Unilever Nigeria Plc 9M’20 – On firmer grounds to recovery

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UNILEVER recently released its 9M’20 results, reporting a 94% y/y growth in Q3’20 Revenue to ₦17.4 billion (Vetiva estimate: ₦14.5 billion).

Growth across the Food and HPC segments were strong at 85% y/y and 107% y/y respectively.

However, we do note that the strong growth rates are largely flattered by an unusually weak base, as underlying sales numbers are still only recovering. We recall that due to a normalization of Unilever’s receivables policy, Q3’19 numbers came in largely weak.

Thus, comparing the Q3’20 topline number with a more appropriate Q3’18 base, we see a milder change in Revenue (-28%), albeit still showing continued recovery.

Combined with H1’20 numbers, 9M’20 Revenue came in at ₦44.7 billion, a 13% y/y decline. Given the stiff competition across its seasoning and Home and Personal Care segments from lower-tier brands, along with a continued shrinkage in consumer wallets, the performance was not too far off from expectation.

However, we had expected a higher contribution to Revenue from the HPC segment given the company’s diverse brand portfolio in the segment and the increased awareness on Home and Personal care needs.

Expect a subdued close to FY’20

We expect stable Revenue strength from Food, given the company’s strategy to float smaller packaging for price-sensitive consumers and its return to steadier volumes.

We also expect HPC to continue on its positive growth trajectory, riding on its diverse brand portfolio and overall hygiene consciousness.

Furthermore, given the increase in marketing and admin spend, (+1.5 billion) and our expectation of further increased marketing spend to support volumes, we project a 3% growth in FY’20 Revenue to ₦62.3 billion (Previous: ₦56.5 billion).

However, we consider the setback to retail stores due to recent attacks in Lagos a risk to our expectation.

We believe this could impact volume roll-out capacity for the firm until the stores are able to salvage their losses.

We maintain the 9M’20 run rate for Gross margin and project an FY’20 figure of 21%. However, in line with our expectation for marketing expenses, we expect the pressure on Operating margin to remain with the line item printing at -6% for FY’20 (still an improvement from FY’19 at -19%).

After a year characterized by further impairment losses and accounting for Interest and tax, we project a 69% reduction in FY’20 Loss After Tax to ₦2.3 billion.

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