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Nigeria ∣ Equities ∣ Consumer Goods ∣ July 12, 2017

Published by CBP Research, 1, Davies Street Off Marina Lagos Nigeria. E-mail: [email protected] Tel +234(1)4622371-5,

Unilever Nigeria Plc

Passionately Eager to weather the storm Investment Summary

Unilever Nigeria Plc, a consumer goods company last reported a significant

increase in both top and bottom line in its Q1’17 earnings release showing

signs of a better return on investments for investors. However, the company is

still highly geared at a debt to equity ratio of 1.79x though down from a high

of about 2.24x in FY’14. This high debt burden is expected to continue to

impact the company’s operations as it is expected to continue to service its

loan obligations amidst the harsh economic conditions which the consumer

goods company has continued to suffer from in recent time. Unilever Nigeria

Plc has continued to leverage on its years of experience as well as its array of

products which have remained market leaders in their various segments to

keep its revenue base at decent levels over the years. Its top brands include the

likes of Blue Band, Knorr, Lifebuoy, Omo, Vaseline, Sunlight e.t.c. Unilever

Overseas Holding B.V owned about 50.04% of the company till 2016 when it

increased its stake by another 10.02%; now approximately 60.06% while

Stanbic Nominees Nigeria limited has a total holding of about 10.43%.

Despite the stiff competition to grow market share from rival companies with

substitute products coupled with the harsh economic conditions over the last

three years, it is believed that the parent company still believe strongly in the

potential of its Nigerian business to post significant profit in the long term

thereby indicating its interest to increase its shareholding via a tender offer up

to 75% in 2015 despite the company’s profit plummeting to a new low during

the period. Going forward, we anticipate that the company will strategize ways

of actualising its initial target equity stake of 75% through its proposed rights

issue which was approved at its last Annual General Meeting (AGM) except

priorities have changed for the parent company. After proper analysis and

valuation of the company’s shares, we place a short term SELL rating on the

shares given its future outlook and historical dividend payments to

shareholders. We are of the opinion that improved returns to shareholders

may only be possible in the long-term but at current market price the

company shares may drift either way though profitability is expected to

improve even as the economy continues on its path to recovery.

2015 2016 %∆ 2017F %∆F

Revenue (NGN’m) 59,222 69,777 17.82 87,919 26.00

Operating Profit (NGN’m) 4,640 5,805 25.11 11,342 95.38

Profit after tax (NGN’m) 1,192 3,072 157.72 6,734 119.21

Source company report, CBP Research

Price: .

- Current price ₦34.00

- Recommended entry price ₦20.00

- Target price ₦23.43 Recommendation(Short term) SELL As at Monday July 10, 2017

STOCK DATA

Year End 31st Dec YTD high 43.00 YTD low 27.81 YTD change -2.86% 52 weeks high 50.01 52 weeks low 27.81 3 months Average volume 620,235 Market cap (NGN’mn) 128,632.06 Trailing EPS (NGN’mn) 0.81 Shares Outstanding (‘mn) 3,783


Profitability ratios FY’16 FY’17F

Gross profit margin 29.09% 27.00% Net Profit Margin 4.40% 7.66% Fixed Asset Turnover 0.42x 0.35x

Valuations FY’14 FY’15 FY’16 FY’17F

P/S ratio 2.31x 2.17x 1.84x 1.46x P/E 53.32x 107.87x 41.87x 19.10x Sales per

share(₦) 14.74 15.65 18.44 23.24

NAPS(₦) 1.98 2.12 3.09 4.46

P/B 17.20x 16.07x 11.00x 7.62x ROE(%) 32.26 14.90 26.28 39.89 ROA(%) 5.27 2.38 4.24 7.43 Div.

