Unilever Nigeria Plc Q3 2016 – Tax credit swings earnings higher

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Unilever Nigeria Plc. (Unilever) released its unaudited 9M 16 results wherein revenue rose 17% YoY to ₦42.7 billion while PBT and PAT increased seven-fold and eleven-fold YoY respectively to ₦1.5 billion and ₦1.6 billion.

Looking through  Q3 results, the strong earnings largely reflects impact of a ₦450 million tax credit which drove an  eight-fold YoY increase in PAT to ₦467 million.

Though revenue growth was strong during the quarter, input cost pressures were evident with gross margins sliding 12pps YoY to a record low of  24.7%. We link input cost pressures in the quarter to the impact of  higher domestic prices for key inputs (CPO: +41% YoY) and currency weakness (+57% YoY) which togetherlikely offset benign prices of petrochemical inputs.

Impact of elevated COGS and higher finance charges (+33.1% YoY to N923 million), reflecting monetary tightening (mean naira yield curve: +4.63pps QoQ), underpinned the plunge in PBT (-84.2% YoY to N17 million).

Unilever currently trades at a P/E of 69.6x vs. 21.9x for its Bloomberg Middle East & Africa peers. Last trading price of N48.01 is at a premium to our last communicated FVE of ₦21.96 which translates to a SELL rating  on the stock.