Unilever Ghana Limited

UNILEVER GHANA LIMITED

Company Overview
UNIL is a leading manufacturer of home care, personal care and food products in Ghana. It distributes popular brands such as Sunlight, Lipton yellow label, Lifebuoy, Omo, Pepsodent, Closeup and Vaseline. The company emerged from the merger of UAC Ghana Limited and Lever Brothers Ghana Limited on July 14, 1992. It was formally listed on the Ghana Stock Exchange on August 23, 1991.

Unilever Overseas Holdings Limited holds 42.6% of the companyꞌs outstanding shares while UAC International Limited controls 24% of the company. Consequently, Unilever Plc (UK) is the ultimate parent company with shareholding of 66.6%.

United Africa Trust Limited, Swanzy Real Estate and Unilever Ghana Investments Limited are the subsidiaries of UNIL.

Mrs. Gladys Amoah  replaced Mr. Ziobeieton Yeo as Managing Director on November 1, 2018. Therefore, Mr Michael Ubeh took over from Mrs. Gladys as the new Customer Development  Director. Mr. Michael had held several positions in Unilever Nigeria and Unilever India. Mr Edward Effah remains the chairman of the board of directors.

Investment Thesis
UNIL has considerable experience in marketing and distributing fast-moving consumer goods in Ghana which include world-class brands like Lipton and Omo. Despite its marketing and distribution expertise, the companyꞌs management has not relented in its effort at improving the visibility of its brands and strengthening its distribution network. A total of GH¢27.7 million was expended on promotion in 2018, 114.4% up from GH¢12.9 million spent in 2017. In addition, investment in capital almost tripped within a year. We expect this capital expenditure (2018:GH¢60.9 million; 2017:GH¢21 million) to improve its capacity to meet the demand for its products and raise profits in the coming years.

Both top-line and bottom-line have grown by 6.8% and 74.8% respectively on a 3-Year Compound Annual Growth Rate (CAGR) basis.  Besides, UNIL has expanded total assets and shareholdersꞌ fund at 33.2% and 66.5% respectively in the past three years. The management has been able to sustain the improvement in working capital which started in 2017; working capital jumped to GH¢163.9 million from GH¢19.9 million. The company has a manageable debt of GH¢73.5 million resulting in a debt ratio of 10.1%.

Revenue from the personal care business increased by 17.5% in 2017 and 23.7% in 2018. This business segment is responsible for over 50% of total revenue. However, its gross profit margin lost 5.2% and 13% in 2017 and 2018 respectively due to rising cost of sales. Cost of sales to revenue ratio leapt from 61% to 79.2% between 2016 and 2018.

Dividends are constantly being paid to shareholders and the returns have been commendable. Return on Average Equity (RoAE) averaged 55% while Return on Average Assets (RoAA) averaged out to 15.8% in the past nine years.

Valuation
Over the past seven years, UNIL has produced, on the average, Earnings Per Share (EPS) of GH¢0.78,  Sales Per Share (SPS) of GH¢7.40 and  Book Value Per Share (BVPS) of GH¢1.49. When the current market price of GH¢17.59 is applied to these averages, UNIL trades at 22.6 times earnings, 2.4 times sales and 11.8 times book value. Our estimated forward Price/Earnings (P/E) ratio and BVPS are 32.2 times and 1.9 times respectively.

The fair value of a share of UNIL ranges from GH¢13.5 to GH¢15.5. We are of the opinion that investment in the shares of the company should produce a return of 18%.

Financial Overview
Revenue gained 9.8% year-on-year from GH¢575.8 million in 2017 to GH¢632.2 million in 2018. The increment in revenue was largely driven by the personal care business segment which produced GH¢365.7 million revenue or 57.9% of total revenue (2017:51.4%). The personal care segment grew revenue by 23.7%.  The home care segment, the second highest contributor to revenue, gained only 6.3% in revenue. The foods category recorded revenue of GH¢75.2 million which was tantamount to a 24.9% decrease in a year.

Gross profit had a 9.8% improvement compared to 15.9% increase of the prior year, 2017. Cost of sales to turnover remained unchanged at 69.8%.  Consequently, gross profit margin stood at 30.2%. Gross margin for the food segment was about half of the previous yearꞌs figure of 52.6%. In the same manner, the personal care lost gross profit margin of 13%. However, the home care business produced gross profit margin of 50.1% in 2018 compared to 12% in 2017.

Profit Before Tax (PBT) was GH¢250.3 million up from GH¢65.4 million, buoyed by gain on disposal of its spread business (Blue Band margarine) and other income. Accordingly, Profit After Tax (PAT) rose to GH¢190.8 million from GH¢48.1 million, adding 296.3% in a year.

UNIL has a short-term debt of GH¢73.5 million at 2018 year end. It has no long-term indebtedness. In other words, the company is not overburdened by debt obligations and its long-term solvency is not in doubt.

Business Risk
The company faces stiff competition from cheaper products, especially imported ones. Earnings of UNIL are subject to adverse foreign exchange rates as it transacts business with foreign entities including related parties overseas.

Recommendation: Sell