Yld%

0.29 0.15 0.29 0.88


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NSE ASI vs. Unilever 52-weeks movement Rebased

NSE Unilever

Capital Bancorp Plc (Member of the Nigerian Stock Exchange) 114135

mailto:[email protected]

Unilever Nigeria Plc CBP Equity Research


Revenue base failed to impress; though year on year revenue growth for the

company has been erratic, over a five year period Unilever managed to grow

its revenue by a compound annual growth rate of 5.87% to ₦69.77 billion in

FY’16 from ₦55.54 billion in FY’12. Drop in revenue was reported in FY’14

in which the company reported a 7.08% decline to ₦55.75 billion (vs. ₦60.00

billion in FY’13). This drop for the period was as a result of a larger decline in

income from its home and personal care segment which dropped by 15.33%

to ₦28.11 billion in FY’14 (vs. ₦33.20 billion in FY’13) though income from

its food products increased by 3.14% to ₦27.63 billion in FY’14 (vs. ₦26.79

billion in FY’13). FY’16 reported a much improved performance over a five

year period as revenue grew by 17.82% to ₦69.77 billion (vs. ₦59.22 billion in

FY’15) though this growth was not replicated into improved profits as the

company reported a faster rise in cost of sale for the period. As reported in its

Q1’17 scorecard, the company seems well on the part to report a much

improve top line growth as its revenue grew by 32.12% to ₦22.17 billion (vs.

₦16.78 billion in Q1’16).

The impressive growth reported in Q1’17 was aided by the impressive growth

in all its operating income segments for the period. Contribution to revenue

from its home care product impressed the most for the period having grown

by 49.73% to ₦5.64 billion (vs. ₦3.77 billion in Q1’16), personal care

contribution to revenue was reported at ₦6.03 billion (vs. ₦4.39 billion in

Q1’16) representing an increase of 37.20% while revenue contribution from

its food products grew by 21.81% to ₦10.49 billion (vs. 8.61 billion in Q1’16).

This improved performance has been traced to the ability of the company to

drive sales increase as well as benefiting from the price increase on all of its

product offerings triggered by the high cost of production which was

evidently reported in its cost of sale for the period. Going forward, we expect

this growth in revenue to be reflected into the other quarters of the year and

even into the FY’17 scorecard as the company is expected to benefit from the

improvement in economic activity.

As reported in its Q1’17

scorecard, the company seems

well on the part to report a

much improve top line growth

as its revenue grew by 32.12%

to ₦22.17 billion (vs.

₦16.78 billion in Q1’16).

FY'12 FY'13 FY'14 FY'15 FY'16 FY'17F

55.55 60.00 55.75

59.22

69.78

87.92 Unilever Revenue 2012 - 2017F (Billion NGN)

HY'16 9M'16 FY'16 Q1'17 HY'17F

32,278 49,871

69,777

22,172

41,344

Unilever Revenue HY'16 - HY'17F (Billion NGN)




Rising input cost drive cost of sale higher; from 2012 to 2015, cost of sale

to revenue has constantly been on the rise but remained below 65%, having

been reported at 61.03% in FY’12, 62.59% in FY’13, 63.82% in FY’14 and

64.46% in FY’15. FY’16 saw cost of sale to revenue surge to 70.91% while

Q1’17 followed in similar pattern, growing to 71.62% (vs. 64.05% in Q1’16).

Analysis into the spike in cost of sale showed a jump in cost of raw materials

and consumables growing from ₦28.63 billion in FY’15 to ₦35.67 billion in

Q1’16 representing an increase of 24.59% while bought in products also grew

significantly by 106.08% to ₦6.10 billion in FY’16 (vs. ₦2.96 billion in

FY’15). The significant rise in raw materials and bought in products was

driven mainly by the massive depreciation of the naira which has led to a

massive increase in cost of sale as raw materials become more expensive to

acquire compared to previous quarters. Q1’17 cost of sale grew by 47.72% to

₦15.87 billion (vs. ₦10.74 billion in Q1’16).

