Dipo Olowookere
By Dipo Olowookere
Recently, the boards of Unilever Nigeria Plc and Dangote Sugar Plc released their financial statements for the first half of this year and while the former recorded a poor performance, the latter was below expectations.
For Unilever Nigeria, its total revenue went down by 11.36 percent to N42.66 billion from N48.12 billion in H1 2018 as a result of the firm’s dismal performance of its Household and Personal Care (HPC) unit, which fell by 18.05 percent due to intense price discounting amongst brands in the sub sector.
According to Meristem Research, when in the second quarter of the year the company made an aggressive marketing effort with a partnership with Jumia on Everyday Essentials, things marginally improved as the business segments as the food and HPC grew by 6.31 percent and 9.03 percent respectively.
Meristem Research noted that, “On a general note, the downward trend in consumer purchasing power foretells a tough environment for FMCGs as companies utilise price discounting strategies and sales promotion to edge out one another.
“Especially, the dismal performance of the HPC segment continues to weigh on the revenue generation capability of the company. Hence, we project a revenue growth of -7.00 percent in 2019, resulting in absolute 2019FY revenues of N86.40 billion.
“Given our expectation of a 29 percent reduction in 2019FY net profits, we forecast 2019FY EPS of N1.10 and 2019 target PE of 20x implying a target price of N22. This portends a downside of 31.26 percent from the closing price of N32 on August 6, 2019, hence we rate the stock a SELL.”
For Dangote Sugar, the revenue generated by the company went down by 4.42 percent to N80.36 billion from N84.08 billion in H1 2018.
According to Meristem Research, the performance on a regional basis was mixed with the Lagos and West regions suffering declines of 9.30 percent and 28.31 percent respectively as a result of increased competition and market share grabbing by other market players while the North and East grew by 10.42 percent and 7.01 percent respectively.
“As stated in our Q1:2019 earnings note, the implementation of alternative logistics such as barges and third-party trucks in clearing raw materials from the ports and factory continues to yield positive results as revenues grew by 10.67 percent from N38.15 billion in Q1:2019 and the streak of negative YoY revenue growth narrowed down to 1.68 percent from 7.27 percent in Q1:2019.
“Following the release of H1:2019 results, the performance of the company continues to stay in line with our expectation and as such, we retain our projected 7 percent growth in sales volume over 2018, however, with a lower average price of N12,000, implying 2019FY revenues of N149.33bn.
“The outlook is bleak with an expectation of lower revenues and profits at the end of the year. Given this outlook, market risk and company’s idiosyncratic risks, we have revised our target PE and 2019 FY EPS down to 5.7x and N1.67 respectively from 6.5x and N1.85 in Q1:2019.
“This indicates a target price of N9.55 with a downside of 2.60 percent from the closing price of N9.80 on August 7, 2019. Hence, we place a HOLD rating on the stock.”
