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UNILEVER NIGERIA PLC - Earnings surprise on gross margin volatility

Earnings surprise on gross margin volatility
"In its unaudited FY’22 financial statements, Unilever Nigeria PLC reversed the weak earnings reported in the 9M period (a loss of ₦0.3 billion). Bottom-line improved 4x to ₦5.9 billion in FY’22, bucking our expectation of suppressed profitability.
Although Q4 topline printed at ₦23.9 billion, in line with our projection of ₦23.4 billion, the company contradicted our Q4 profit estimate, reporting PAT of ₦6.4 billion (Vetiva: ₦0.7 billion), the highest quarterly profit announced. However, the headline factor responsible for this performance is Unilever's quite unpredictable gross margin, which has swung between 14% and 60% in the last four quarters."
"Bottom-line was also substantially boosted by finance income
Consequently, even after accounting for the 39% rise in operating expenses, the company’s operating margin shot up by a forceful 23ppts y/y, with operating profit reporting at ₦8.0 billion (a 3x jump y/y). Furthermore, supported by a stronger y/y cash balance and no debt obligations, the company’s Q4 earnings was supported by a ₦1.4 billion net finance income. This propped PAT by 4.1x y/y to ₦6.3 billion."
Asset efficiency supports profitability although uncertain margin expectation muddies outlook
This performance places Unilever’s RoE at 8.9%, an improvement from 1.1% in 2021 and -5.8% in 2020. Given sustained low levels of leverage, profitability has been propped by the boost to net profit margin as well as an improvement in fixed asset turnover to 4.1x (from 2.8x in 2021)."