UNIL 9M2022 Results: Weak Revenue Performance But Efficient Cost Control

Performance: Efficient cost control not enough to churn out profits

  • UNIL’s earnings improved by 41.5% y/y, from a loss of GHS 20.8m in 9M2021 to a loss of GHS 12.2m in 9M2022. We attribute this loss to a weak revenue performance, a surge in finance costs and restructuring costs
  • UNIL’s revenue increased by 8.0% y/y to GHS 463.9m. We believe this subdued revenue performance is due to lower sales volume, as UNIL implemented upward price adjustments across most of its brands in 9M2022
  • Despite the prevailing inflationary pressures, UNIL controlled its cost of sales which increased marginally by 4.3% y/y to GHS 361.2m
  • With cost of sales contained, coupled with upward price adjustments, gross margin improved by 2.8pps y/y to 22.1% in 9M2022
  • Operating expenses were also well contained as it increased marginally by 5.1% y/y, influenced by a 5.4% y/y decrease in distribution expenses and a 16.7% y/y decrease in branding and marketing expenses
  • The tailwinds to OPEX were a 5.7% y/y increase in administration expenses and an GHS 8.7m restructuring costs in 9M2022
  • Resultantly, operating loss narrowed by 88.8% y/y to a loss of GHS 2.2m. Operating loss margin improved by 4.1pps y/y, declining from -4.6% in 9M2021 to -0.5% in 9M2022
  •  Finance costs increased over sevenfold (+740.5% y/y) to GHS 11.0m, as bank overdraft jumped from GHS 31.1m in 9M2021 to GHS 68.3m in 9M2022. (+119.4% y/y)
  • Consequently, net loss margin improved by 2.2pps, from -4.8% in 9M2021 to -2.6% in 9M2022

Outlook: Inflationary pressures to weigh on sales volume outturn, gross margins to keep improving on cost-saving strategies

  • We continue to expect rising inflationary pressures and the growing competition in the FMCG industry to weigh on UNIL’s sales volume performance in the near to medium term
  • Our pessimistic outlook is hinged on the basis that, the prevailing inflationary pressures will continue to squeeze consumers’ disposable income, causing them to seek out cheaper alternatives in a highly competitive market
  •  However, we anticipate UNIL to aggressively pursue the necessary marketing initiatives to help drive sales
  • On the cost front, we are confident that UNIL’s aggressive cost-cutting measures are sustainable in the short-to-medium term, given that they have been effective over the first three quarters of the year
  • As a result, we expect UNIL to continue employing its demand-based distribution model for key distributors and engaging in secondary sales, as this has kept a tight lid on OPEX, especially distribution expenses
  • In subsequent quarters, we expect these cost-cutting measures coupled with price increases to keep improving gross margins. However, we do not foresee the large manufacturer posting profits in the short-term

Valuation: Under Review 

  • UNIL is currently trading at an EV/SALES of 0.8x, and we intend to re-initiate coverage in 1H2023