Unilever Nigeria PLC – An uphill battle to profitability

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In its recently released unaudited FY’20 financial statements, Unilever Nigeria consolidated on its improved Q3’20 performance after an especially hard year riddled with turnover challenges.

Group topline expanded by 2% y/y to ₦61.6 billion (Vetiva: ₦62.3 billion), supported by a 9% y/y growth in Food Revenue to ₦34.7 billion, even as HPC Revenue moderated 7% y/y.

The topline growth was supported by an impressive 84% y/y expansion in Q4’20 topline to ₦16.8 billion, albeit the line item fell just 3% shy of our expectation. Even accounting for mild price increases this year, we attribute the growth to continued recovery in volumes.

In spite of the higher topline, impairment on receivables fell further under control, printing at ₦5.0 million in Q4’20 compared to ₦429 million in Q3’20 and ₦405 million in Q4’19. We recall that Unilever Nigeria had in 2019, adopted tighter credit policies in order to temper rising impairments. The moderation in the Q4’20 impairments along with the 17% contraction in trade receivables balance suggests that the new policy is yielding fruit.

Unilever Nigeria PLC - An uphill battle to profitability Brandspurng
Source: Company filings, Vetiva Research

Shrunken impairment losses ease pressure on PAT

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Meanwhile in line with the increased topline, gross margin for the full year expanded 15ppts y/y to 22% notwithstanding downward inflationary pressures. That said, selling and distribution expenses as well as Marketing and admin expenses declined 11% and 2% y/y respectively, taking total Opex 4% y/y lower to ₦15.8 billion.

However, dragged by ₦1.1 billion in Receivables impairments in FY’20 (largely dragged by 9M numbers), Unilever reported an operating loss of ₦3.1 billion. We however comment that this represents progress, compared to the ₦10.3 billion operating loss reported in FY’19.

In terms of financing, whilst Unilever’s finance costs and income have lowered in response to the low yield environment, the company has continued to maintain positive net finance costs largely caused by a 70% reduction in loans and borrowings.

On a more positive note, net operating cash flow was healthier, driven by a more efficient working capital management. Overall, Loss Before Tax came in at ₦1.8 billion (FY’19 LBT: ₦9.8 billion).

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After adjusting for the mandated minimum tax and a tax credit of ₦0.3 billion, Unilever reported a Loss After Tax of ₦1.6 billion (FY’19: ₦7.4 billion), lower than our ₦2.3 billion loss projection. Thus, Unilever reported an EPS for the year at -₦0.28 (FY’19: -₦0.74).

Milder loss expected in FY’21

Unilever Nigeria’s stable progress on improving volumes should continue into the new year, endorsing our 7% y/y expansion expectation to ₦66.2 billion in FY’21, especially given the still low base in the first half of the year – although we note that the expected divestment of the company’s tea business by the end of the year would dampen Revenue growth.

With respect to the AfCFTA and the re-opened borders, we expect a limited impact on the seasonings market, given that the imported products that had competed with local seasoning makers do not originate from African regions and do not fall under the scope of the AfCFTA.

Based on this, we renew our gross margin projection of 21% for the full year. Despite an expected 5% y/y increase in Opex, we estimate that the company’s operating margin will improve 2% y/y as we do not expect further impairment losses on receivables.

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Furthermore, we expect the company’s stability in working capital management to influence operating cash flows positively.

We expect net finance costs to play out much in the same manner as FY’20 and project a slight 4% y/y increase to ₦1.3 billion, largely driven by the expectation of higher yields in the period.

Overall, we expect Unilever to declare a Loss before tax of ₦0.6 billion and a Loss after tax of ₦0.4 billion translating to an EPS of -₦0.08. Our valuation the stock yields a target price of ₦17.89 and we place a BUY recommendation on Unilever.

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Unilever Nigeria PLC - An uphill battle to profitability - Brand Spur

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Unilever Nigeria PLC - An uphill battle to profitability - Brand Spur


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Unilever Nigeria PLC - An uphill battle to profitability - Brand Spur


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Mobile phone technicalities


Unilever Nigeria PLC - An uphill battle to profitability - Brand Spur


When it comes to visual real estate, size does matter. Amongst the three smartphone models, the Samsung A51 offers the smallest screen real estate, a 6.5 inches full HD screen while the Redmi Note 9 Pro and TECNO CAMON 17 Pro have bigger screens at 6.67 and 6.8 inches, respectively. Here, the TECNO CAMON 17 Pro does have an edge over the rest and what's more, the 90Hz smooth refreshing rate of TECNO CAMON 17 Pro enable the users never worry about any animation rolling issues on the phone, the 90 Hz super-high refreshing rate offers a smooth, snappy and refreshing experience. The CAMON 17 Pro's full HD mobile phone provides the user with more ease in controlling as well as a more comprehensive view of the mobile games and videos on the phone. Additionally, the TECNO CAMON 17 Pro has an operating system of Android 11 whereas the Samsung A51 and Redmi Note 9 Pro are only at Android 10.

