Performance: Revenue stagnates

• UNIL’s net loss increased marginally by 3.0% y/y to GHS 8.0m in 1Q2022, on the back of weak revenue performance and a surge in restructuring costs
• Revenue decreased marginally by 0.1% y/y to 150.5m. We believe this drop is due to lower sales volume, as UNIL implemented upward price adjustments across most of its brands in 1Q2022
• Despite rising inflation and fuel costs, as well as the Cedi’s continuous slide, UNIL kept its cost of sales under control, decreasing by 2.4% y/y to GHS 122.6m
• With cost of sales controlled, gross margin increased by 1.2pp to 18.6%
• Operating expenses increased by 8.0% y/y, led by restructuring costs, which increased by sevenfold y/y to GHS 5.6m. Nonetheless, operating margin increased by 0.8pp, declining from -5.0% in 1Q2021 to -4.2% in 1Q2022
• Consequently, net loss margin decreased by 0.16pp to -5.3%

Outlook: Inflationary pressures to weigh on sales outturn

• Given the upside risks to inflation, including the elevated energy prices linked to the Ukraine and Russian conflict, consumers purse strings will continue to come under pressure in the near term and this will impact the consumption of UNIL’s products
• However, we anticipate that UNIL will embark on aggressive sales campaigns to drive sales. This will impact the company’s branding and marketing expenses in the coming quarters
• Despite our disappointment with UNIL’s revenue performance, we were pleasantly surprised by UNIL’s success at controlling cost. UNIL, by switching to a demand-based distribution model for key distributors and engaging in secondary sales, has cut down its distribution cost by 8.0% y/y
• We will continue to monitor and evaluate the long-term viability of the company’s cost-cutting initiatives, as they form an essential component of our valuation

Valuation: Under Review 

• UNIL is currently trading at a P/Sales of 2.4x, and we intend to re-initiate coverage in 2Q2022