3’17 PAT declined 40% q/q to N1.2 billion – 18% below Vetiva estimate – however much higher than the N388 million from the same period last year.                      

Following the moderation recorded in Q3’17, we cautiously revise our FY’17 operating margin estimate to 13% (Previous: 14%, Q3’17: 12%). Despite the spike in financing costs in the quarter, we foresee a moderation in net interest expense in Q4’17 given the 63% q/q decline in borrowings to N7.6 billion at the end of 9M’17. Similarly, we highlight UNILEVER closed its c.N59 billion equity capital raise, which was earmarked for the repayment of outstanding debt obligations. Similarly, we highlight UNILEVER closed its c.N59 billion equity capital raise, which was earmarked for the repayment of outstanding debt obligations. Our FY’17 DPS estimate is unchanged at N0.30 (2016: N0.10). Consequently, we revise our Target Price to N26.10, SELL (Previous: N25.01).     

Unilever Nigeria PLC (UNILEVER) is Nigeria’s largest Home and Personal Care (HPC) manufacturing company. The company’s operations span across the HPC and Food segments. Parent company, Unilever Overseas Holding B.V. owns a 60.04% share in Unilever Nigeria.