csl unilever nigeria full report

Equities

Unilever Nigeria

Nigeria | Consumer | Unilever Nigeria

24 April 2015

CSL Stockbrokers is a division of FCMB (UK) Limited which is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA in the United Kingdom.

Survival in a tough market

In common with most Nigerian consumer companies Unilever Nigeria (Unilever) faces a weak consumer environment in 2015e, and beyond. Its product orientation is towards Home and Personal Care (HPC) brands and these suffer particularly from price elasticity. In addition, competition has increased in recent years. We have revised down our forecast 2015e-19e Sales CAGR from 10.0% to 5.3%.

Unilever has high gearing (2014 net debt/equity: 206%), and has cut its dividend payout ratio from 100% to 16%. We see operating margins, RoCE and RoE stabilising during 2015e-16e, before improving gradually 2017e-19e. Currency weakness is partly offset by associated oil price weakness (feedstock prices correlate with oil) but we still see margin pressure this year.

Unilever trades at 1.4 standard deviations above its average historic 1-year forward PE ratio over the past six years, and at higher PE ratios than its sister companies in Indonesia and India (yet has lower operating margins than them). We think the market has been over-optimistic in pricing Unilever as a growth stock and believe the days of 40.0%+ RoE will not return.

We value Unilever using a combination of DCF and peer multiple comparison methods in a ratio of 60:40. We value Unilever at N24.3/s, representing 39% downside potential from the current price (previous target price: N31.8/s). We maintain our Sell recommendation on the stock.

Unilever BV in late March announced its intention to bid N45.5/s for 25% of the outstanding equity of Unilever Nigeria. Following the announcement, the shares rallied. It is important to recall that an earlier bid by the parent of a Nigerian consumer company was rejected (in 2013) by minority shareholders and by Nigeria’s courts. Nevertheless, N45.5/s is above the current price and substantially above our target price.

Source: CSL Research

Unilever Nigeria: Changes to estimates, Nm

Previous New diff Previous New diff Previous New diff Previous New diff

2015e 2015e % 2016e 2016e % 2017e 2017e % 2018e 2018e %

Sales 73,920 55,435 -25% 82,222 57,652 -30% 89,928 61,103 -32% 98,022 65,947 -33%

EBIT 11,957 5,035 -58% 12,814 5,083 -60% 14,261 6,471 -55% 15,545 7,675 -51%

PTP 11,545 2,591 -78% 12,511 2,786 -78% 14,139 4,063 -71% 15,270 5,675 -63%

Net Profits 7,966 1,814 -77% 8,633 1,950 -77% 9,756 2,844 -71% 10,537 3,972 -62%

Recommendation: Sell Target: 24.3 Price: 40.0* *Price as at 22 April 2015

Key data

Year to December, N bn

2013 2014 2015e 2016e

Sales 60.0 55.8 55.4 57.7

EBITDA 9.9 6.7 7.4 7.6

Net profit 4.7 2.4 1.8 1.9

EPS (N) 1.25 0.64 0.48 0.52

PE Ratio 32.0 62.7 83.5 77.6

EV/EBITDA 15.7x 24.7x 22.8x 22.0x

Div Yield (%) 3.1% 0.2% 0.2% 0.3%

Mkt. cap. N151.3bn (US$756.9m)

Free float 50%

Bloomberg UNILEVER NL

Reuters LBRO.LG

Three-year graph

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Unilever Nigeria share price Unilever Nigeria rel. to Nigeria All-Share

Contact information

Analyst: Ifeoma Okoli

+234 (0)1 448 5436

Head of Research: Guy Czartoryski

+234 (0)1 448 5436

Sales: Temi Popoola, CFA

+234 (0) 1 448 5420

Lagos: +234 (0)1 448 5436

London: +44 (0) 207 220 1041

[email protected] [email protected] ffff

Unilever Nigeria

Equities


Contents

Investment Summary 3

Product portfolio 4

Market position 5

Defending market share at all costs? 7

Top-line growth: Constrained by the HPC segment 9

Oil and CoGs relationship 11

Devaluation impact 12

The receivables problem 15

A mismatch: using short-term debt of finance expansion 17

Returns 18

Changes to forecasts 20

Financial forecasts 22

Risks 25

Valuation 26

Appendix I: products & prices 28

Disclosure, Important risk warnings and Disclaimers 29

Unilever Nigeria

Equities


Investment Summary

Unilever Nigeria (Unilever) has a durable portfolio of Home and Personal Care (HPC) and food brands, which gives it market leadership in several key segments (p.5), notably oral care, detergents, seasoning, tea and spreads. In these areas Unilever has introduced variants to meet consumer preference and match affordability, sometimes with low-size packaging.

The attractions of the Nigerian market – despite current consumer weakness – are not lost on Unilever’s international competitors. Competition has stepped up in recent years and Unilever has met this challenge by increasing advertising expenditure (p.7).

Unilever’s product portfolio (p.4) is weighted towards HPC products and this presents challenges in an environment of weak consumer demand (p.10). Price sensitivity is greater in HPC than in food and we believe that competition is also more intense here. Thus Unilever faces specific challenges in developing top-line growth (pages 10, 20 & 22).

On a positive note, the fall in oil prices (which is a source of economic weakness in Nigeria) is beneficial to Unilever’s input costs (p.11), we believe, since the price of key input Linear Alkyl Benzene positively correlates with oil. Since Unilever imports some 60% of its raw materials (p.12) this could lead to an increment in gross margins similar to that seen in 2008/9. However, we expect oil prices to gradually recover this year (p.13) so we doubt that gross margins will improve.

As competition strengthens, Unilever – in common with other consumer companies in Nigeria – has raised its receivables to accommodate customers (p.15). It has also used short-term naira-denominated debt (it has no foreign currency debt) to fund expansion (p.17). Net debt/equity stood at 206% in 2014.

We believe Unilever will moderate advertising expenditure, and stabilise operating margins 2015e-16e that halved 2012-14 (p.22) while maintaining a low dividend payout ratio (p.21). Beyond this, we see Unilever actually increasing operating margins 2017e-19e, maintaining low dividends and paying down net debt, with a consequent recovery in ROIC and ROE 2017e-19e though not to the very high levels seen in 2009-12.

In late March of this year Unilever BV (Not Rated) stated that it intends to offer N45.5/share for 0.9m shares in Unilever Nigeria, 25.0% of the shares outstanding. If successful, this bid would take Unilever BV’s stake up to 75.0%. In view of an earlier bid by a foreign parent of a Nigerian consumer company, however, we believe that minority shareholders, and the courts, could prevent a bid going ahead. Nevertheless, the stated bid level of N45.5/share is well above the current price of N40.0/s and our target price of N24.3/s.

Unilever Nigeria

Equities


Product portfolio

Unilever has 14 products in its product portfolio and we estimate that Omo (detergent), Sunlight (detergent), Closeup (toothpaste), Knorr (seasoning) and Lipton (tea) contribute c.70% of Revenues.

Source: CSL Research

A review of the table reveals that Unilever’s product portfolio is largely skewed in favour of its Home and Personal Care (HPC) segment which offers 11 products.

Demand for HPC products is more elastic than demand for food products. We believe this largely explains why food producers have fared better than HPC producers and why Unilever’s food segment has outperformed its HPC segment. Revenues in the food segment has grown at a CAGR of 7.5% over the past five years vs. 2.2% for its HPC segment.

