Unilever Nigeria Plc’s rebound continued, as she records another quarter of strong revenue growth in Q2 2022. Revenue grew by 42% year-on-year. The growth was evenly driven by the Company’s two operating segments – Food Products and Home & Personal Care. The revenue generated from the Food Products business grew by 45% YoY, while the revenue generated from the HPC business grew by 40% YoY.

We attribute the overall company’s revenue growth to a combination of price and volume growth. On pricing, the need to offset the impact of rising input costs influenced the decision of higher pricing. Meanwhile, we believe that volume growth during the quarter was driven by increased marketing efforts, including a deepened route-to-market initiatives. For context, the Company’s marketing-related spending spiked by 41% YoY to N4.83bn in Q2 2022. In our view, the competitive pressure in the industry, amid persistent declining purchasing power of consumers due to heightened inflationary pressures, necessitated the increased marketing spending.

Exchange Losses Depress Bottomline

Operating profit grew by 221% YoY to N956mn, thus translating to a 200-basis point operating margin expansion in Q2 2022. This was due to higher pricing during the period. However, profit after tax dipped by 89% YoY to N110mn. The decline was induced by foreign exchange losses in Q2 2022.

Cash Balance Keeps Growing, where are the Investments?

Although on a quarter-on-quarter basis, trade and other receivables grew by 30% to N18.99bn, the Company ended Q2 2022 with a N63.39bn cash balance, from N60.84bn as of Q1 2022 ending March 2022 and N55.69bn as of year-open. As of Q2 2022 ending June 2022, the Company’s cash position accounted for 53% of total assets and 98% of net assets. The cash increase in Q2 2022 was driven by the strong revenue growth and delayed payments to creditors (i.e., trade payables).

Meanwhile, despite the relatively strong cash generation by the Company, investments remained weak. In Q2 2022, capex was N542mn. In absolute terms, the amount represented a 138% increase from Q2 2021 spend but the capex intensity of 2% is relatively low in our view. Our perspective is that limited growth opportunities due to the current challenging macroeconomic and operating environment is making investment opportunities less attractive for the Company’s managers.


We expect the earnings driver to remain the same in the remaining quarters of the year– price increases on products. On the other hand, we expect net margins to be under pressure, on the back of the foreign exchange illiquidity and higher input costs.

After incorporating the Q2 2022 performance, and our expectations for H2 2022, we revised our FY 2022 EPS was lowered to N0.85 (previous: N1.14). Accordingly, our fair value estimate for the stock is reduced to N13.38 (previous: N14.24). We recommend a SELL for the stock. At the current market price, the stock trades at a forward price-to-earnings of 21.19x, which is 14% above our estimated justified P/E multiple of 18.29x.

Please follow the link “Unilever Nigeria Plc Q2 2022 – Defying Tough Operating Environment” to view the whole report.

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