Operating expenses continues to fluctuate; over the last five years,

Unilever Nigeria has impressively kept selling and distribution expense as well

as marketing and administrative expense to revenue at decent levels. Selling

and distribution to revenue has ranged between 4.51% and 4.86% while

marketing and administrative expense has ranged from 16.43% to 23.40%

over the last five years. Selling and distribution expense to revenue for Q1’17

was reported at 4.27% (vs. 4.59% in Q1’16) while marketing and

administrative expense to revenue stood at 11.71% (vs. 19.99% in Q1’16)

respectively. Four year CAGR for selling and distribution expense stood at

3.37% having grown from ₦2.69 billion in FY’12 to ₦3.15 billion in FY’16

while CAGR for marketing and administrative expenses stood at 3.37%

growing from ₦10.03 billion in FY’12 to ₦11.46 billion in FY’16. Q1’17

scorecard reported a 22.60% decline in marketing and administrative expense

to ₦2.59 billion (vs. ₦3.35 billion n Q1’16) while selling and distribution

expense grew by 22.95% to ₦0.94 billion (vs. ₦0.77 billion in Q1’16).

Four year CAGR for selling and

distribution expense stood at

3.37% having grown from

₦2.69 billion in FY’12 to

₦3.15 billion in FY’16 while

CAGR for marketing and

administrative expenses stood at

3.37% growing from ₦10.03

billion in FY’12 to ₦11.46

billion in FY’16.

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

FY'12 FY'13 FY'14 FY'15 FY'16 FY'17F

NGN'bn REVENUE COS MARGIN GP MARGIN




Cash flow position continues to oscillates; Apart from FY’14 in which net

cash flow used in operating activities reported a net outflow of ₦1.82 billion,

other periods between FY’12 to FY’16 reported a net inflow though net cash

flow generated from operating activities have remained erratic over the five

year period. The 58.89% drop (₦6.73 billion in FY’16 vs. ₦16.37 billion in

FY’15) in cash generated from operations was significant enough to drop Net

cash flow generated from operating activities to ₦5.99 billion (vs. ₦15.58

billion in FY’15) representing a decline of 61.55%. Decline in cash flow from

operating activities for FY’16 was largely as a result of the 453.46% increase

in trade and other receivables to the tune of ₦8.80 billion in FY’16 (vs. ₦1.59

billion in FY’15) as well as increase in stock pile (inventory) causing an out

flow of ₦3.70 billion against an inflow of ₦2.44 billion in FY’15. Net cash

flows generated from operating activities however improved for Q1’17 to

₦5.64 billion (vs. ₦3.49 billion in Q1’16) representing an increase of 61.60%.

Over the five year period, net cash used in investing activities has mainly been

driven by the purchase of property, plant and equipment. FY’16 reported

similar trend as its Net cash used in investing activities stood at an outflow of

₦3.88 billion against an outflow of ₦4.68 billion in FY’15 while Q1’17 stood

at an outflow of ₦0.61 billion against an outflow of ₦0.02 billion in Q1’16

even as purchase of property plant and equipment accounted for a significant

portion of the investments.

Net cash used in financing activities reported net outflows in FY’12, FY’13

FY’15 and Q1’16 while it reported net inflows in FY’14, FY’16 and Q1’17

due to increased drawdown on short-term loans for this periods. Q1’17 net

cash used in financing activities stood at an inflow of ₦2.42 billion against an

outflow of ₦0.63 billion in Q1’16 as the company reported a drawdown of

short term loan for the period to the tune of ₦3.26 billion against nothing in

Q1’16. As at Q1’17, cash and cash equivalents at the end of the period stood

at an inflow of ₦14.93 billion against an outflow of ₦4.25 billion in Q1’16.

Decline in cash flow from

operating activities for FY’16

was largely as a result of the

453.46% increase in trade and

other receivables to the tune of

₦8.80 billion in FY’16 (vs.