In our view the structure of Unilever’s product portfolio makes its Revenues vulnerable to changes in consumer disposable income. As such, we believe there is a need for Unilever to improve its product offerings in the food segment where revenue growth has been more resilient. Product launches

It appears that Unilever currently does not share this view. In 2014, Unilever stepped up product launches and introduced five new products into the Nigerian market. Some of the products launched include: Vaseline Total Moisture lotion (skincare), Vaseline Cocoa Glow lotion (skin care), Sunlight dishwashing liquid, Pepsodent Gel (oral care) and Rexona deodorant. More recently, in March 2015, Unilever launched three new variants (Velvet Touch, Soft Touch and Soft Cares) of its skin care product, Lux. All the products mentioned above fall under Unilever’s HPC segment.

Product Portfolio

Segment Category Product Variant

Oral care Close up Red gel, Menthol chill, Herbal, White now, Complete 8 & Complete 8 WhitePepsodent

Skin Care Vaseline Blue seal, Baby Jelly, Cocoa, Aloe fresh, Total Moisture & Cocoa Glow

Lux White, Green, Orange & PinkHPC Lifebuoy

Detergent OmoSunlight Spring sensations & Tropical sensations

Household Cleaning Sunlight dishwahsing liquid

Deodorants Rexona for men & for women

Baby Care Pears

Seasoning Knorr cubes Classic & ChickenRoyco cubes Beef & Chicken

Food Spreads Blue Band Classic & Spread for bread

Tea Lipton Yellow label, Hibiscus, Tchae Mint, Forest Fruits, Vanilla, Clear Green & Lemon

Unilever Nigeria

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Market position Unilever has durable brands in our view, and the company enjoys leadership in several categories. Oral Care

There is a lot of competition in the oral care category but Unilever is the market leader with a market share of 35% according to Euromonitor with its Closeup brand of toothpaste. Other brands in this category include: Macleans and Sensodyne both from GlaxoSmithKline plc (GSK, Buy, Target Price N78.6/s, Current Price N53.5/s), Oral-B from Procter & Gamble (N/R), Dabur from African Consumer Care Ltd (Unlisted) and Colgate from Colgate-Palmolive (N/R).

Closeup is the longest-standing toothpaste brand in Nigeria and we believe this is because Unilever has invested significantly in creating brand awareness for the product. Our review of advertising shows that Closeup is the most advertised toothpaste brand in the country. Over the years, Unilever has developed many variants to meet the varying preferences of the consumer and has introduced several pack sizes (125ml family size, the 50ml large size, the 25ml standard size, and the 10ml sachet). Detergent

In the detergent category Unilever is a strong contender with its Omo and Sunlight detergent brands. Some years back, Omo was the generic name for detergent in Nigeria, however, in more recent years we believe Unilever has lost some of its market share to Procter & Gamble after it introduced Ariel, which we believe is widely viewed as a superior product.

Unilever’s detergent brands are mid-to-premium-priced and are in competition with several economy brands such as So Klin from Eko Supreme Resources Nigeria Limited (Unlisted) and Zip, Elephant and Jet detergents from PZ Cussons Nigeria (PZ, Hold, Target Price N34.6/s, Current Price N28.4) as well as various unbranded detergent products. Tea

There are not many tea brands in Nigeria. The two dominant brands in this category are Lipton tea (the market leader) from Unilever and Top Tea from Promasidor Nigeria Limited (Unlisted). Euromonitor estimates Unilever’s market share to be 35%. There is also competition from imported products such as PG tips from Unilever Food Solutions in the United Kingdom (Unlisted). Seasoning

Unilever is a strong contender in the seasoning category, with its Knorr (premium brand) and Royco (economy brand) seasoning cubes. There is strong competition in this category from locally manufactured products such as Maggi from Nestle Nigeria plc (Nestle, Hold, Target Price N777.6/s, Current Price N948.0) and Onga from Promasidor, as well as imported products, mainly from Asia.

Unilever Nigeria

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Knorr cubes are priced slightly higher than Maggi and Onga cubes. Nonetheless, our research indicates that shop owners have observed increased traffic for Knorr cubes because consumers widely perceive Knorr (which is less saline than the competition’s offerings) as a superior product. Spreads

Unilever, has a strong presence in this category with its margarine brand Blue Band. Blue Band is produced by Unilever Ghana for Unilever Nigeria, because it appears it is cheaper for Unilever Nigeria to import the product than produce it locally. Blue band is very popular with bread sellers in Nigeria. There are other margarine brands in the market such as Moi margarine from Moi International (Unlisted) and Summer County and Flora both from Unilever Food Solutions in the United Kingdom. These brands are also imported. Note: See appendix for a full list of product pricing versus competitors.

Unilever Nigeria

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Defending market share at all costs?

Unilever’s operating expenses have been on the rise since 2013 and these have negatively impacted profitability. EBITDA declined 8.2% y/y in 2013 and 32.0% y/y in 2014. The spike in operating expenses is largely due to increased promotional and advertising expenditure, which became the single largest component of Opex in 2014.

Source: Company, CSL Research

In 2014 advertising and promotional spend was c.11% of sales, the highest level in three years. We view the spike in operating expenses (which is now a feature of Nigeria’s FMCG industry in general) as Unilever’s response to heightened competition across product categories.


Unilever: EBITDA vs Opex growth

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Unilever : Components of Opex

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Unilever Nigeria

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Unilever has undertaken several advertising campaigns for its products over the past two years (2013-14). Some notable ad-campaigns include: The Lipton tea party, The Lipton Wakeup Call, The Lipton Open Surprise and Close up Cupid.

We believe that maintaining Opex at current levels is not viable for Unilever. Management will need to cut its advertising budget to raise profits, in our view. In 2014, both Unilever’s Return on Equity (RoE) and Return on Capital Employed (RoCE) declined sharply as Net Profits dropped. Our modelled forecasts indicate that if Opex is maintained at the current level, the pace of recovery for RoE and RoCE could be slow.

Source: Company, CSL Research * Modelled forecasts assuming Opex to sales ratio remains in line with 2014 level. ** Modelled forecasts assuming gradual declines in Opex to sales ratio through 2015e-2018e (CSL base case)

When we compare Unilever’s expenditure as a percentage of revenues with PZ Cussons Nigeria which has a more robust product portfolio (PZ Cussons has 33 products vs. 14 for Unilever), we find a much stronger commitment to advertising in our opinion.

Source: Company, CSL Research * May year-end

We forecast Unilever’s Opex-to-Sales ratio to gradually reduce to 23% over our forecast horizon.

Unilever: RoCE and RoE

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Unilever PZ*

Unilever Nigeria

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Top-line growth: Constrained by the HPC segment

Unilever has two reporting segments i) Food and 2) Home and Personal care (HPC). Over the past five years Unilever’s food segment has contributed an average of c.45% to Revenues while HPC contributed c.55%.

Unilever’s Revenues declined by 7% y/y in 2014, its worst performance in eight years. We believe, the fall in Revenues was partly due to security challenges in the North East of Nigeria. The market in the North of Nigeria accounts for c.30% of Unilever’s Revenues.


We believe heightened competition in the Fast Moving Consumer Goods (FMCG) space also contributed to weakness in Revenue growth. Trade disruptions in the North of Nigeria forced consumer companies to rely on markets in the South which were already competitive.

