FRI, AUG 28 2020-theG&BJournal- Analysts at Cordros Research have a SELL recommendation on the company’s stock with a target price of N10.10/share, which implies a potential total downside of 32.7%, following weak H1 earnings report.
UNILEVER, one of the most recognizable consumer products manufacturing brand in Nigeria, reported revenue declines of 40.2 % in Q2-20 and 35.9 % in H1-20 due to the high base from last year following management’s decision to reset trade inventory levels and tighten credit terms to distributors.
Sequentially, revenue grew by a modest 5.1 % q/q, despite COVID-19 disruptions. The Food (+6.0 % q/q) and HPC (+4.0 % q/q) segments both recorded modest growth, with demand for essential food and hygiene-related brands, which tend to be non-cyclical, remaining resilient in the period. Additionally, average prices were c.2% higher in the quarter.
According to UNILEVER Plc, the West African business of which Nigeria is the flagship is still not in good shape. Management expects to see year-on-year growth in the second half of 2020 but this is mostly due to the “dreadful comparable from last year.
”We agree with this view,” Cordros Research said. ”With the easing of the lockdown progresses and as the reopening of on-trade channels commences, we believe demand for UNILEVER’s brands will receive a boost in H2-20. We have modelled 69.8% y/y growth in H2-20 revenue. This translates to a y/y revenue decline of 4.7% in 2020FY.”
Unilever announced the separation of its global tea business and as such, it seems the strategy is to shrink to grow.
”We see this as a negative for the stock as it reduces the stronger food portfolio to just two seasoning brands and removes exposure to a fast-growing market. In this report, we value the business at NGN4.73 billion (1.1x EV/Revenue), Cordros Research said.
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