April 3, 2018/FBNQuest Research
Event: Unilever Nigeria reports Q4 2017 results
Implications: Modest upward revisions to consensus estimates expected
Positives: Gross margin expanded by 659bps y/y
Negatives: Limited
Late last week, Unilever Nigeria (Unilever) reported its Q4 2017 results which showed growth on major key P&L items. Sales of N21.6bn grew by 9% y/y while PBT and PAT advanced by 69% y/y and 74% y/y to N4.4bn and N2.6bn respectively. The stronger y/y growth seen on the bottom line was driven by a +659bp y/y gross margin expansion to 35% and net finance income of N610m versus a net finance charge of –N98m in the corresponding quarter of 2016.
These positives were strong enough to offset a 23% y/y increase in operating expenses. PAT grew faster (relative to PBT) due to a lower tax rate of 40% versus 42% in Q4 2016. On a sequential basis, sales declined by 10% q/q, surprising negatively because Q4 is usually the strongest quarter for the company.
However, PBT and PAT advanced by 146% q/q and 128% q/q respectively. The stronger bottom line was driven by 1) net positive finance income of N610m versus a net negative expense of –N1.0bn in the prior quarter, 2) a 338bp q/q gross margin expansion and 3) a -22% q/q decline in operating expenses. Compared with our estimates, Q4 sales, PBT and PAT were behind by -16%, -5% and -26% respectively.
On a full year basis, sales of N90.8bn grew by 30% y/y while PBT and PAT advanced by 173% y/y and 143% y/y to N11.2bn and N7.5bn respectively. Net interest charges and operating expenses grew by 3% y/y and 9% y/y respectively. However, these were not strong enough to offset the strong y/y sales growth and a 280bp y/y gross margin expansion to 32%.
Again, gross margin was above 30% for the third consecutive quarter. This can be attributed to the CBN’s intervention in the fx market through the NAFEX window. Unilever successfully raised N63bn via a rights issue last year. Management indicated that the proceeds will be used to settle foreign currency intercompany loans, support working capital and for capacity expansion. We attribute the positive net finance income recorded during the quarter to this influx of cash.
Compared with our estimates, FY sales and PBT were broadly in line with our estimates. However, PBT came in ahead of consensus estimate of N9.7bn by 16%. As such, we may see modest upward revisions to consensus estimates.
Unilever declared a dividend of 50kobo per share versus consensus estimate of 56kobo. The dividend implies a yield of 1% and payout ratio of 39%. Year to date, Unilever shares have gained 34.2% and are tracking ahead of the index which is up 6.8% this year.
We expect the market’s reaction to these numbers to be neutral to slightly positive. We rate the stock Neutral. Our estimates are under review.
Unilever Nigeria Q4 2017 results: actual vs. FBNQuest Capital Research estimates (N millions)