Furthermore, the Nigerian consumer remained under pressure and this negatively affected demand in our view. In 2014, for example, electricity tariffs were raised and import duties on used cars increased from 20% to 35%.

We believe weak consumer demand had a greater (negative) impact on Unilever’s HPC segment than its Food segment because demand for HPC products are more price elastic than demand for food.

A breakdown of Revenue, shows that the decline in the HPC segment in 2014 – sales in the HPC segment declined 15% y/y in 2014 – was the primary cause for the drop in Revenues. The food segment grew 3% y/y in 2014.

Unilever: Change in Revenues, y/y

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Unilever Nigeria

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Competition in the HPC market is more intense than in the food market. Apart from locally-produced and imported branded products, Unilever’s HPC products, which are mid-to-premium-priced, also compete with unbranded products that are generally cheaper. Unbranded products are very common in the detergent and skincare categories.

Segment performance, Sales Nm

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Unilever Nigeria

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The oil and CoGs relationship

Unilever’s key inputs are 1) Linear Alkyl Benzene (LAB), used in the manufacture of detergent, 2) Tallow for the manufacture of soap, 3) Sorbitol for production of toothpaste and, 4) Monosodium Glutamate (MSG) for the production of seasoning cubes. These inputs constitute c.70% of Unilever’s input cost requirements.

We do not have specific details of the weight each item carries in Unilever’s input cost mix. But the observed relationship between Unilever’s Cost of Goods Sold (CoGs) and crude oil prices leads us to believe that LAB likely carries the largest weight.

Source: Bloomberg, Company, CSL Research

LAB is a petrochemical product and the price of its principal component benzene closely tracks oil prices. And this largely explains the inverse relationship between oil prices and Unilever’s gross margins, in our view.

Source: Bloomberg, CSL Research

Unilever : Oil price and CoGs % of Revenues

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Benzene and crude oil prices

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Unilever Nigeria

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Devaluation impact

The Central Bank of Nigeria (CBN) effectively devalued the naira on 12 and 14 February 2015. The CBN entered the interbank market to trade at N198.00/US$1.00, abandoning its N168.00/US$1.00 core rate used in the Retail Dutch Auction System (RDAS) since November 2014. On 18 February it took the RDAS out of business altogether. Our view is that the naira will find a floor no lower than N220.00/US$1.00 in the interbank market in 2015 (see CSL Nigerian Banks report ‘A Disaster is priced in. Buy, 30 Jan 2015). Impact on the company

Unilever, in its 2014 financial statements, discloses that c.60% of its bought-in raw materials and services were imported. The large volume of imported raw materials exposes the company to foreign exchange risks. Unilever’s primary currency exposure is to the euro and the US dollar.


However, there is evidence that the Gross Profit margins of Unilever can increase during a period of naira devaluation, if the devaluation is accompanied by a strong fall in oil prices.

This was the case in 2009. In 2008/09 the naira was devalued by c.26% and this was associated with a 36.8% y/y decline in crude oil prices (comparing average prices over those years). During that period, Benzene prices also fell by 28.3% y/y and this led to a 4.3pp y/y expansion in Unilever’s gross margins in 2009. As at 9M 2014, average oil prices had declined by c.2% y/y and benzene prices we down by c.1%y/y. Consequently, 9M 2014 gross margins expanded 189bps y/y.

The CBN devalued the naira by c.8% in November 2014 and we believe this largely underpinned the 12pps y/y contraction in Q4 2014 gross margins (2014 gross margins declined by 124bps y/y despite the 9% y/y decline in oil

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prices), as the decline in average oil prices was likely not strong enough to offset the impact of a weaker naira.

In the first quarter of 2015, the dollar traded within the range of N184.6 – N206.0/US$. Our base case of N220.00/US$ for the currency in 2015e, implies a 28.7% devaluation of the naira compared with the average rate in 9M 2014.

We expect crude oil prices to recover marginally in 2015e and forecast US$75/bbl (c.23.5% lower than average crude oil prices in 2014) and US$90/bbl in 2016e (See, CSL Oil Sector report, 23 December 2014).

The devaluation of the naira in 2015e and our expectations for oil prices imply that the fall in oil prices may not be enough to offset the effects of a weaker naira. Consequently, we forecast a 44bps y/y contraction in 2015e gross margins.


Debt exposure to FX

Unilever does not have foreign currency loans on its balance sheet.

Impact on the consumer

We note that in 2009 Unilever recorded its strongest revenue growth in seven years (2008-14), when Revenues rose 19% y/y. This was also the case with Nestlé Nigeria, when it recorded its best Sales growth for many years, up 32% on the year.

There is a possibility that Unilever can record strong sales figures in 2015e. However, the disparity between the economic and commercial environment

Unilever: Growth rate in crude oil prices vs Gross margins

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of 2009 and the present day leads us to believe that this may not be the case in 2015e. Our argument is based on the following grounds:

a) The marketplace is more competitive than it was in 2009. The security crisis in the North East of Nigeria has forced companies to rely on markets in the South which are already very competitive.

b) The government in 2009 had sufficient fiscal resources to stimulate the economy, notably some US$20.00bn in the Excess Crude Account (ECA) which was added to budget allocations. The current level of the ECA is some US$2.45bn (as at December 2014). In 2015 government budgets are being cut. We are even aware of payment issues affecting some public sector employees.

c) Foreign exchange reserves were close to US$50.0bn (of which the ECA was a part) in 2009, compared with US$29.6bn now. The Central Bank of Nigeria, dealing with a banking crisis, adopted an accommodative stance. GDP grew by some 6.9% in 2009, while the IMF recently cut its growth forecast for Nigeria in 2015 from 7.3% to 4.8%.

d) Specifically, the CBN cut its Monetary Policy Rate (MPR) from 10.25% to 9.75% in September 2008, then to 8.00% in April 2009 and to 6.00% in July 2009. Given the CBN’s current attitude to naira liquidity in its current struggle with naira devaluation, we doubt that such interest rate decreases are in the pipeline. The current MPR is 13.00%.

Unilever Nigeria

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The receivables problem

Rising Trade Receivables have become a feature of the FMCG space in Nigeria. Players in the consumer goods sector are easing trade terms as competition within the sector intensifies. We estimate Unilever’s receivable turnover at 6.7x in 2014, the lowest in five years, while days of sales outstanding stood at 55 days in 2014, up from 42 days in 2013.


Rising receivables put a strain on Unilever’s working capital in 2014. Working capital further deteriorated to a negative balance of N12.8bn from a negative balance of N9.7bn in 2013.

The company’s cash flow from operations turned negative to the tune of N1.8bn and Free Cash Flow declined to a negative balance of N5.8bn in 2014.

Source: Company, CSL Research N.B Free Cash Flow is defined as Operating Cash Flow minus Capital Expenditure.

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So, Unilever took on more short-term debt to augment shortfalls in working capital with knock-on effects resulting in a 75% y/y rise in interest expense. The sharp rise in interest expenses coupled with weak sales growth and rising operating expenses, resulted in a sharp decline in Unilever’s interest coverage ratio to 2.4x in 2014 from 6.7x in 2013.

Source: Company, CSL Research N.B Interest coverage ratio is defined as EBIT/ Interest Expense

Unilever’s interest expense weighed on earnings. In 2014, PBT declined 58% y/y and PAT declined 49% y/y (the softer decline in PAT is due to a tax credit in Q4 2014).

