Despite recording significant growth in revenues, analysts at United Capital believe Unilever is still an overpriced stock and as such investors should rather sell down whatever they have now than buy more.
In their latest report on Unilever, United Capital Research noted that the company’s revenue was up 12% to N32.2 billion for the first six months of year ended June 2016.
The research notes that a closer look at the revenue breakdown of Unilever’s sales shows that the Food and Home Care division is the best performing aspect of its business as it continued to show strong growth rising for the third consecutive quarter by 22.0% and 25.0% respectively when compared to performance in the same period of 2015.
“Unilever continues to reap the gains of investments in promotional campaigns as well as its Route-to-Market strategy” stated the report.
However, the company’s Personal Care segment continued to underperform, recording a 12.0% decline when compared to the same period of 2015. This could be attributed to the company’s products being undercut by cheaper brands.
The report also notes that Unilever profits for the period was impacted negatively by the devaluation of the naira leading to a rise in the cost of goods sold due to the impact on the imported materials used by the company. This led to a contraction in the company’s gross profit margins. Unilever’s operating income for the period stood at N253 million while profit before tax stood at N67.9 million, which reversed the losses in the comparable period of 2015.
“While we still expect a tough year for players in the fast moving consumer goods (FCMG) sector, we deem resilient revenue performance by Unilever’s Food and Home Care divisions since third quarter of 2015 to date persuasive enough to retain a 10.0% our FY-16 revenue estimates at N62.5bn. However, we raised our 2016 full year cost of goods sold to Sales ratio assumption 2.5ppts higher to 67.0% on the belief that on-going foreign exchange issues and its impact on imported inputs will remain for most part of the year. Our model revision now leaves our 2016 earnings per share forecast at N0.73 (Previous: N0.85) on rising cost considerations. Consequently, our 12-month target price is also revised slightly downwards to N21.1 (Previous: N24.20)”
Unilever share price closed at N38.80 on 24 August, which means that the company is already trading at about N17 above its target 12 month price, hence the recommendation that investors sell their holding of the stock. Already, Unilever’s share price is down 10.8% this year.