₦1.59 billion in FY’15) as

well as increase in stock pile

(inventory) causing an out flow

of ₦3.70 billion against an

inflow of ₦2.44 billion in

FY’15

-7,702.18 -9,757.56

-12,799.67 -13,689.84

-11,970.85

-7,367.62

FY'12 FY'13 FY'14 FY'15 FY'16 FY'17F

Unilever Working Capital FY'12 - FY'17F (Million NGN)

65.66%

34.34%

Debt Q1'16 Equity Q1'16




Debt to equity ratio remains high: The Company’s debt to equity ratio has

significantly grown over the last five years as the company has injected more

debt financing into its operations while also increasing its gearing ratio in the

process. Its debt to equity ratio stood at 0.45x for FY’12, 0.66x for FY’13,

2.24x for FY’14, 1.57x for FY’15 and 1.79x for FY’16. Total liabilities to

equity has also significantly risen over the years as it stood at 2.61x for FY’12,

3.54x for FY’13, 5.12x for FY’14, 5.27x for FY’15 and 5.20x for FY’16. Given

the current trend, returns to shareholders may continue to be threatened as a

significant portion of its expected return would be paid out as interest on

borrowing leaving little or nothing to worthy investors. Having reported a

further rise in debt to equity ratio in Q1’17 to 2.07x (vs. 1.79x in Q1’16) while

total liabilities to equity also rose to 6.12x (vs. 5.20x in Q1’16), we expect that

any further capital injection should be more of equity financing than debt

financing to give room for the company to effectively sweat its assets and

significantly reward shareholders in the medium to long term. Its quick ratio

stood at 0.59x for FY’16 and improved to 0.71x for Q1’17. Going forward,

the company’s liquidity ratios will need to be adequately managed to avert any

unforeseen concerns regarding its operations.

Expense margin remain fairly stable across board; Unilever Nigeria Plc

has averaged a marketing and administrative expense of ₦12.00 billion

between FY’12 to FY’16. Marketing and administrative expense to revenue for

the five year period stood at 18.07% in FY’12, 19.71% in FY’13, 23.40% in

FY’14, 23.03% in FY’15 and 16.43% in FY’16. Over the five year period, the

company’s marketing and administrative expense has also grown by a

compound annual growth rate of 3.94% signalling the company’s intention to

keep a large part of its expense line in check. Q1’17 result reported a 22.60%

decline in marketing and administrative expense to ₦2.59 billion (vs. ₦3.35

billion in Q1’16) as all line items under marketing and administrative expenses

dropped for the period. Marketing and administrative expense to revenue for

Q1’17 period also dropped to 11.71% (vs. 19.99% in Q1’16) while we

anticipate that the company’s marketing and administrative expense margin

for FY’17E is expected to be at 8.10%.

Marketing and

administrative expense to

revenue for the five year

period stood at 18.07% in

FY’12, 19.71% in

FY’13, 23.40% in

FY’14, 23.03% in FY’15

and 16.43% in FY’16.

-

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

FY'12 FY'13 FY'14 FY'15 FY'16 FY'17F

10,039.05

11,825.02 13,044.79

13,641.22

11,464.15

-

2,699.87 2,720.86 2,516.35

2,844.10 3,151.09 3,692.60

NGN"Mn

Marketing & Admin. Exp. Selling & Distribution Exp.

84.98%

15.02%

Total Liabilities Q1'17 Net Asset Q1'17




Finance cost eating deep into company’s operating profit; Net finance

cost in the last five years have continued to negatively increase except for

FY’16 in which it dropped. The company reported a negative net finance cost

of ₦709 million in FY’12, which grew to ₦969 million in FY’13, to ₦1.74

billion in FY’14, to ₦2.8 billion in FY’15 before easing down to ₦1.69 billion

in FY’16. The company has been unable to report a positive net finance cost

over the years because it has continued to report significantly higher interest

payable on borrowings and amortised cost interest, two line items under its

finance costs which has continued to increase the company’s total finance

cost when compared to its interest income on call deposits and bank

accounts, employee loans, derivative gains and Exchange gain which are line

items under its finance income. Over the review period, finance cost to

operating profit continued to rise eating into the company’s profit as it stood

at 9.18% in FY’12, 14.37% in FY’13, 41.39% in FY’14, 68.33% in FY’15 and

46.96% in FY’16. Q1’17 reported a slightly improved performance at 26.30%

(vs. 28.60% in Q1’16).