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Unilever Nigeria PLC - An uphill battle to profitability - Brand Spur
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TECNO reveals how the highly anticipated TECNO CAMON 17 Pro measure against its competitors

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Unilever Nigeria PLC - An uphill battle to profitability - Brand Spur


The consumers nowadays are very savvy in understanding the technology and features that goes into each smartphone model. One of these considerations is the camera capabilities and the supporting software. TECNO CAMON 17 Pro clear winner with a 48 MP front camera, while both the Samsung A51 and Redmi Note 9 Pro cameras are at 32 MP and 16MP respectively, hence allowing the user of TECNO CAMON 17 Pro to capture selfies with quality that is comparable to even rear cameras on some smartphones. Considering the rear camera, TECNO CAMON 17 Pro and Redmi Note 9 Pro are equipped with 64MP rear ultra quad camera, while the Samsung A51 maxes out at 48MP.

What is more fascinating is that the TECNO CAMON 17 Pro comes with trademarked TAIVOS technology, which stands for TECNO AI Vision Optimization Solution. It provides users with extremely good visuals, even in low-light environments. TAIVOS can blur out the clutter in the background and optimize image clarity, thereby enhancing night photography effects. Therefore, making it difficult for other mobile phones to bring users a brighter experience in dark environments. The TECNO CAMON 17 Pro is great for anyone who loves to take selfies as keepsakes. The CAMON 17 Pro's front cameras are just as outstanding as its rear – TECNO is a pioneer in this industry with a 48MP front camera. The functions of TECNO CAMON 17 Pro are smoother than similar products with both multi-camera and AI camera modes, providing breath-taking visuals.

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Unilever Nigeria PLC - An uphill battle to profitability - Brand Spur


Powerful cameras need equally lasting battery and storage space. The TECNO CAMON 17 Pro has enough space for just about anything with 256GB ROM + 8GB RAM whereas the Samsung A51 and the Redmi Note 9 Pro has only 128GB ROM + 6GB RAM respectively, which is half of what the TECNO CAMON 17 Pro can store.

In addition, the TECNO CAMON 17 Pro has an enormous 5000mAh battery so you do not need to worry about your phone not being able to function when you need it most. The Samsung A51 has a smaller battery whereas the Redmi Note 9 Pro has a slightly bigger battery of 5020mAh, but that difference is negated by CAMON 17 Pro's flash charging technology as the phone's battery can be charged faster. And the 33W fast charger of CAMON 17 Pro enable a quick charge of up to 70% in just 30 minutes, which is an upgrade compared to the 15W charger of the Samsung A51 and 30W charger of Redmi Note 9 Pro.

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Unilever Nigeria PLC - An uphill battle to profitability - Brand Spur


When it comes to visual real estate, size does matter. Amongst the three smartphone models, the Samsung A51 offers the smallest screen real estate, a 6.5 inches full HD screen while the Redmi Note 9 Pro and TECNO CAMON 17 Pro have bigger screens at 6.67 and 6.8 inches, respectively. Here, the TECNO CAMON 17 Pro does have an edge over the rest and what's more, the 90Hz smooth refreshing rate of TECNO CAMON 17 Pro enable the users never worry about any animation rolling issues on the phone, the 90 Hz super-high refreshing rate offers a smooth, snappy and refreshing experience. The CAMON 17 Pro's full HD mobile phone provides the user with more ease in controlling as well as a more comprehensive view of the mobile games and videos on the phone. Additionally, the TECNO CAMON 17 Pro has an operating system of Android 11 whereas the Samsung A51 and Redmi Note 9 Pro are only at Android 10.

So which phone would you prefer after reading the comparisons? After our comparisons, the TECNO CAMON 17 Pro stands out for the young, adventurous generation that is looking for a phone that can not only perform the basic functions well, but also have additional tools that add so much value to a phone. Redmi Note 9 Pro performed slightly worse in the front camera, fast charger and the screen, which could be a second choice with limited budget, while Samsung A51 stands out with its brand impact, and with no other obvious strength.


Unilever Nigeria PLC - An uphill battle to profitability - Brand Spur
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