FY17: Unilever Nigeria EPS to Grow 94.7% to N1.58k—Analyst

March 20, 2018
Unilever Nigeria

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.

Dipo Olowookere

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan.

Mr Olowookere can be reached via [email protected]

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