Economy
FY17: Unilever Nigeria EPS to Grow 94.7% to N1.58k—Analyst
By Dipo Olowookere
A research analyst at Renaissance Capital, Mr Adedayo Ayeni, has predicted that Earnings Per Share (diluted for the additional 1.9 billion shares issued in recent capital call) of Unilever Nigeria Plc is expected to grow by 94.7 percent year-on-year to N1.58k in the 2017 financial year.
Traders in the stock market are expected the company to release its 2017 financial statements soon and Mr Ayeni anticipates the company to record sales growth of 35.7 percent y-o-y and net profit growth of 112.6 percent y-o-y.
Recall that Unilever Nigeria carried out rights issue and Mr Ayeni believes that the excess cash obtained from the exercise will lead to the firm ending the fiscal year with a net cash balance of N29.8 billion and N31.2 billion next year.
He said with management not disclosing any major expansion capex plans for FY18 and the Blue Band plant in Agbara completed and commissioned in December 2017, capex should moderate to depreciation from FY18.
“We therefore cut our modelled capex to match depreciation in FY18-22. This therefore supports the strong cash-build which we see for Unilever in FY18-22 with FCF forecast to post 25.7 percent CAGR.
“Unilever’s management is now faced with the decision of what to do with the excess cash from the rights issue and the expected build-up from FCF.
“We have modelled that it continues to earn interest income which is the main driver of our earnings revision estimates in FY18 and FY19.
“There is the risk that it could pay extraordinary dividends in FY18 as we now estimate it will end FY17 and FY18 with net cash/equity of 38.9 percent and 40.6 percent, respectively,” the analyst said.
Furthermore, RenCap said given the slowdown in sales growth observed for Nestle Nigeria in the food segment in 4Q17 and that it was yet to see material increases in the price of Knorr in the current quarter, it revises its estimates for Unilever.
“We cut our sales forecasts by an average of 1.7 percent in FY17-18 and by 6.2 percent in FY19. We raise our EBITDA forecast by 2.3 percent in FY18 and 10.6 percent in FY19 as we view management’s drive to contain costs and move the production of Blue Band margarine to Nigeria as pleasing and supportive of medium- to long-term margin capture,” it said.
RenCap said it was mindful of tailwind FX risks associated with Unilever’s FX exposure.
In a meeting with management in 2017, it admitted that its FX effective rate was closer to N285/$ when most of the consumer companies under our coverage were sourcing FX at rates above N300/$.
“With FX rates now above ~NGN335/$ for most consumer companies and price increases in FY18-20 expected to be sub-inflationary, we expect EBITDA margin to decline to 14.7% in FY18.
However, we raise our net profit forecast by 20.4 percent and 33.5 percent in FY18 and FY19 with expectations of healthy interest income on significant cash balance driving the material revisions,” RenCap stated.
In addition, the investment firm said it has revised its estimates for Unilever with key changes driven by the expected impact of a stronger cash-build on interest income, capex cuts to match depreciation in forecast years and medium-term margin expansion.
“As a result, we up our TP by 3.0% to NGN40.5/share. The increase is further driven by a lower risk-free rate of 13.7% and upward revision to FY18E EPS.
“We maintain our SELL rating as we believe its valuation is still stretched given the recent re-rating. On our estimates, Unilever trades on FY18 P/E and EV/EBITDA multiples of 29.0x and 18.0x, respectively.
“While still trading below its five-year average forward P/E of 39.2x, we are still unable to justify the stock’s valuation at his level vs Nestle Nigeria (SELL; TP: NGN1,262.9; CP: NGN1,380.0), which we estimate trades on FY18 P/E of 26.6x,” it said.
By Dipo Olowookere
About 0.04 per cent was recovered on Friday from the loss recorded by the Nigerian Exchange (NGX) the previous due to profit-taking.
Yesterday, investors were in the market with renewed vigour, mopping up stocks trading at relatively cheaper prices.
According to data, the insurance counter gained 0.41 per cent, the banking sector appreciated by 0.38 per cent, and the consumer goods index grew by 0.14 per cent.
The gains achieved by these three sectors were enough to lift Customs Street at the close of business despite the 0.26 per cent decline printed by the industrial goods segment and the 0.14 per cent loss suffered by the energy industry. The commodity counter was flat during the session.
A total of 43 equities gained weight on the last trading day of this week, while 26 equities shed weight, indicating a positive market breadth index and strong investor sentiment.
Red Star Express increased its share price by 10.00 per cent to N13.20, NCR Nigeria grew by 9.97 per cent to N128.55, SCOA Nigeria inflated by 9.96 per cent to N14.90, Omatek appreciated by 9.94 per cent to N1.77, and Deap Capital expanded by 9.85 per cent to N4.46.
On the flip side, McNichols decreased by 8.81 per cent to N6.00, Legend Internet crumbled by 7.56 per cent to N5.50, Cornerstone Insurance crashed by 6.48 per cent to N6.35, C&I Leasing contracted by 6.29 per cent to N8.20, and Austin Laz slipped by 5.78 per cent to N3.75.
