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UNILEVER NIGERIA PLC H1'18 - Strong Finance Income Upholds Earnings Growth

Strong finance income upholds earnings growth                                                                             

Following the approval of the sale of its Spreads business at the AGM held on the 10th of May 2018, UNILEVER’s H1’18 financial results reflect restated figures that exclude the Blue Band brand across the Company’s financial statements. Notably, assets attached to the business (c.2%) have been classified as Assets held for Sale on the balance sheet, while results of the business are presented under discontinued operations, with Revenue (ex-Blue Band) restated 5% and 6% lower for H1’18 and H1’17 respectively. We note that the sale is in line with its Parent Company’s global move to divest the Spreads business across all its subsidiaries to KKR & Co LP. Given that our erstwhile forecasts were inclusive of the Spreads unit, UNILEVER’s H1’18 revenue came in 7% below our estimate at ₦48 billion (H1’17: ₦43 billion). However, bottom line for the period still printed 3% above our forecast at ₦5.6 billion (H1’17: ₦3.5 billion) driven by a sharp rise in finance income in Q2’18 (up 120% q/q to ₦1.1 billion) amidst the company’s strong cash position.

Given that the disposal is effective 1st July 2018, we have reflected this in our financial forecasts. Consequently, our Revenue estimates across our forecast period have been cut by c.4% on average, with FY’18 topline revised to ₦99 billion (Previous: ₦103 billion), translating to a modest 14% y/y growth. Meanwhile, we revise our FY’18 PAT figure 6% higher to ₦11.0 billion (Previous: ₦10.4 billion) supported by an upward review to interest income given the outperformance observed in H1’18. Overall, UNILEVER’s 12-Month Fair value is revised to ₦37.99 (Previous: ₦34.15), with current market price of ₦52.00 implying a SELL rating for the stock.