Performance: Efficient cost control and double-digit revenue drives performance

• UNIL’s net profit increased over 41-fold (+4152.9% y/y) from GHS 0.3mn in FY2021 to GHS 14.9mn in FY2022. We attribute this jump in earnings to efficient cost control and double-digit growth in revenue
• UNIL’s revenue increased by 13.1% y/y to GHS 631.8mn, largely due to the upward price adjustments implemented across most brands in FY2022
• Despite the prevailing inflationary pressures, UNIL controlled its cost of sales, which increased marginally by 6.2% y/y to GHS 474.7mn
• This cost containment was further aided by a 23.2% decline in palm oil prices (a key input material for UNIL) on the global market in FY2022. For a deeper context, palm oil’s price increased by 23.3% in 1Q2022, decreased by 24.1% and 41.2% in 2Q2022 and 3Q2022, respectively, before increasing again by 39.4% in 4Q2022 on the global market
• With cost of sales contained and revenue increasing, gross margin improved by 490.0bps y/y to 24.2% in FY2022
• Operating expenses were, again, tightly controlled, falling by 7.1% y/y to GHS 135.7mn. This was influenced by 15.2%, 14.7% and 14.6% y/y decreases in distribution, administration, and branding & marketing expenses, respectively, in FY2022
• Resultantly, operating profit increased over 10-fold (+1073.2% y/y) to GHS 32.3mn and operating margin improved by 461.0bps y/y to settle at 5.1% in FY2022
•  Finance cost increased by 531.5% y/y to GHS 18.5mn, as bank overdraft jumped by 47.8% y/y to GHS 99.6mn
• Consequently, net profit margin increased by 230.0bps to 2.4%

Outlook: Are profits sustainable?

• In our last publication, while we did not foresee UNIL posting satisfactory profits, we expected the company’s cost-cutting measures and price increases to improve margins
• In this publication, our outlook for UNIL is coiled with mixed sentiments as we believe that UNIL’s profit sustainability is anchored on keeping costs tightly controlled and posting double-digit revenue growth
• On the cost front, we are confident that UNIL’s aggressive cost-cutting measures are sustainable in the short-to-medium term, given their effectiveness in the previous four quarters
• The main headwind is on the revenue front. In our view, price adjustments without substantial growth in sales volume cannot sufficiently sustain revenue growth in the medium-to-long term
• As a result, we are doubtful that UNIL’s revenue growth is sustainable as we expect the rising inflationary pressures and growing competition in the FMCG industry to weigh on UNIL’s sales volume
• Our cautious outlook is hinged on the basis that, the prevailing inflationary pressures will continue to squeeze consumers’ disposable income, causing them to seek cheaper alternatives in a highly competitive market
• Nevertheless, our outlook on UNIL’s revenue outturn is subject to change once we see the company aggressively pursuing the necessary marketing initiatives to help drive sales volumes

Valuation: Under Review

• UNIL is currently trading at a P/E of 10.3x and EV/EBIT of 6.6x
• We are in the process of re-initiating coverage on UNIL and have therefore placed our recommendation under review