July 20, 2018/FBNQuest Capital Research
Event: Unilever Nigeria (Unilever) reports Q2 2018 results
Implications: Unilever’s profitability has improved y/y with Q2 PBT and PAT both up 38% y/y and 99% y/y respectively. However, on an annualised basis, H1 PBT of N7.5bn is broadly in line with consensus PBT estimate of N15.5bn. Therefore, we expect a neutral-to-slightly positive reaction by the market. Compared with our estimates, while sales and PBT came in behind by c.15% and 9% respectively, PAT was ahead by 42% mainly due to a lower effective tax rate of 25.5% compared with the 27.0% we were modelling.
Positives: Sales grew by 9.0% y/y to N22.3bn, which we largely attribute to unit volume growth. Our channel checks reveal that product pricing has remained largely unchanged for key business segments. Similar to Q1, gross margin expanded by +254bp y/y to 37%. We attribute this to the improved macro environment and, particularly, better access to fx markets. Management continues to focus on attaining 100% sourcing of its packaging materials locally by 2019 and has begun engaging local farmers to reduce importation. To a lesser extent, net finance income of N941m helped. This line was boosted by a finance income of N1.5bn, up 4.2x, and likely driven by an influx of cash from the successful N63bn rights issue of last year.
Negatives: Operating expenses were up 51% y/y and 52% q/q respectively to N5.5bn, driven mainly by overhead costs. Marketing expenses and services grew by c.10%.
Our estimates are under review. We rate Unilever Nigeria Underperform.
Unilever Nigeria Q2 2018 results: actual vs. FBNQuest Capital Research estimates (N millions)