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UNILEVER published its Q4-20 and 2020FY unaudited results after market close on Friday (22 January) with revised 2019 numbers. EPS turned positive in Q4-20 standalone, printing NGN0.08 (Q4-19: -NGN0.83) following significant revenue growth, gross margin expansion and lower operating expenses.
For 2020FY, the company recorded a smaller Loss Per Share of -NGN0.28 (-62.3% y/y) compared to the previous year. The achieved revenue was in line with our estimate (-0.6% variance) but was 9.3% ahead of the consensus estimate for 2020FY. Although we expected a loss for the year, the 2020FY Loss Per Share was 40.6% ahead of our estimate owing largely to positive surprises in gross margin and the finance income line. Conversely, the loss per share was 17.3% behind the consensus estimate.
Revenue grew by 84.4% y/y in Q4-20, missing our estimate by 3.4%, following lower than expected revenue growth from the HPC (+83.6%) and Food Products (+85.6%) segments. The former contributed 42.9% (Q4-19: 42.7%) to total revenue, while the latter contributed 57.1% (Q4-19: 57.3%). The achieved overall revenue growth marked the second successive quarter of year-on-year topline growth (first time since Q3-18). Sequentially, revenue declined by 3.2% q/q, bucking the trend of successive quarterly growths over the past four quarters. For 2020FY, revenue was up by 1.3% y/y.
Our channel checks show that the average price across 89% of UNILEVER’s product portfolio was up c.5.9% y/y and 1.8% q/q. This, in our view, indicates that UNILEVER’s Q4 topline growth (+84.4% y/y) was underpinned by a combination of (1) the low base from last year, (2) higher average prices, and (3) most significantly, a stronger volume outturn. However, the 3.2% q/q revenue decline suggests a much weaker volume performance in the traditionally strong quarter. This is indicative of the persisting pressure on the consumer wallet amidst the current domestic macroeconomic challenges.
Gross profit margin expanded to 23.1% (Q4-19: -32.5%) in Q4-20, owing to the supernormal growth in the top line. On a q/q basis, gross margin expanded by 1.69 ppts as CoGs (-5.3% q/q) declined faster than revenue, which could be indicative of higher fixed cost absorption from improved volumes.
The company recorded a much smaller operating loss (-98.0% y/y) in Q4 owing to the significant decline in OPEX (-38.2% y/y) – marketing & administrative (-34.7% y/y) as well as S&D (-32.3% y/y) expenses fell during the period. Consequently, EBITDA (NGN1.50 billion) turned positive for the first time in three quarters.
UNILEVER recorded net finance income growth of 57.9% y/y in Q4-20 as the company did not record any finance costs vs NGNG990.93 million received as finance income. Consequently, the company recorded its first net income in three quarters with PAT printing NGN468.50 million in Q4-20 (vs net loss of NGN4.76 billion in Q4-19).
Comment: UNILEVER’s Q4 and 2020FY operating performance was better than expected owing to the improved gross margin and higher finance income recorded. However, we expect results to continue to reflect the challenging operating conditions as pressured consumer wallet continues to impact sales, while weaker exchange rate, poor FX liquidity and rising inflation continue to impact input and fixed costs. The stock has declined by 23.1% over the last year. We expect a neutral reaction to the results. On our 2021e and 2022e numbers, Unilever trades on EV/EBITDA multiples of 8.4x and 6.3x respectively. Our estimates are under review.
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