Unilever Nigeria: Time To Work On Operating Costs, As Competition Stiffens Further

Short Term: Hold
Long Term: Hold
Current Market Price: N11.00
Latest Cash Dividend: Nil
Year High: N20.70
Year Low: N11.00
Fair Value: N11.10
Equity Analyst: Tunde Segun Jeariogbe

• In this report we observed the first quarter financials of Unilever Nigeria Plc for the first quarter ended 31st March 2020, compared the same with numbers released in the corresponding period of 2019, to establish track performance.
• Aside from the fact that the company’s Turnover was far below that of the comparative period, its direct running cost was quite on the high side. We observed that this is a recurring trend even from the most recent full-year numbers, and requires the attention of management, going forward.
• Finance cost during the period dropped appreciably when putting side-by-side the figure posted for the comparable quarter, driven by the high Interest made on call-deposits and bank accounts.
• We have identified that the major challenge faced by Unilever Nigeria is the stiff competition from cottage industries within its sector, coupled with other operating challenges generally faced by manufacturers in the country.

• Turnover dipped by 30.71% against that of the comparable year at N13.32 billion, from N19.23 billion in the comparable quarter.
• Cost of Sales stood at N9.90 billion versus N15.36 billion in the similar quarter of 2019.
• Operating Profit is estimated at N453.44 million, 65.59% below the N1.31 billion reported in the 2019 first-quarter business session.
• As noted above, Finance Cost is valued at N614,000 against N94.39 million in the corresponding period of 2019.
• Profit before Tax for the quarter is valued at N948.47 million, same as 30.23% below the N2.22 billion reported in the corresponding quarter.
• Profit After Tax stood at N1.11 billion, lower than the N1.52 billion earned in the same period of 2019.

Statement of Financial Position
• Total Current Assets stated for the period stood at N74.96 billion, same as 27.30% below the N104.49 billion stated in the corresponding quarter.
• Non-Current Assets inched by 5.67% above the corresponding quarter number, to N31.78 billion, versus N30.07 billion.
• Current Liabilities was estimated at N37.91billion, this is a drop of 14.73% below the N44.46 billion in 2018.
• Non-Current Liabilities equally dipped by 62.27% to N2.18 billion, from N5.79 billion in 2019 first quarter.
• Thus, the Net Assets was valued at N67.64 billion, versus N84.31 billion last year.
• Retained Earnings equally dipped by 67.69% to N7.95 billion, as against N24.62 billion in the similar quarter of last year.

Financial Strength
• The amount reported as Total Liabilities is the same as 37% of the Total Assets figure for the first three months of the year. In other words, the Debt Ratio is 0.37x, which is 0.35% below the 0.37x of the corresponding year.
• Total Debt to Equity Ratio is currently estimated at 0.59x as against 0.60x in the corresponding year, implying that the Total Debt Value for the year can replicate Equity 0.59 times, this is a lower position over the 0.60 times the corresponding quarter.
• Equity Ratio is also valued at 0.63x, almost the same as 0.63x in a similar period, which means Equity is the same as 63% of the Total Assets Value for the periods.
• Going by the current estimated beta value, the shares of Unilever can be described as less volatile, with its beta value currently far below unity.

Profitability Ratio
• EBITDA Margin is Currently estimated at 3.40% versus 6.85% estimate at the end of 2019first quarter.
• Pre-Tax Margin stood at 7.12%, as against 10.54% in 2019.
• Cost of Sales is estimated to be 74.29% of the Turnover Figure, which is 7.00% lower than the 79.89% in the corresponding year.
• Return on Equity is estimated at 1.65%, the same as 8.65% below the estimated 1.80% achieved in the corresponding quarter. Please note that the ratio is quite on the low side.

Efficiency Ratio
• Operating Expenses are estimated at 22.10% of the Turnover Value, poor performance in terms of management efficiency when compared to the 12.36% estimated in 2019.
• Turnover Value is 12.37% of the Total Assets Value; the ratio is 13.46% below the 14.29% estimated from 2019 first-quarter figures. This is equally a negative management efficiency rating
• At 0.35x Working Capital Turnover improved by 9.33% from the previously estimated 0.32x
• Working Capital Ratio, within the two compared periods stood above unity and confirmed the firm’s strength to settle its current liabilities with current assets as at when due through the season.

Investment Ratios
• Within the two periods compared, traders were seen largely revaluing the share price of Unilever on the floor of the exchange with the price now at N29.30, from N55.00 at the end the corresponding period.
• The estimated profit per share of Unilever is N0.19, which is far below the N0.26 earned at the end of the comparable quarter.
• PE-Ratio is estimated at 151.04x, compared to the previous 207.79x, this is due to the heavy downtrend on its price on the floor of the exchange.
• Estimating by the price of Unilever on the floor of the exchange when the result was made available, the above-mentioned earnings per share yielded only 0.66% of the current market price
• The Book Value of Unilever is currently estimated at N11.77 lower than the N14.68 estimated from the corresponding quarter’s result
• Confirming an overvalued price on the floor of the exchange, the Price to Book Value ratio stood above unity as shown in the below table.

• Our blend of valuation tools valued each unit of Unilever’s share price at N11.10, this is slightly below the Book Value mentioned above and a downward price from the current market price. Thus we have rated each unit of Unilever a Hold for short term investors while Long term players may also hold the shares for better valuation at the release of better performance indices in subsequent quarters.