Performance: In the green

• UNIL climbed up from a loss of GHS 50.3m in FY2020 to a profit of GHS 1.3m in FY2021, on the back of strong growth in revenue, control of input cost and income from the sale of its tea business
• Revenue, amounting to GHS 30.0m, from the disposal of UNIL’s tea business largely propelled the company to profitability
• Top-line grew by 22.5% y/y to GHS 559.0m. Management attributed this growth to volume increases, price increases and improved innovation which saw the launch of new variants in Geisha and Closeup brands
• Cost of sales increased by 17.2% y/y to GHS 380.6m. However, it experienced a downward trajectory on a quarter-on-quarter basis, decreasing by 7.1% q/q in 2Q2021, 12.0% q/q in 3Q2021 and 25.1% q/q in 4Q2021
• Gross margin increased by 3.6ppts to 20.2%, owing to higher top-line growth
• Operating expenses increased by 19.3% y/y led by branding & marketing expenses, which increased by 43.8% y/y due to efforts to integrate and market new variants
• Nevertheless, proceeds from the sale of UNIL’s tea business led to a 5.5ppts increase in operating profit to 0.6% in FY2021
• Consequently, net profit margin increased by 11.3ppts to 0.2%

Outlook: Profitability not sustainable

• We are pleasantly surprised to see UNIL return to profitability, however, we are concerned about the sustainability of bottom-line growth. Excluding the income from the sale of the tea business, UNIL was a loss-making business in FY2021
• Nevertheless, we remain optimistic about UNIL’s revenue growth momentum given the expansion in their product portfolio
• We continue to expect the addition of the new Geisha Moringa and Black Soap, as well as the very well received Pepsodent Charcoal and Herbal to contribute significantly to margin expansion given their premium price
• UNIL, by switching to a demand-based distribution model for key distributors and engaging in secondary sales, has been able to cut down its distribution cost. We anticipate that the company will continue to implement this strategy in the coming years
• We pleased to see some good results from UNIL’s cost-cutting strategies. However, we are concerned about the long-term sustainability of these initiatives. We will continue to monitor and evaluate the long-term viability of these initiatives, as they have a strong bearing on the company’s performance

Valuation: Under Review 

• We are in the process of re-initiating coverage on UNIL and have therefore placed our recommendation under review
• UNIL is trading at a P/E of 293.0x and EV/EBITDA of 105.6x