We believe Unilever will likely maintain flexible trade terms as competition within the consumer sector remains strong. On the back of this, we foresee sustained pressure on working capital and believe debt will remain elevated.

Consequently, we believe interest expense is likely to continue to weigh on earnings in the near-to-medium term.

Unilever: Interest coverage ratio

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Unilever Nigeria

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A mismatch? Unilever uses short-term debt to

finance expansion

Over the past four years, Unilever has invested about US$101m (N20bn) in upgrading and expanding capacity. The company launched its Mega distribution centre in 2013 and launched a new liquids factory in Agbara, Ogun State in November 2014. Unilever’s management has disclosed that it plans to make an additional investment of US$200m in Nigeria. Details on the nature and duration of this investment have not been provided.

In addition to using short-term debt to augment working capital, Unilever also uses short-term debt to finance its Capex. The company prefers to use short-term debt (Unilever had overdraft facilities to a limit of N24.5bn in 2014) to finance Capex because of the high interest rate environment, according to management. Unilever paid an average rate of 14% on its short-term bank loans in 2014.


Unilever has been able to utilise short term loans because the cash flows generated by the business have been sufficient to pay off outstanding debt, in our view.

However, the company’s free cash flow has turned negative and this could make it difficult for Unilever to repay its short-term debt, in our view. Consequently there is a possibility that the company may need to shift the balances of its short and long-term loans.

Unilever’s debt-to-equity ratio was 224% (above the industry average of 26%) in 2014 up from 68% in 2013. This, coupled with the sharp decline in its interest coverage ratio (2.4x in 2014 from 6.7x in 2013) leaves little room for the company to take on more debt, in our view. As such, we believe Unilever may have to increase equity to finance any new investments.

Unilever: Capex vs. Long & short term debt, Nm

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12,000

14,000

16,000

18,000

2008 2009 2010 2011 2012 2013 2014

Capex Short-term loans Long-term loans

Unilever Nigeria

Equities


Returns

Unilever’s RoE has been steadily declining since 2012. The decline in RoE is largely due to the sharp drop in Net Profits despite rising financial leverage. Over the past four years, Unilever has increased borrowing to finance capacity expansion and upgrade its existing facilities in anticipation of a rise in consumer demand.


However, consumer spending has remained weak and we believe this has led to under-utilisation of capacity. We estimate Unilever’s capacity utilisation at c.60%. Consequently, Unilever’s revenue growth has slowed and rising financial leverage has negatively affected profitability.

In 2014, however, Unilever still had the second highest RoE amongst its domestic peers.

Source: Companies, CSL Research *PZ Cussons has a May-year end

When comparing the returns of Unilever Nigeria with the returns of other Unilever companies in emerging markets, we observe that Unilever Nigeria’s returns have historically been below those of India and Indonesia. Both companies have enjoyed relatively stronger Revenue growth – Unilever India’s Revenues has grown at a five-year CAGR of 6.0% while Unilever Indonesia has grown Revenues at a five-year CAGR of 13.6% - than Unilever Nigeria, and with superior profit margins.

Unilever: Dupont analysis

2008 2009 2010 2011 2012 2013 2014

Net profit margin 0.07 0.09 0.09 0.10 0.10 0.08 0.04

Total asset turnover 1.59 1.89 1.89 1.88 1.62 1.50 1.25

Financial leverage 3.52 3.17 3.00 3.24 3.49 4.14 5.32

RoE 39% 55% 51% 62% 57% 49% 29%

RoE peer comparison

2010 2011 2012 2013 2014

Unilever 51% 62% 57% 49% 29%

PZ* 14% 13% 6% 11% 10%

Nestle 99% 87% 74% 60% 58%

GSK 27% 27% 29% 25% 15%

Cadbury 9% 25% 19% 27% 11%

Unilever Nigeria

Equities



We forecast further declines in RoE for Unilever Nigeria in 2015e to 22% and in 2016e to 20%. However we forecast a gradual recovery in RoE 2017e-19e.

Unilever companies: RoE and Profit margins

20%

40%

60%

80%

100%

120%

140%

De

c-1

0

De

c-1

1

De

c-1

2

De

c-1

3

De

c-1

4

Unilever Nigeria Unilever India

Unilever Indonesia Unilever UK

RoE

0%

5%

10%

15%

20%

De

c-1

0

De

c-1

1

De

c-1

2

De

c-1

3

De

c-1

4

Unilever Nigeria Unilever India

Unilever Indonesia Unilever UK

Profit margin

Unilever Nigeria

Equities


Changes to forecasts

We expect consumer demand to remain weak in the near-to-medium as recent naira devaluation is likely to raise living costs and put pressure on consumers. A recent market survey by CSL Research indicates that the costs of imported items have gone up by an average of c.20% since the devaluation of the naira.

In January 2015, the IMF cut its growth forecasts for Nigeria in 2015e to 4.8% from 7.3%, and in 2016e to 5.2% from 7.2% (the IMF estimates that the Nigerian economy grew by 6.1% in 2014).

Unilever’s sales in the North of the country could be supported by pacification. In recent months, the Nigerian Army has recorded success in its efforts to bring the activities of Boko Haram to an end. The army has liberated some of the towns - including Bama, Damboa, Baga and Gwoza in the North East - which had previously been held by the terrorists.

However, there are still reports of terror attacks in parts of the North East of Nigeria. Consequently we believe commercial activities in this region are likely to remain subdued.

We expect competition in the consumer sector to remain strong as players try to maintain or increase market share.

In view of our expectations, we have revised downwards our Revenue growth forecasts and now expect revenues to grow at a five-year (2014-19e) CAGR of 5.3% which is 4.7pps lower than our previous forecast of 10.0%.


We also revised downwards our 2015e–2019e EBITDA forecasts by an average of 44%. We forecast EBIT margins in the range of 9-12% in 2015e-19e from our previous forecast of 15-16%.

Revenue growth

-10%

-5%

0%

5%

10%

15%

20%

25%

2009 2010 2011 2012 2013 2014 2015e 2016e 2017e 2018e 2019e

Old estimates New estimates

Unilever Nigeria

Equities


Source: CSL Research * Bloomberg consensus

Dividends

Dealing with weaker returns, and weaker cashflows, than in previous years, Unilever cut its dividend payout ratio from 100% in 2013 to 16% in 2014. In part this reflected, we believe, management’s desire to continue investing in capacity at a time when debt/equity had reached 224% (net debt/equity 206%). We believe that Unilever will continue to keep its dividend payout ratio low in forecast years 2015e-19e.

