MON, 14 NOV, 2022-theGBJournal| UNILEVER reported revenue growth of 10.3% y/y in 9M-22, underperforming expectations, with the sluggish outturn driven majorly by the revenue lag in the Food Products (+0.6% y/y | 47.3% of revenue) segment.
On the other hand, HPC sales (48.5% of revenue) grew by 20.7% y/y. The producer’s lower volumes may have driven the sub-par revenue performance in the quarter as most analyst channel checks, including Cordros Research, reveal that the company raised its prices across its product portfolio by c.15.0%.
Also, the cost pressures prevalent in the operating environment pressured gross (-49bps y/y to 26.5%) and operating (EBITDA: -155bps y/y to 3.7%) margins downwards. Consequently, EPS turned negative at -N0.06 compared to the 9M-21 outturn (N0.19).
Meanwhile, Cordros Research raised their revenue growth projection for 2022E to 19.4% y/y, following adjustments to their model to reflect UNILEVER’s preliminary numbers for 2022FY.
Further out, they forecast an average revenue growth of 18.4% over 2023E – 2026E and further down, they model a 185bps y/y decline in the 2022E gross margin, reflecting the impact of elevated cost pressures.
Explicitly, we expect the pressures to stem from the highly inflationary environment and UNILEVER’s exposure to FX volatility. Consequently, we forecast an 85bps y/y decline in EBITDA margin to 5.8% amid a projected 15.5% y/y increase in operating expenses.
Overall estimate is that EPS will decrease by 30.6% y/y to NGN0.08 in 2022E (2021FY: NGN0.12). Further out, we forecast an EPS CAGR of 38.2% in 2023-2026E.
The net impact on the company’s valuation is a downward adjustment in price target to N11.31 (previously: N13.05). Cordros, based on the adjustment say they will maintain their “HOLD” rating on the stock.
On our estimates, UNILEVER trades at a 2022E P/E of 120.7x, a significant premium to the MEA peer average of 18.5x.
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