Yesterday, 539.9 million shares valued at N16.7 billion were transacted in 48,023 deals versus the 1.0 billion shares worth N31.6 billion executed in 51,227 deals in the preceding day, implying a shrink in the trading volume, value, and number of deals by 46.01 per cent, 47.15 per cent, and 6.26 per cent apiece.
Zenith Bank was the most active for the day with 54.6 million stocks sold for N3.8 billion, Jaiz Bank traded 41.5 million units worth N359.4 million, Secure Electronic Technology transacted 37.7 million units valued at N39.2 million, Access Holdings exchanged 30.5 million units for N699.2 million, and Lasaco Assurance transacted 27.2 million units worth N68.3 million.
When the market closed for the day, the All-Share Index (ASI) went up by 72.21 points to 166,129.50 points from 166,057.29 points and the market capitalisation gained N31 billion to N106.354 trillion from N106.323 trillion.
By Adedapo Adesanya
It was a positive ending for the Naira this week after it further appreciated against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, January 16 by N1.33 or 0.09 per cent to sell for N1,417.95/$1 compared with the previous day’s N1,419.28/$1.
The domestic currency also gained N2.41 against the Euro in the official market to close at N1,647.51/€1 versus the preceding session’s closing price of N1,649.92/€1, however, it suffered a N7.97 loss against the Pound Sterling in the same market window to trade at N1,901.32/£1, in contrast to Thursday’s closing price of N1,893.35/£1.
In the same vein, the Nigerian Naira depleted against the Dollar at the GTBank FX counter by N2 to quote at N1,427/$1 compared with the previous day’s N1,425/$1, but strengthened against the greenback at the black market yesterday by N5 to settle at N1,485/$1 versus the N1,490/$1 it was exchanged a day earlier.
Improved supply conditions helped keep the market within range as exporters’ and importers’ inflows in addition to non-bank corporate supply enhanced liquidity as the Central Bank of Nigeria (CBN) made no visible intervention.
Stronger external inflows from foreign portfolio investors (FPIs) and improving current account dynamics, continue to align with structural support in the wider economy.
Nigeria has seen projections of a stronger economic or gross domestic product (GDP) growth and lower inflation in 2026, with these forecasts citing improved macroeconomic fundamentals and reform impacts.
As for the cryptocurrency market, it was mixed following selloff in precious metals and lower US stocks appeared to be denting crypto sentiment.
Gold and silver, both of which also enjoyed big rallies earlier this week, tumbled 1.2 per cent and 5 per cent, respectively while key US stock indexes — the Nasdaq, S&P 500 and Dow Jones Industrial Average — all reversed from early gains to modest losses in Friday trade.
Dogecoin (DOGE) shrank by 2.2 per cent to $0.1370, Ripple (XRP) slipped by 0.8 per cent to $2.05, Ethereum (ETH) went down by 0.7 per cent to $3,228.56, and Bitcoin (BTC) slumped by 0.6 per cent to $95,086.80.
Conversely, Litecoin (LTC) appreciated by 3.2 per cent to $74.48, Solana (SOL) rose by 0.4 per cent to $143.70, Cardano (ADA) jumped by 0.2 per cent to $0.3942, and Binance Coin (BNB) increased by 0.1 per cent to $935.88, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
By Adedapo Adesanya
Oil prices settled higher amid lingering worries about a possible US military strike against Iran, a decision that may still occur over the weekend.
Brent crude settled at $64.13 a barrel after going up by 37 cents or 0.58 per cent and the US West Texas Intermediate (WTI) crude finished at $59.44 a barrel after it gained 25 cents or 0.42 per cent.
The US Navy’s aircraft carrier USS Abraham Lincoln was expected to arrive in the Persian Gulf next week after operating in the South China Sea.
Market analysts noted that it doesn’t seem likely anything will happen soon. However, the weekends have become the perfect time for actions so as not offset the markets.
The market had risen after protests flared up in Iran and US President Donald Trump signalled the potential for military strikes, but lost over 4 per cent on Thursday as the American president said Iran’s crackdown on the protesters was easing, allaying concerns of possible military action that could disrupt oil supplies.
Iran produces approximately 3.2 million barrels per day, accounting for roughly 4 per cent of global crude production, so it was not a coincidence that markets rallied sharply through Tuesday and Wednesday as President Trump canceled meetings with Iranian officials and posted that “help is on its way” to Iranian protesters, raising fears of potential US military strikes that sent prices surging toward multi-month highs.
Weighing against those fears are potential supply increases from Venezuela.
The Trump administration is exploring plans to swap heavy Venezuelan crude for US medium sour barrels that can actually go straight into Strategic Petroleum Reserve (SPR) caverns, since not all all oil belongs in the reserve.
According to Reuters, the Department of Energy is considering moving Venezuelan heavy crude into commercial storage at the Louisiana Offshore Oil Port, while US producers deliver medium sour crude into the SPR in exchange.
Analysts expect higher supply this year, potentially creating a ceiling for the geopolitical risk premium on prices.
Some investors covered short positions ahead of the three-day Martin Luther King holiday weekend in the US.
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