Unilever Nigeria: CSL forecast changes

Nm Previous forecast New forecast diff Consensus* diff

Revenues 2015e 73,920 55,435 -25% 62,700 -12%

Revenues 2016e 82,222 57,652 -30% 67,053 -14%

Revenues 2017e 89,928 61,103 -32% 80,576 -24%

Revenues 2018e 98,022 65,947 -33% N/A

EBIT 2015e 11,957 5,035 -58% 6,170 -18%

EBIT 2016e 12,814 5,083 -60% 7,064 -28%

EBIT 2017e 14,261 6,471 -55% 9,293 -30%

EBIT 2018e 15,545 7,675 -51% N/A

PBT 2015e 11,545 2,591 -78% 4,916 -47%

PBT 2016e 12,511 2,786 -78% 5,771 -52%

PBT 2017e 14,139 4,063 -71% 7,481 -46%

PBT 2018e 15,270 5,675 -63% N/A

Net Profit 2015e 7,966 1,814 -77% 3,483 -48%

Net Profit 2016e 8,633 1,950 -77% 4,129 -53%

Net Profit 2017e 9,756 2,844 -71% 7,355 -61%

Net Profit 2018e 10,537 3,972 -62% N/A

Unilever Nigeria

Equities


Financial forecasts

Source: Company, CSL Research estimates *Re-stated by CSL Research, for modelling

purposes, to strip out part of the depreciation charge which is included in the Cost of Goods sold,

Marketing and Distribution, and Administrative Expenses as presented in company accounts

Unilever Nigeria, Profit & Loss account, Nm

Nm 2009* 2010* 2011* 2012* 2013* 2014* 2015e 2016e 2017e 2018e 2019e

Revenue 44,481 46,808 54,725 55,548 60,004 55,754 55,435 57,652 61,103 65,947 72,010

change 19% 5% 17% 2% 8% -7% -1% 4% 6% 8% 9%

Cost of Sales* (26,575) (28,646) (34,035) (32,690) (36,265) (34,156) (34,203) (35,917) (37,273) (39,898) (43,566)

Gross Profits 17,906 18,162 20,689 22,857 23,740 21,598 21,231 21,735 23,830 26,049 28,444

change 32% 1% 14% 10% 4% -9% -2% 2% 10% 9% 9%

margin 40% 39% 38% 41% 40% 39% 38% 38% 39% 40% 40%

Marketing and Distribution* (1,938) (2,166) (2,347) (2,377) (2,377) (2,136) (2,217) (2,306) (2,444) (2,638) (2,880)

change 26% 12% 8% 1% 0% -10% 4% 4% 6% 8% 9%

Administrative Expenses* (8,217) (8,240) (9,189) (9,740) (11,494) (12,717) (11,641) (11,819) (12,221) (12,860) (13,682)

change 21% 0% 12% 6% 18% 11% -8% 2% 3% 5% 6%

Total Opex (10,155) (10,406) (11,536) (12,117) (13,871) (14,853) (13,859) (14,125) (14,665) (15,498) (16,562)

change 22% 2% 11% 5% 14% 7% -7% 2% 4% 6% 7%

EBITDA 7,750 7,756 9,154 10,740 9,868 6,746 7,373 7,610 9,165 10,552 11,882

change 48% 0% 18% 17% -8% -32% 9% 3% 20% 15% 13%

margin 17% 17% 17% 19% 16% 12% 13% 13% 15% 16% 17%

Depreciation (689) (954) (917) (1,616) (1,719) (1,904) (2,120) (2,336) (2,525) (2,726) (2,891)

Amortization - (218) (334) (233) (196) (168) (145) (124) (107)

Operating Profit 7,061 6,802 8,237 8,907 7,815 4,609 5,057 5,105 6,495 7,701 8,884

change 58% -4% 21% 8% -12% -41% 10% 1% 27% 19% 15%

margin 16% 15% 15% 16% 13% 8% 9% 9% 11% 12% 12%

Other Income - 5 (39) (12) (24) 6 (22) (23) (24) (26) (28)

EBIT 7,061 6,807 8,198 8,895 7,791 4,615 5,035 5,083 6,471 7,675 8,856

change 58% -4% 20% 9% -12% -41% 9% 1% 27% 19% 15%

margin 16% 15% 15% 16% 13% 8% 9% 9% 11% 12% 12%

Interest Income 164 77 248 108 163 168 120 216 279 222 286

Interest Expense (1,000) (101) (428) (817) (1,161) (1,910) (2,565) (2,512) (2,688) (2,223) (2,169)

Net Finance Income/(Cost) (836) (23) (180) (709) (997) (1,742) (2,445) (2,296) (2,409) (2,001) (1,883)

Exceptional items (563) (405) - - - - - - - - -

Pension and Similar Obligation - (227) - - - - - - - - -

PBT 5,661 6,152 8,018 8,186 6,794 2,873 2,591 2,786 4,063 5,675 6,972

change 37% 9% 30% 2% -17% -58% -10% 8% 46% 40% 23%

margin 13% 13% 15% 15% 11% 5% 5% 5% 7% 9% 10%

Tax (1,567) (1,971) (2,492) (2,588) (2,069) (461) (777) (836) (1,219) (1,702) (2,092)

Effective tax rate 28% 32% 31% 32% 30% 16% 30% 30% 30% 30% 30%

PAT 4,094 4,181 5,526 5,598 4,724 2,412 1,814 1,950 2,844 3,972 4,880

change 58% 2% 32% 1% -16% -49% -25% 8% 46% 40% 23%

margin 9% 9% 10% 10% 8% 4% 3% 3% 5% 6% 7%

Unilever Nigeria

Equities


Source: Company, CSL Research estimates

Unilever Nigeria, Balance Sheet, Nm

Nm 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e 2018e 2019e

Property, plant & equip 9,975 11,209 14,264 19,266 23,225 24,831 25,483 26,029 25,947 25,860 25,129

Employee loan receivables - 71 78 88 122 128 128 128 128 128 128

Intangible Assets 1,152 1,962 1,628 1,398 1,202 1,034 889 765 658

Non-current asset held for sale 501 501 - - - - - - - -

Other non current assets 56 56 260 222 398 398 398 398 398 398

Pension scheme surplus - - 73 144 156 410 410 410 410 410 410

Total Non- Current Assets 9,975 11,838 16,123 21,719 25,353 27,165 27,621 27,999 27,773 27,561 26,723

Inventories 4,927 6,287 7,706 7,230 6,988 8,615 7,594 7,985 8,654 8,997 9,875

Trade receivables 6,798 5,054 5,426 5,638 8,143 8,544 11,087 11,530 13,443 15,827 17,283

Employee loans receivables 50 52 53 86 77 77 77 77 77 77

Cash and cash equivalents 1,981 2,678 2,942 1,858 3,184 1,335 2,400 3,100 2,471 3,174 1,458

Total Current Assets 13,706 14,069 16,127 14,778 18,401 18,571 21,158 22,692 24,645 28,076 28,693

Total Assets 23,682 25,906 32,250 36,498 43,754 45,736 48,779 50,691 52,418 55,637 55,416

Deferred Taxation 1,148 1,137 1,242 1,233 2,341 2,853 2,853 2,853 2,853 2,853 2,853

Provisions for gratutity 1,927 2,068 2,450 2,595 2,707 2,757 2,757 2,757 2,757 2,757 2,757

Long service award obligations 356 342 342 342 342 342 342

Other employee benefits 61 44 44 44 44 44 44

Deferred income 86 128 128 128 128 128 128

Loans and borrowings - Longterm - - 31 145 782 763 797 500 647 698 587

Total Non-Current Liabilities 3,074 3,205 3,723 3,974 6,334 6,887 6,921 6,624 6,771 6,822 6,711

Trade Payables 9,135 11,678 16,068 14,930 21,092 15,111 14,023 14,726 16,027 15,959 18,298

Loans and Borrowings - Short-term 8 23 3,028 12,061 13,160 14,432 14,174 13,763 8,231