Profits soar after three years of consecutive decline; profit after tax for the

company suffered years of consistent decline having continuously dropped

year on year (YoY) from FY’13 to FY’15. Having grown by 1.49% in FY’12

from the preceding year the company reported a 14.13% drop in FY’13, a

49.82% drop in FY’14 and a 50.57% drop in FY’15 before turning the tides

into an increase of 157.63% in FY’16. Given the growth projectile in profits,

the company now currently reports a negative compound annual growth rate

of -13.93%. Profit margin for the last audit period has however failed to

impress as the company’s FY’16 profit margin stood below the level reported

in FY’12 and FY’13. Profit after tax margin for FY’12 stood at 10.08%, FY’13

at 8.01%, FY’14 at 4.33% FY’15 at 2.01% and FY’16 at 4.40% while we have

projected FY’17F PAT margin to impressively rise to 9.02%.

The company reported a

negative net finance cost of

₦709 million in FY’12,

which grew to ₦969 million in

FY’13, to ₦1.74 billion in

FY’14, to ₦2.8 billion in

FY’15 before easing down to

₦1.69 billion in FY’17.

0.11 0.16 0.17 0.30

1.03

1.47

0.82

1.13

1.91

3.17

2.73

3.44

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1.50

2.00

2.50

3.00

3.50

4.00

FY'12 FY'13 FY'14 FY'15 FY'16 FY'17F

NGN'bn Finance income Finance Cost

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

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2.00

4.00

6.00

8.00

10.00

12.00

FY'12 FY'13 FY'14 FY'15 FY'16 FY'17F

NGN"Bn

Operating profit Operating profit margin




Q1’17 numbers suggest the company may be on its way to reporting an

improved profit if things continue as reported in its unaudited account

released to the market, having reported a bottom line increase of 53.94% to

₦1.60 billion (vs. ₦1.04 billion in Q1’16). We however estimate profit after

tax for FY’17F at ₦8.02 billion (vs. ₦3.07 billion in FY’16) representing an

increase of 161.36% as we expect cost of sales and finance cost to remain

relatively moderate, even as the company continues revenue base is expected

to grow on price increases and increased sales volume. Over the years, the

company’s profits have been mainly supported by its core business as income

from investments and other segments have remained insignificant to boost

profits. Finance income for FY’17F has therefore been estimated to come to

₦1.48 bn (vs. ₦1.02 bn in FY’16) representing a rise of 44.58% for the

period.

Consistent but uninspiring dividends payments: Over the last five years,

the company’s dividend paid to shareholders have continued to dwindle and

have failed to impress in recent times evidently due to the company’s inability

to report improved profits. Though Q1’17 numbers have shown improvement

in profits, we are weary to suggest that dividend payment to shareholders

would significantly improve to previous levels in FY’17F as we are aware of

the company’s decision to raise funds by way of a rights issue to assist in

managing its debt obligation. Thus we anticipate that the company may be

more inclined to re-invest more of its profits back into its business operations

to help improve productivity and enable it compete favourably in an

environment packed full of aggressive competition to grow individual market

share. Though dividends have significantly dropped, the company has

remained consistent in rewarding its shareholders with dividend payment,

having paid a dividend of ₦1.40 in FY’12, ₦1.25 in FY’13, ₦0.10 in FY’14,

₦0.05 for FY’15 and paid out ₦0.10 for FY’16 representing pay-out ratio of

94.62%, 98.37%, 15.68%, 15.68% and 12.31% respectively. We have also

estimated dividend payment for the FY’17F to be at ₦0.30 (vs. ₦0.10 in

FY’16).

