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UNILEVER NIGERIA PLC FY'17 - Well fitted for tough market dynamics in FY’18

Well fitted for tough market dynamics in FY’18

UNILEVER released its FY’17 results, reporting record revenue (₦91 billion) and PAT (₦7.5 billion) for the year. Despite a strong 30% y/y Revenue growth, we highlight that the top line came in below our ₦96 billion estimate following an underwhelming sales performance in the fourth quarter. Bucking the trend observed across other industry players however, UNILEVER’s Operating Profit margin strengthened significantly in Q4’17 – up c.600bps q/q to 17% (Vetiva: 13%) – with the company’s cost containment efforts supplemented by a ₦1.1 billion income from reversal of excess accruals for goods and services received in previous years. Overall, FY’17 Profit after tax came in at ₦7.5 billion (FY’16: ₦3.1 billion) - 10% better than our estimate. The Board of Directors declared a dividend of ₦0.50/share (FY’16: ₦0.10, Vetiva: ₦0.30).                           

We maintain our expectation of more intense competition across the Consumer Goods space in 2018. Also, we expect abating cost pressures to provide a leeway for further price cutting as the companies look to support volume growth within the year. Noting the trend observed in Q4’17 however we are more cautious on revenue growth in FY’18 even as consumer spending remains weak. As such, we revise our FY’18 revenue growth estimate lower to 10% y/y (Previous: 15%). Overall, we forecast FY’18 Profit after tax of ₦9.5 billion (Previous: ₦9.1 billion) – translating to a 27% y/y growth. Further supported by our lower risk-free rate assumption (following moderating interest rate environment) and a stronger cash position, our 12-Month Target Price is revised to ₦33.72 (Previous: ₦23.60) and maintain a SELL rating.          

Well fitted for tough market dynamics in FY’18

UNILEVER released its FY’17 results, reporting record revenue (₦91 billion) and PAT (₦7.5 billion) for the year. Despite a strong 30% y/y Revenue growth, we highlight that the top line came in below our ₦96 billion estimate following an underwhelming sales performance in the fourth quarter. Bucking the trend observed across other industry players however, UNILEVER’s Operating Profit margin strengthened significantly in Q4’17 – up c.600bps q/q to 17% (Vetiva: 13%) – with the company’s cost containment efforts supplemented by a ₦1.1 billion income from reversal of excess accruals for goods and services received in previous years. Overall, FY’17 Profit after tax came in at ₦7.5 billion (FY’16: ₦3.1 billion) - 10% better than our estimate. The Board of Directors declared a dividend of ₦0.50/share (FY’16: ₦0.10, Vetiva: ₦0.30).                           

We maintain our expectation of more intense competition across the Consumer Goods space in 2018. Also, we expect abating cost pressures to provide a leeway for further price cutting as the companies look to support volume growth within the year. Noting the trend observed in Q4’17 however we are more cautious on revenue growth in FY’18 even as consumer spending remains weak. As such, we revise our FY’18 revenue growth estimate lower to 10% y/y (Previous: 15%). Overall, we forecast FY’18 Profit after tax of ₦9.5 billion (Previous: ₦9.1 billion) – translating to a 27% y/y growth. Further supported by our lower risk-free rate assumption (following moderating interest rate environment) and a stronger cash position, our 12-Month Target Price is revised to ₦33.72 (Previous: ₦23.60) and maintain a SELL rating.