Current Tax payable 1,769 1,986 2,816 2,987 1,360 213 213 213 213 213 213

Bank Overdraft 1,500 731 - 4,359 2,571 3,953 5,500 4,174 2,577 3,245 2,668

Provisions 182 - - - - - - -

Deffered Income - 22 33 33 33 33 33 33

Total Current Liablities 12,405 14,395 18,892 22,480 28,073 31,371 32,929 33,577 33,024 33,213 29,443

Ordinary Share Capital 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892

Share Premium 46 46 46 46 46 46 46 46 46 46 46

Retained Earnings 6,265 6,369 7,697 8,106 7,411 5,541 6,992 8,553 10,685 13,665 17,325

Total Equity 8,203 8,306 9,635 10,044 9,348 7,479 8,930 10,490 12,623 15,602 19,262

Total libs & shrhldrs' funds 23,682 25,906 32,250 36,498 43,754 45,736 48,779 50,691 52,418 55,637 55,416

Net Debt to Equity -6% -23% -30% 27% 34% 206% 191% 153% 118% 93% 52%

RoCE 71% 66% 86% 63% 43% 22% 14% 14% 17% 19% 21%

RoE 55% 51% 62% 57% 49% 29% 22% 20% 25% 28% 28%

Unilever Nigeria

Equities


Source: Company, CSL Research estimates.

Unilever Nigeria, Cash Flow, Nm

Nm 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e 2018e 2019e

PBT 5,661 6,152 8,018 8,186 6,794 2,873 2,591 2,786 4,063 5,675 6,972

- - - - - -

Taxation - - - - - -

Interest Income (164) (77) (248) (108) (163) (168)

Interest Expense 631 327 428 817 1,161 1,910

Depreciation of fixed assets 689 954 917 1,616 1,719 1,904 2,120 2,336 2,525 2,726 2,891

Inventory write down - - - 18 - -

Net impairment charge/(Write-back) 145 310 149 (281) 210 466

Write off of fixed assets - - - - 110 29

Amortization of intangible assets - - - 218 334 233 196 168 145 124 107

Net charge in retirement benefit obligation - - 415 565 590 666

Impact of foreign exchange difference on intercompany loans - - - - - -

(Gain )/ loss on the disposal of fixed assets (13) (5) 39 12 24 (6)

change in employee loan receivable - - (8) (11) (67) 2

Restructuring provision - - - 182 (182) -

(Write back)/Provision for gratuity - - - - - -

Provision for long service awards - - - - 143 8

Other employee benefits (3) (17)

Changes in long term receivables - - - - - -

(Increase)/decrease in long term debtors and prepayments - - - - - -

Stock related exceptional items not involving cash movement - - - - - -

- - - - - -

Working Capital Changes - - - - - -

(Increase)/decrease in inventories 299 (1,359) (1,420) 459 242 (1,626) 1,020 (391) (669) (343) (878)

(Increase)/decrease in Trade receivables (295) 1,567 (372) (212) (2,506) (401) (2,542) (443) (1,912) (2,385) (1,455)

(Increase)/ Decrease in other receivables - - - - - - - - - - -

(Increase)/decrease in other non-current assets 733 141 0 (204) 38 (176)

(Increase)/decrease in amount due from related companies - - - - - -

(Increase)/ decrease in Short-term investments - - - - - -

Increase/ (decrease) in amount due to related companies - - - - - -

Increase/ (decrease) in trade payables (1,042) 4,046 4,403 (1,134) 6,222 (5,981) (1,088) 703 1,301 (68) 2,339

Increase/ (decrease) in other payables - - - - - -

Increase/ (decrease) in dividend payable - - - - - -

Increase/ (decrease) in deffered income - - - - -

Changes in Short term provisions - - - - - - - - - - -

Increase/ (decrease) in current tax payables - - - - - - - - - - -

6,645 12,056 12,321 10,121 14,665 (283) 2,297 5,160 5,452 5,729 9,976

Retirement Benefit Paid (530) - (141) (336) (452) (232)

Long service award obligations paid (1,491) - (23) (22)

Tax paid (946) (1,765) (1,558) (2,473) (2,509) (1,288) (777) (836) (1,219) (1,702) (2,092)

Net Cash provided by operating activities 5,170 8,800 10,622 7,312 11,681 (1,825) 1,519 4,324 4,234 4,026 7,884

Purchase of fixed assets (1,773) (3,036) (4,203) (5,853) (6,025) (4,024) (2,772) (2,883) (2,444) (2,638) (2,160)

Short term investments - - - - - -

Purchase of intangible asset - - (1,152) (1,028) - (3)

Proceeds from sale of fixed assets 33 12 44 6 3 24

Interest received 164 77 248 108 163 168

Net cashflow from investing activities (1,576) (2,947) (5,063) (6,767) (5,859) (3,834) (2,772) (2,883) (2,444) (2,638) (2,160)

Free Cash Flow 3,397 5,764 6,419 1,459 5,655 (5,849) (1,252) 1,441 1,790 1,389 5,724

Dividend paid (2,573) (4,060) (4,174) (5,301) (5,297) (4,729) (363) (390) (711) (993) (1,220)

Interest paid (631) (101) (428) (817) (1,149) (1,712)

Increase/ (decrease) in bank overdraft - - - - - -

Increase/(decrease) in long-term loans - - - 138 790 447 34 (297) 147 51 (111)

Repayments of Long term loan - (227) - (8) (52) (179)

Change in long-term deferred taxes - - - - -

Change in provisions - - - - -

Increase/(decrease) in Short term loans - - 39 - 3,000 8,600 1,099 1,272 (258) (412) (5,532)

Net cashflow from financing activities (3,204) (4,387) (4,564) (5,988) (2,708) 2,427 771 585 (822) (1,354) (6,863)

Net Increase/(Decrease) in cash and cash equivalent 389 1,466 995 (5,443) 3,114 (3,232) (482) 2,026 968 35 (1,139)

Cash and Cash equivalents, beginning of the year 91 481 1,947 2,942 (2,501) 613 (2,618) (3,100) (1,074) (106) (71)

Bank Overdrafts 1,500 731 - 4,359 2,571 3,953 5,500 4,174 2,577 3,245 2,668

Cash and Cash equivalents , 31st December 1,981 2,678 2,942 1,858 3,184 1,335 2,400 3,100 2,471 3,174 1,458

Unilever Nigeria

Equities


Risks The market in the North of Nigeria is important to Unilever. The company could enjoy a peace dividend if terror attacks by Boko Haram are brought completely to an end. Improved security conditions could spur commercial activities and cause Unilever to record higher sales than those we have forecast.

The increase in electricity tariffs and raised duties on wheat, rice and used vehicles has elevated living costs. This has negatively impacted consumer spending. However, a rebound in consumer spending could increase demand for Unilever’s products and drive sales and profits above our forecasts.

We estimate that c.60% of Unilever’s raw materials are imported. This exposes Unilever to foreign exchange risk. In the first quarter of 2015, the naira devalued to a level in the interbank market of close to N200/US$ and our base case is that the naira will settle at N220/US$ later this year. Further devaluation of the naira could lead to increased costs of imported raw materials.

Unilever is currently working to substitute imported sorbitol (the key input used in toothpaste) with locally-manufactured sorbitol which is cheaper. If Unilever is successful, this could reduce input costs with knock-on-effects pushing gross margins higher than we have forecast. Having noted the relationship between crude oil prices and Unilever’s input prices, further declines in crude oil prices could result in cheaper input prices for Unilever. However, a quicker-than-anticipated recovery in oil prices could raise input costs higher than we have forecast and reduce Unilever’s gross margins.