We have also estimated

dividend payment for the

FY’17F to be at ₦0.30 (vs.

₦0.10 in FY’16).

-35.00%

-30.00%

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-20.00%

-15.00%

-10.00%

-5.00%

0.00%

0.00

2.00

4.00

6.00

8.00

10.00

FY'12 FY'13 FY'14 FY'15 FY'16 FY'17F

NGN'bn PBT PAT Tax Margin

4.12%

3.68%

0.29%

0.15% 0.29%

0.88%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

FY'12 FY'13 FY'14 FY'15 FY'16 FY'17F

NGN Div per Share Div yield @₦34




Other highlights; Unilever rights issue;

Unilever Nigeria Plc in June 2017 notified the public of its intention to do a

rights issue of 1,961,709,167 ordinary shares of 50 kobo each at ₦30.00 per

share on the basis of 14 new ordinary shares for every 27 ordinary share held

with a qualification date of June 28, 2017. In our view, we believe that the

massive discount in the rights price is mainly to increase investor interest in

picking up their rights as well as giving the share price enough room to trade

and remain above the proposed rights issue price as we know that a market

price below or similar to the rights issue price will negatively impact the

success of the proposed rights issue. On the other hand the rights may be

successful as we recall that in 2015, Unilever Overseas B.V. holding launched

a tender offer for 75% of the company and they may be well in place to pick

up shares from shareholders who do not pick up their rights thereby taking

them closer to their initial target of 75% holding. Going forward, for

investors with a long term interest in the company we advise them to pick up

their rights as we see value in the company over the long term horizon, while

for short term players we expect their rights to be sold as we anticipate the

price to drop and further converge towards the rights issue price. Finally, on

the use of the rights proceeds we envisage that most of the funds will be

channelled towards paying down some of its debt obligation and also on

expanding its businesses operation. This we expect to free up funds as

interest expense is projected to drop in the next financial year and

shareholders will eventually benefit in the long term though the company’s

shares outstanding would further increase after the listing of the rights issue.

Valuation;

We used the discounted cash flow model for our valuation, though the model

is based on forecasted cash flows and therefore represents cash generating

nature of the business and provides long term outlook. The model was based

on a five year projected cash flow and terminal value in a bid to calculate the

target price of the company which led us to a fair value of ₦34.30 per share.

We also used optimistic forward estimates of key ratios and forecast of FY’17

earnings to arrive at a target price of ₦20.76 per share, while Retained earning

model was used to arrive at a value of ₦15.24. We then took the average of all

values and arrived at a target price of ₦23.43 which suggests a downside

potential of -31.09% at current market price.

In our view, we believe that the

massive discount in the rights

price is mainly to increase

investor interest in picking up

their rights as well as giving the

share price enough room to

trade and remain above the

proposed rights issue price

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40.00

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50.00

55.00

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NGN Unilever 52 - Weeks Price Movement

Sell

Hold

Buy




Given the company’s current financial position, its business operations as well

as our financial forecasts and estimates, we have recommended a SELL

position in the short term for the company shares. However for investors with

interest in the company over the long term we advise that they gradually

accumulate the company shares as we expect the company’s business

operations to improve in the long term and the value of their shares improve

over the period. EPS for Q1’16 stood at ₦0.28 while for Q1’17 currently

stands at ₦0.42 (FY’17F ₦2.12). Sales per share increased for the period,

rising to ₦5.86 in Q1’17 from ₦4.44 in Q1’16, while price to sales ratio

dropped to 5.80x for Q1’17 against 7.66x for Q1’16. The company’s share

price has also dropped by -2.86% year to date compared to the 21.36% year to

date change on the NSE ASI as at July 10th 2017.

