Unilever Q1 PAT grows by 54% as finance income rises

Unilever Nigeria first quarter (Q1) 2017 results released by the Nigerian Stock Exchange (NSE) showed positives on major key Profit and loss lines, as sales grew by 32% y/y to N22.2billion, even as lower tax in Q4 lifted PAT.

The result further reflected that Profit before Tax (PBT) and Profit after Tax (PAT) peaked at N2.2billion and N1.6billion respectively, indicating growth by 54 per cent y/y.

Although gross margin contracted by -756bps y/y and net finance costs grew 18% y/y, these were more than offset by the strong y/y sales growth and a -14% y/y decline in operating expenses, leading to the strong bottom-line.

Sequentially, sales were ahead by 11% q/q while PBT declined in the fourth quarter by -16% q/q. The reason for the decline in PBT was a significant q/q growth in net finance costs. A lower tax rate of 27% compared with tax rate of 42% recorded in Q4 2015 led to a PAT growth of 7% q/q.

Compared with our estimates, Q1 sales were ahead by 17% while PBT and PAT were ahead by wider margins, mainly due to the positive surprise on the sales line. On an annualized basis, while sales are tracking ahead of consensus full year estimate of N76bn by 16%, PBT and PAT are ahead by 87% on average.

Although fx sourcing for raw material importation remains a challenge to the company, any adverse effect has been offset by positives seen in the topline.

Unilever announced plans to raise N63bn via a rights issue. We believe the company intends to de-lever its balance sheet and partly raise funds for planned local manufacturing capacity expansion for its personal care business in the South-West region. The shares have declined by -6% since the announcement.
Year to date, Unilever shares have shed -5.3% and have marginally outperformed the NSE ASI which has shed -6.2%. We expect the market to react positively to these numbers.