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Unilever Nigeria’s target trading price lowered to N39

By on September 18, 2014

Following the rising cost of operation, increase in competition in the market that is telling on Unilever Nigeria Plc’s revenue, analysts at Renaissance Capital have downgraded their rating on the company to “sell from hold” on reduced forecasts and lowered its trading price from N55 to N39.

In a report made available to THISDAY, the analysts noted that Unilever Nigeria’s (Unilever) 1H14 results were disappointing as were Nigerian consumer companies’ across the board.

This, they added, was a continuation of the downtrend witnessed since full year 2012 (FY12), adding that following the upward revision of Nigeria’s gross domestic products (GDP), growth rates have been restated lower.

They added: “All companies reported increases in selling and distribution costs in 1H14 greater than their revenue growth. In our view this is a combination of increased investment in selling and distribution, and revenue growth falling short of most companies’ targets.” Unilever has stated publicly that it is in the process of increasing its advertising, marketing and promotion costs to 10 per cent of revenue from 6.5 per cent in FY12. Hence the company’s 18 per cent increase in administrative fees in FY13 and the 28 per cent increase in selling, general and administration in 1H14. At 28 per cent of turnover this is considerably higher than Nestle Foods Nigeria’s (Nestle).

They added: “According to new data from the IMF, GDP growth dipped to 4.2 per cent in 2012 from 5.3 per cent in 2011. Growth accelerated to 5.5 per cent in 2013 and we forecast a further improvement to 5.7 per cent in 2014. Aside from slower GDP growth there has been an increase in competition in the market. YtD Unilever has reported a 1.3 per cent decline in revenue and its operating margin declined from 14.6 per cent in 1H13 to 9.2 per cent in 1H14.”

Renaissance Capital added that it has revised its forecasts for the company significantly following the 1H14 results.

“We have revised our FY14E headline earnings per share (HEPS) forecast from N1.71 to 97 kobo. We have reduced our revenue forecasts from 16 per cent growth to 3 per cent and our operating margin from 14.5 per cent to 10.4 per cent. In 1H14 Unilever reported a 47 per cent decline in HEPS to 39 kobo. Based on our revised forecasts we estimate that Unilever is currently trading on a one-year forward P/E of 44. In this challenging consumer environment, we prefer the more defensive consumer names in which we perceive the forecast risk to be lower”, the analysts added.

 

 

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