Conclusion; Unilever Nigeria has indicated plans to restructure its business

operations, in April 2017 the company announced its intention to divest from

its spread business and inform the public on subsequent development on the

matter. Going by this decision our forecast estimates may quickly be adjusted

depending on the outcome of events as the company’s spread segment falls

under the food business which accounts for a majority of the company’s

revenue, as the food business accounted for about 52% of total revenue

reported in FY’16 (vs. 50% in FY’15). Thus, selling that segment of its

business may affect the company’s revenue from its food business in the short

term except margins are quickly replaced by sales of other close substitutes or

higher sales volume from other business segments. Going forward, we remain

optimistic that the company’s operations will improve in the long term and

expect the company to leverage on the strength of its parent company to

boost operations and improve top and bottom line in the long term.

Sales per share increased for the

period, rising to ₦5.86 in

Q1’17 from ₦4.44 in Q1’16,

while price to sales ratio dropped

to 5.80x for Q1’17 against

7.66x for Q1’16. The

company’s share price has also

dropped by -2.86% year to date

compared to the 21.36% year to

date change on the NSE ASI

as at July 10th 2017.

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

Unilever vs. PZ vs. Flourmills 52-weeks Price Movement Rebased

Unilever PZ Flourmill




Statement of profit or Loss

₦’million FY’14 FY’15 FY’16 FY’17F Revenue 55,754 59,222 69,777 87,919 % change -7.08% 6.22% 17.82% 26.00% Cost of sales (35,584) (38,174) (49,481) (64,181) % change -5.25% 7.28% 29.62% 29.71% Gross profit 20,170 21,048 20,296 23,738 % change -10.15% 4.35% -3.57% 16.96% Admin, Selling & Dist. exp. (2,516) (2,844) (3,151) (3,693) % change -7.52% 13.02% 10.79% 17.19% Operating profit 4,615 4,640 5,805 11,342 % change -41.44% 0.54% 25.12% 95.37% Net finance cost / income (1,742) (2,869) (1,699) (1,969) % change 79.70% 64.72% -40.79% 15.94% Profit Before Taxation 2,873 1,771 4,106 9,372 % change -58.43% -38.36% 131.86% 128.23% Profit After Taxation 2,412 1,192 3,072 6,734 % change -49.82% -50.57% 157.63% 119.21%

Source: Company Financials, CBP Research

Statement of Financial Position ₦’million FY’14 FY’15 FY’16 FY’17F Total noncurrent assets 27,165 29,165 30,949 32,442 Total current assets 18,571 21,008 41,543 58,194 Total Assets 45,736 50,172 72,491 90,636 TOTAL Current Liabilities 31,371 34,698 53,513 65,561 TOTAL Non-current Liabilities 6,887 7,472 7,288 8,194 Total Liabilities 38,257 42,169 60,801 73,755 Shareholders’ equity 7,479 8,003 11,690 16,880 Total liabilities and Equity 45,736 50,172 72,491 90,636


Profitability and Returns

FY’14 FY’15 FY’16 FY’17F Gross Profit Margin 36.18% 35.54% 29.09% 27.00% Operating Profit Margin 8.28% 7.83% 8.32% 12.90% Net Profit Margin 4.33% 2.01% 4.40% 7.66% Tax Margin -16.04% -32.68% -25.19% -28.15% ROCE 46.99% 43.81% 44.01% 34.01% ROE 32.26% 14.90% 26.28% 39.89% ROA 5.27% 2.38% 4.24% 7.43%


Asset Utilization

FY’15 FY’16 FY’17F Cash/Sales 0.07 0.18 0.23 Sales to inventory 9.59 7.06 7.66 Sales to total Assets 1.18 0.96 0.97 Sales to fixed asset 2.16 2.38 2.85 Equity multiplier 6.27 6.20 5.37 Fixed asset turnover 0.46 0.42 0.35


