Unilever’s 2014 FY results disappointed shareholders after the company revealed a 49% drop in profits that saw earnings per share close at 65kobo compared to N1.25 a year earlier. The company followed this up with a dividend per share of 10kobo representing only 16% dividend payout. Before now, Unilever had averaged over 90% dividend payout in the last 5 years.
Unilever also released its 2015 Q1 results showing pre-tax profits dropped 21% to N590million (2014 Q1: N751million). However, investors will look at the brighter side as revenues rose 8% to N14.9billion unlike it 2014 when it dropped by 3% year on year. Operating profit also rose 10.5% to N1.5billion a sign that the business is beginning to grow organically again. Net operating profit dropped 38% organically same period in 2014.
Pre-tax profits however, took a hit because of the high interest cost which rose 124% compared to a year ago to close at N757m this quarter. Unilever’s debt remains high at N17.6billion and now 2.1x (210%) more than its equity. Also about 94% of those loans have an average interest rate of 14% a huge cost if you consider that the bank has a return on assets of 10.3%.
This perhaps explains why its parent company has decided to up its stake in its Nigerian subsidiary to 75%. They announced last week that they will be paying as much as N45 for a share in the company a 34% premium to the share price when the announcement was made. Unilever closed at N41.7 Friday and touched as high as N44.6 this week. Though the terms of the deal is yet to be announced, the parent company suggested it will be spending about N42.9billion in the deal that will help increase its stake to 75%.
For a retail investor, there is little value in Unilever long term (dividend yield lags inflation) except for short term capital appreciation. At a Price earnings multiple of over 30x the share price is over valued especially when you factor in margins have been dropping and growth rate is not steady. Unilever remains a well run company and this move by its parent company may well be what it needs to turn things around.
Disclosure – Nairametrics and the author of this article do not own shares in Unilever and do not plan to buy shares in Unilever in the next one week. The author of this article wrote it themselves, and did not write this article on behalf of Unilever, its associates or representatives. The article is purely their opinion