Major General Muhammadu Buhari of the All Progressives Congress (APC) won the March 28 presidential election. Consequently, a new Government will be sworn in on the 29 of May, 2015 and this creates some uncertainty about the economic policies that would be adopted by the new administration.

Unilever Nigeria

Equities


Valuation

We update our valuation of Unilever and revise our price target to N24.3/s from N31.8/s. Our new price target implies 39.2% downside potential from its closing price of N40.0 on 22 April. We retain our Sell recommendation on the stock.

We have changed our valuation method for Unilever. Prior to this we only used a Discounted Cash Flow (DCF) valuation. However, we now combine DCF and a Relative Valuation (RV) applying a ratio of 60:40. We assign a heavier weight to the DCF valuation because we believe it better captures the value of growth.

DCF Valuation

Using the DCF valuation method, we arrive at a target price of N14.4/s. Our DCF valuation incorporates the use of a three stage model. The three stages include the explicit forecast stage (2015e-19e), the semi-explicit stage (2020e -29e), and perpetuity.

For our explicit stage (which incorporates our modelled forecasts), we assume a Weighted Average Cost of Capital (WACC) of 18.0%. To derive our WACC, we adopt a cost of equity of 19.0% and an after tax cost of debt of 10.2%.

We compute our cost of equity by applying a 13.0% risk free rate, a market risk premium of 6.0% and a beta of 1.0.

Through our semi-explicit stage (2020e-29e) we model growth to decline linearly to 5.7%. We forecast the WACC to decline 200bps to 16.0% and by another 200bps to 14.0% by the terminal phase.

Relative Valuation

Here we use EV/EBITDA spot multiple comparison. Comparison is made with a selection of emerging market HPC companies. Unilever trades at a 2015e EV/EBITDA of 22.8x and this is at a discount to its emerging market peer average of 25.0x (we have used consensus estimates to arrive at valuations for companies outside Nigeria). Using the current price, we forecast EV/EBITDA of 22.0x in 2016e, 18.1x in 2017e, 15.7x in 2018e and 13.6x in 2019e. Using this method, we arrive at a target price of N39.2/s for Unilever.

Combining our DCF valuation of N14.4/s and our RV valuation of N39.2/s with a ratio of 60:40 gives us a target price of N24.3/s. Valuation history

Unilever’s share price was marked down sharply in Q4 2014 (down 33.5% in FY 2014) when declining oil prices and naira devaluation weakened investor sentiment. However, its share price began to recover towards the end of March 2015 (+12.2% y/t/d) after its parent company announced plans to increase its stake in Unilever Nigeria to a maximum of 75%.

In light of the recent share price rally, Unilever’s PE valuations now appear rich when compared to its historical average.

We measure this in terms of historic price-to-earnings (PE). In the chart below, we plot the 1-year forward PE, prospective.

Unilever Nigeria

Equities


Source: Bloomberg (prices only), CSL Research *Re-set each 1 July for the following year’s earnings

Unilever trades at 1.4 standard deviations above its average historic 1-year forward PE ratio over the past six years. We estimate that for Unilever to trade in line with its average 1-year forward P/E (of 40.0x), a share price of N19.2/s would be needed, rather than its current market price of N40.2/s.


Unilever Nigeria also appears richly priced when compared to its sister companies in other emerging markets, notably Indonesia and India.

Valuation history*: Unilever

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Unilever 1-yr fwd PE Unilever av 1-yr fwd PE

+ 1 stdev - 1 stdev

Historical PE: Emerging market peers

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Dec

-05

May

-06

Oct

-06

Mar

-07

Aug

-07

Jan-

08

Jun-

08

Nov

-08

Apr

-09

Sep

-09

Feb-

10

Jul-1

0

Dec

-10

May

-11

Oct

-11

Mar

-12

Aug

-12

Jan-

13

Jun-

13

Nov

-13

Apr

-14

Sep

-14

Feb-

15

Unilever Nigeria Unilever Indonesia Unilever india

Unilever Nigeria

Equities


Appendix I: Products & Prices

Source: Company, CSL Research. Note prices were taken on 23rd April 2015 from a large

discount retailer in Lagos. *Imported products

Product pricing vs competition

Product type Manufacturer Price, N Size

Oral Care

Closeup Unilever Nigeria 190 160g

Pepsodent Unilever Nigeria 200 140g

Oral-B Procter & Gamble 190 140g

Macleans GlaxoSmithKline 210 157.5g

Sensodyne GlaxoSmithKline 500 75g

Colgate Colgate Palmolive 220 140g

Detergent

Omo Unilever Nigeria 480 1 kg

Sunlight Unilever Nigeria 320 1 kg

Ariel Procter & Gamble 570 1 kg

So Klin Eko Supreme Resources Nigeria Limited 410 900g

Zip PZ Cussons Nigeria 375 900g

Canoe PZ Cussons Nigeria 410 1 kg

Elephant PZ Cussons Nigeria 730 1 kg

Tea

Lipton tea Unilever Nigeria 110 25 bags

Top Tea Promasidor 125 26 bags

PG Tips* Unilever Food Solutions UK 340 40 bags

Tetley* Tata global beverages 390 40 bags

Seasoning

Knorr Chicken Unilever Nigeria 400 400g

Knorr Beef Unilever Nigeria 380 400g

Royco Unilever Nigeria 290 400g

Mr. Chef Chicken Bayw ater Industries Limited 280 400g

Onga Beef Promasidor 160 200g

Onga Chicken Promasidor 165 200g

Maggi Chiken Nestle Nigeria 340 400g

Maggi Beef Nestle Nigeria 330 400g

Spreads

Blue Band Unilever Nigeria 240 450g

Moi* Moi International 420 500g

Rama* Unilever South Africa 700 500g

Household Cleaning

Sunlight dishwashing liquid Unilever Nigeria 430 950ml

Mama Lemon Holdent International Limited 390 1100ml

Morning Fresh PZ Cussons Nigeria 350 1000ml

Skin Care

Vaseline skin jelly Unilever Nigeria 630 450ml or 318.6g

Dettorl skin jelly Reckitt Benckiser 460 160g

Dax* Imperial Dax 1050 397g

Vaseline body lotion Unilever Nigeria 750 400ml

Nivea body lotion* Beiersdof 1140 400ml

Soaps

Lux Unilever Nigeria 86 125g

Camay Procter & Gamble 80 70g

Imperial Leather PZ Cussons Nigeria 65 70g

Lifebuoy Unilever Nigeria 80 75g

Dettol Reckitt Benckiser 100 120g

Safe guard Procter & Gamble 94 70g

Premier PZ Cussons Nigeria 120 120g

Unilever Nigeria

Equities


Analyst Certification

Each research analyst(s) principally responsible for the preparation and content of all or any identified portion of this research report hereby certifies that all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities that the research analyst covers in this research report. Each research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this research report.

