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Unilever: Analysts differ on stock valuation despite remarkable 9M’17 scorecard

by Iheanyi Nwachukwu

November 9, 2017 | 12:32 am
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The unaudited interim financial statements of Unilever Nigeria Plc for the nine months (9M) ended September 30, 2017 was published recently at the Nigeria bourse, showing remarkable improvements across top-to-bottom line figures.

In the period under review, the company’s revenue grew by 38.6percent to N69.129billion from a low of N49.871billion in the corresponding period of 2016. Gross income at N21.43billion, from N14.70 represents 45.8percent growth.

Unilever Nigeria Plc (Unilever) is Nigeria’s largest   Home   and   Personal   Care   (HPC) manufacturing company.  The company’s operations span across the HPC and Food segments.

Also, Profit Before Tax (PBT) rose by 351.6percent to N6.82billion, from N1.51billion in 9M’16; while Profit After Tax (PAT) reached a record high of N4.82billion from N1.56billion, an increase of 208percent.

Despite the record growth seen across major lines, equity analysts in the Nigerian stock market varied in their sentiments on the stock’s valuation.

Chiazor Victor’s team of equity analysts at Lagos-based Capital Bancorp Plc urge investors to ‘Hold’ the stock of Unilever Nigeria Plc.

The analysts HOLD recommendation tells investors to do nothing; “if you have not bought the stock, do not buy it and if you have bought it, do not sell it. Going forward, we have revised our target price (TP) slightly higher to N46.99.”

Looking at the 9M results of Unilever Nigeria Plc, Capital Bancorp analysts further said, “Riding on the back of improvement in general economic and business conditions in the Nigerian economy, Unilever Nigeria has continued to post better earnings in the course of the year 2017.”

“For the period under review, the company continued to report higher sales volumes in both of its business segments, though the home and personal care segment recorded a higher growth for the 9M’17 period.

“Given that the company recently concluded a rights issue of which the proceeds have been projected to be used in liquidating intercompany loans which are dollar denominated as well as used to support other working capital needs, we expect to see significant improvement in other income, a reduction in finance cost and a gradual elimination of foreign exchange loss on financing,” Capital Bancorp analysts noted.

According to Olajumoke Okeowo and Uwadiae Osadiaye’s team of research analysts at FBNQuest rated the stock of Unilever Nigeria Plc ‘Neutral’, adding that “Our estimates are under review.”

The analysts’ ‘Neutral’ rating for Unilever stock results from their expectation that the stock will perform in line with the NSE All Share Index over the next 12 months or a specified investment horizon.

“On a 9M basis, sales of N69.1billion grew by 39percent year-on-year (y/y). PBT and PAT of N6.8billion and N4.8billion advanced by 352percent y/y and 208percent y/y respectively. Net interest charges and operating expenses grew by 47percent y/y and 6percent y/y respectively. However, these were not strong enough to offset the strong sales growth and a 153 basis point (bp) y/y gross margin expansion to 31percent”, FBNQuest analysts noted.

“On an annualised basis, Unilever’s 9M sales are tracking ahead of consensus’ FY 2017E estimate of N83billion. PBT and PAT are ahead by 20percent and 42percent respectively. As such, we expect to see upward revisions to consensus’ FY 2017 estimates. 

“Year to date, Unilever shares have gained 38percent and are tracking in line with the broad index which is up 36percent this year. We expect the market’s reaction to these numbers to be neutral to slightly positive,” FBNQuest stated in their reaction to Unilever Nigeria Plc 9M results.

Ifedayo Olowoporoku, a Vetiva Capital researcher wants investors to ‘Sell’ the stock of Unilever Nigeria now considering their set target price (TP) of N26.10. The ‘Sell’ rating refers to stocks that the Vetiva researcher considers overvalued, “but with good or weakening fundamentals, and where potential return below +5percent is expected to be realized between current price and analysts’ target price.”

The analyst said major downside risk to the stock valuation “would be a much lower boost from the seasonally stronger festive season in fourth-quarter (Q4), whilst upside would be a tighter control of operating expenses.”

“UNILEVER maintained a strong positive sales momentum in its third quarter, with 9M’17 revenue up 39percent y/y to N69 billion–5percent above Vetiva estimate. Though top line performance remains largely supported by strong double-digit price increases from prior quarters, we believe the 5percent quarter-on-quarter (q/q) revenue increase in Q3’17 reflects higher volume contribution in the period (amidst stable prices)”, Vetiva research analysts added. 

Parent company, Unilever Overseas Holding B.V. owns a 60.04percent share in Unilever Nigeria; while 40percent is owned by others. Unilever Nigeria market cap is approximately N151.331billion at N40 per share while its shares outstanding are 3,783,296,250 units.

The company is listed on the Consumer Goods sector (under the Personal/Household Products subsector) of the Nigerian Stock Exchange main board. From a 52-week low of N27.81, the share price had reached a 52-week high of N48.50. Unilever’s rights issue offer of N63billion closed in September.

Iheanyi Nwachukwu


by Iheanyi Nwachukwu

November 9, 2017 | 12:32 am
  |     |     |   Start Conversation

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