Liquidity Ratios

FY’15 FY’16 FY’17F Quick ratio 0.43 0.59 0.71 Current ratio 0.61 0.78 0.89 Cash ratio 0.13 0.23 0.31 Interest Coverage 1.79 0.66 0.37 Debt to asset 0.25 0.29 0.32 Debt to Net income 10.53 6.81 4.24 Debt to equity 1.57 1.79 1.69 T. Liabilities to Equity 5.27 5.20 4.37 Inventory turnover 2.58 3.08 5.59 Inventory turnover days 59.02 72.87 65.30 Acct receivable days 62.51 99.10 109.14 Account payable days 215.54 239.57 210.00


Valuation Multiples

FY’15 FY’16 FY’17F

P/E (x) on current price 107.87 41.87 19.10 P/B (x) on current price 16.07 11.00 7.62 Dividend Yield (%) 0.00 0.00 0.01 Pay-out ratio (%) 0.16 0.12 0.17 Sales per share 15.65 18.44 23.24 P/S ratio 2.17 1.84 1.46


Stock Data

FY’15 FY’16 FY’17F

Total Div Paid (₦’bn) 0.18 0.38 1.13 Earnings per share(₦) 0.32 0.81 1.78 DiV per share(₦) 0.05 0.10 0.30 NAVPS (₦) 2.12 3.09 4.46 Earnings yield (%) 0.93% 2.39% 5.24%


Growth Performance

FY’15 FY’16 FY’17F

Turnover Growth (%) 6.22 17.82 26.00 PBT Growth (%) -38.36 131.86 128.23 PAT Growth (%) 50.27 157.63 119.21





Our investment recommendation is supported by the upside or downside potential of a stock under coverage. This potential is estimated by

comparing the stock’s current market price to its target price and fair value, on a percentage increase or decrease basis.

Analyst: Chiazor Victor Email: [email protected]

Ratings Specification

> 15% BUY

-15% to ≤ 15% HOLD < -15% SELL

Source: CBP Research

From our analysis, fair value is our opinion of the actual fundamental worth of a stock, irrespective of what the market thinks of the stock or what investors are willing to pay for it. A BUY recommendation directly means investors should accumulate the stock according to their risk appetite. A SELL recommendation prompts investors to exit their positions in the stock, as the analyst believes the stock will lose value. A HOLD recommendation tells investors to do nothing; if you have not bought the stock, do not buy it and if you have bought it, do not sell it.

Disclaimer & Disclosure

The value of any investment is subject to fluctuations, i.e. may arise and fall. Past performance is no guide to the future. The rate of exchange

between currencies may cause the value of investment to increase or decrease. Hence investors may not get back the full value of their original

investment.

This document is not an offer to buy or sell any security. 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.

This document is based on information Capital Bancorp Plc received from publicly available reports and industry sources. Capital Bancorp Plc may

not have verified all of this information with third parties. Neither Capital Bancorp Plc nor its advisors, shareholders, directors or employees can

guarantee the accuracy, reasonableness or completeness of the information received from any sources consulted for this publication, and neither

Capital Bancorp Plc nor its advisors, shareholders, directors or employees accepts any liability whatsoever (in negligence or otherwise) for any

loss howsoever arising from any use of this document. This document is not to be relied upon and should not be a substitute for the exercise of

independent judgment.

This document includes certain statements, estimates and projections with respect to the anticipated future performance of securities listed on the

Nigerian Stock Exchange and as to the market for these shares. Such statements, estimates and projections are based on information that we

consider reliable and may reflect various assumptions made concerning anticipated economic developments, which have not been independently

verified and may or may not prove correct. No representation or warranty is made as to the accuracy of such statements, estimates and

projections or as to their appropriateness for the purpose intended and it should not be relied upon such. Opinions expressed are current opinions

as of the date appearing on this material only and may change without notice. Other third parties may have issued other reports that are

inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions,

views and analytical methods of the analysis who prepared them.


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