Important disclosures

Ratings and Target Price History

Unilever Nigeria

Date Price (N) Old Target (N) New Price Target

(N) Old recommendation New

recommendation

24-Jan-14 54.0 31.8 31.8 Sell Sell

1-Apr-14 45.2 31.8 31.8 Sell Sell

21-Jul-14 52.8 31.8 31.8 Sell Sell

29-Oct-14 40.0 31.8 31.8 Sell Sell

27-Mar-15 37.5 31.8 31.8 Sell Sell

24-Apr-15 40.0 31.8 24.3 Sell Sell

Analysts' compensation is based upon activities and services intended to benefit the investor clients of FCMB (UK) Limited and the affiliates of First City Group, Lagos, Nigeria (“the Group”). Analysts receive compensation that is impacted by overall profi tability of the Group, which includes revenues from, among other business units, Institutional Sales and Trading and Capital Markets/Investment Banking.

CSL Research Ratings Distribution

BUY HOLD SELL Not Rated Total

Coverage universe 10 11 6 0 27

% distribution 37% 41% 22% 0%

Investment banking clients 1 0 1 0 2


Explanation of CSL Research's equity research rating system

Buy: The analyst expects the stock to outperform the Benchmark over the next 12 months or the stated investment

horizon.

Hold: The analyst expects the stock to perform in line with the Benchmark over the next 12 months or the stated

investment horizon.

Sell: The analyst expects the stock to underperform the Benchmark over the next 12 months or the stated

investment horizon.

Not Rated: The rating and price target have been suspended temporarily to comply with applicable regulations and/or firm

policies in certain circumstances including when FCMB UK or the Group is acting in an advisory capacity in a merger or strategic transaction involving the company or due to factors which limits the analysts ability to provide forecasts for the company in question.

Unilever Nigeria

Equities


Benchmark: The benchmark is the trailing three year average yield of the 12 month T-Bill plus one standard deviation

rounded to the nearest percent.

Price targets: Price targets, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement

of any price target may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings fall short of estimates.

Asset allocation: Asset allocation is the responsibility of the strategy team. The recommended weight (Buy, Hold and Sell) for

equities, cash and fixed income instruments is based on a number of metrics and does not relate to a particular size change in one variable.

Other disclosures

Nestle Nigeria: N/A

A. The analyst(s) responsible for the preparation and content of this report (as shown on the front page of this report) holds personal positions in a class of common equity securities of the company.

B. The company beneficially owns more than 5% in FCMB UK or First City Group (“the Group”).

C. FCMB UK or the Group is a market maker in the publicly traded equity securities of the company.

D. FCMB UK or the Group beneficially owns 1% or more of the equity securities of the company.

E. FCMB UK or the Group beneficially holds a significant interest of the debt of the company.

F. FCMB UK or the Group has been lead manager or co-lead manager over the previous 12 months of any publicly disclosed offer of securities of the company.

G. The company is a client of the investment banking division of the Group.

H. FCMB UK or the Group has lead managed or co-lead managed a public offering of the securities of the company within the last 12 months.

I. FCMB UK or the Group has received compensation for investment banking services from the company within the last 12 months.

J. FCMB UK or the Group expects to receive, or intends to seek, compensation for investment banking services from the company during the next 3 months.

Companies from which FCMB UK or the Group’s investment banking division has received compensation in

the last 12 months

Buy Hold Sell Not Rated Total

1 0 0 0 1


Unilever Nigeria

Equities


Important Risk Warnings and Disclaimers

CSL STOCKBROKERS LIMITED (“CSL Stockbrokers”) is regulated by the Securities and Exchange Commission, Nigeria. FCMB (UK) LIMITED (“FCMB UK”), trading in the name of ‘CSL Stockbrokers’, is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA in the United Kingdom. The details of the authorisation can be viewed at the Financial Services Register at http://www.fsa.gov.uk/register/home.do by entering the Firm Reference Number 502704. FCMB UK is registered in England and Wales No. 6621225. Both CSL Stockbrokers and FCMB UK are members of the FCMB Group (“the Group”) of Nigeria, a group of companies which also includes First City Monument Bank Ltd. RELIANCE ON THIS PUBLICATION FOR THE PURPOSE OF ENGAGING IN ANY INVESTMENT ACTIVITY MAY EXPOSE YOU TO A SIGNIFICANT RISK OF LOSS. By receiving this document, you will not be deemed a client or provided with the protections afforded to clients of CSL Stockbrokers and FCMB UK. When distributing this document, CSL Stockbrokers, FCMB UK or any member of the Group is not acting for any recipient of this document and will not be responsible for providing advice to any recipient in relation to this document. Accordingly, CSL Stockbrokers, FCMB UK or any member of the Group will not be responsible to any recipient for providing the protections afforded to its clients. If you are in the UK, you are a person to whom either Articles 19 or 49 of the Financial Services and Markets 2000 (Financial Promotion) Order 2005 apply or a person to whom this communication may otherwise be lawfully made. In the United Kingdom, this document is available only to such persons described above and persons of any other description should not rely on this document. Transmission of this document to any other person in the United Kingdom is unauthorized and may contravene the Financial Services and Markets Act 2000 (FSMA). If you are not such a person or if the distribution of this document is otherwise unlawful where you are, you are required to return the document immediately to CSL Stockbrokers. In the UK, the content of this document has been approved by an authorised person within the meaning of FSMA. This document is not intended for Retail Clients in the UK. This document is not an offer to buy or sell or to solicit an offer to buy or sell any securities. This document does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The appropriateness of a particular investment will depend on an investor’s individual circumstances and objectives. The investments and shares referred to in this document may not be suitable for all investors. CSL Stockbrokers, FCMB UK or any other member of the Group may effect transactions in shares mentioned herein and may take proprietary trading positions in those shares, and may receive remuneration for the publication of its research and for other services. Accordingly, this document may not be considered as objective or impartial. Additionally, information may be available to CSL Stockbrokers, FCMB UK or the Group, which is not reflected in this material. Further information on CSL Stockbrokers’ and FCMB UK’s policy regarding potential conflicts of interest in the context of investment research and CSL Stockbrokers and FCMB UK’s policy on disclosure and conflicts in general are available on request. This document is based on publicly available information obtained from sources which CSL Stockbrokers believes are reliable, but which it has not independently verified. Neither CSL Stockbrokers, FCMB UK nor their advisors, directors or employees make any guarantee, representation or warranty as to the accuracy, reasonableness or completeness of this information and neither CSL Stockbrokers and FCMB UK nor their advisors, directors or employees accepts any responsibility or liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. The opinions contained in this

http://www.fsa.gov.uk/register/home.do

Unilever Nigeria

Equities


document are subject to change without notice and are not to be relied upon and should not be used in substitution for the exercise of independent judgment. Nothing herein excludes or restricts any duty or liability to a customer which FCMB UK has under the FSMA or under the Rules of the FCA. A recipient who chooses to deal with any person who is not an authorised representative of FCMB UK in the UK may not enjoy the protections afforded under the UK regulatory regime. Past performance is not a guarantee of future performance. Investments may go down in value as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of an investment for which there is no recognised market it may be difficult for investors to sell their investment or to obtain reliable information about their value or the extent of the risk to which they are exposed. The information contained in this document is confidential and is solely for use of those persons to whom it is addressed and may not be reproduced, further distributed to any other person or published, in whole or in part, for any purpose. @Copyright CSL STOCKBROKERS LIMITED, 2015. All rights reserved. CSL STOCKBROKERS LIMITED FCMB (UK) LIMITED Member of the Nigerian Stock Exchange (Trading as CSL Stockbrokers) First City Plaza, 44 Marina 81 Gracechurch Street PO Box 9117 London EC3V 0AU Lagos State United Kingdom NIGERIA

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