Cordros Upgrades Unilever Nigeria Target Price to N22.49
Equities analysts at Cordros Securities Limited have upgraded year-end target price for Unilever Nigeria Plc to N22.49, its report showed. The investment firm however maintain a hold recommendation on the consumer goods stock, noting that it’s already trading above year end price expectation.
Unilever Nigeria, a consumer goods company, worth N120 billion in the equities market at a unit price of N24. In the equities report, Cordros Securities Limited stated that its year-end target price for Unilever Nigeria was derived from blend of sophisticated valuation models.
In the third quarter of 2024, analysts noted that Unilever Nigeria delivered solid results, with notable gains in revenue and gross margin expansion. Nevertheless, the company continues to face considerable pressure from rising operating costs, mainly due to naira devaluation and inflation, analysts added.
“We anticipate sustained revenue growth, bolstered by price increases and seasonal demand, especially within the Food Products segment”, the investment firm stated. On the downside, analysts noted that increasing operating expenses and currency-related challenges remain significant obstacles to margin expansion.
Reflecting the preliminary figures and the robust revenue growth amidst these heightened cost pressures, Cordros Securities Limited said it has adjusted target price to N22.49 from N20.68 but maintain “HOLD” recommendation on the stock.
Cordros Securities Limited estimated a dividend per share of N1.52 for 2024, yielding 6.2% at the last closing price N24. Analysts projected strong earnings outlook on improved topline for the consumer goods company in 2024.
Subsequent to UNILEVER’s Q3-2024 stellar revenue performance and its expectations of sustained price increases and volume growth amid continued investment in its route-to-market strategy, Cordros Securities analysts raised raise 2024 revenue projection to 35.8% year on year from +29.6%.
“Further out, we forecast an average revenue growth of 17.9% over 2025E – 2028E”. Analysts said they model a 534bps year on year increase in the 2024E gross margin to 40.0%, from 34.7% in 2023.
This reflects the strong revenue growth and enhanced cost management efforts, as the company continues to increase its advances and prepayments to leverage favourable pricing opportunities for raw and packaging materials.
However, the firm has now forecasted an 806bps year on year decline in earnings before interest tax depreciation and amortisation (EBITDA) margin to 15.8%.
This expectation followed a projected 124.4% year on year increase in operating expenses, owing to the persistent inflationary pressures and expected escalation in advertising costs.
Cordros Securities Limited expected Unilever Nigeria earnings per share to print at N2.97 in 2024, upgraded from NGN2.52 versus N1.47 delivered in 2023.
The positive earnings growth expectation was anchored on mitigated FX losses through improved localisation of raw materials and export gains. UNILEVER has experienced margin improvement in recent years, with gross margin advancing from 11.0% in 2019 to 34.7% in 2023, analysts said.
In 9M-2024, the company’s gross margin further strengthened to 41.0%, defying sector-wide cost pressures from inflation, foreign exchange constraints, and supply chain challenges.
“This margin resilience reflects UNILEVER’s robust revenue growth, improved cost recovery, and gains from their localization strategy”, Cordros Securities Limited stated.
Analysts noted that Unilever Nigeria Plc has also leveraged advances and prepayments to secure favourable pricing terms, which significantly reduced its cost-to-sales ratio to 58.7% in 9M-2024 from 68.0% in the comparable period in 2023 and 65.3% in 2023.
Reflecting these cost controls and local sourcing benefits, analysts anticipate UNILEVER’s gross margin to remain strong and settle at 40% in 2024. #Cordros Upgrades Unilever Nigeria Target Price for to N22.49 Equities Investors Wealth Rises as Nigerian Exchange Rally
