Performance: Profit jumps amid strong revenue growth and strategic cost control

• UNIL’s earnings significantly improved from a profit of GHS 15.1mn in FY2022 to GHS 179.0mn in FY2023, grounded on enhanced revenue, stringent cost controls, and investment in demand-generating and brand-building activities
• The profit outturn was firmly secured on a 43.8% y/y surge in revenue to GHS 908.1mn, underpinned by upward price adjustments and increased sales implemented in FY2023
• Input cost increased by 20.1% y/y to GHS 571.4mn in FY2023, marginally below the 20.2% y/y rise in 9M2023 and the 27.8% Cedi depreciation against the US Dollar in 2023
• Consequently, gross profit spiked by 116.4% y/y to GHS 336.8mn, leading to a 12.4pp increase in gross profit margin to 37.1%.
• Operating expense dropped by 8.9% y/y to GHS 125.1mn, largely influenced by a 68.2% y/y drop in administrative expense as well as 71.2% y/y fall in restructuring costs in FY2023.
• Despite the decline in operational cost, we observed a steep increase in brand building expense (+98.5% y/y) as management scaled up its investment in brand-building activities to drive the revenue growth in FY2023. Furthermore, growth in distribution expense in FY2023 (+33.1% y/y) was higher than the 18.6% y/y in 9M2023
• Subsequently, operating profit spiked by over 6-fold from a profit of GHS 32.4mn in FY2022 to GHS 223.7mn in FY2023, on the back of the strong topline growth amidst cost savings and operational discipline
• Resultantly, operating profit margin increased by 19.5pp y/y to 24.6%
• Finance costs slumped by 45.8% y/y to GHS 10.0mn as management ceased the use of bank overdraft amidst the rising interest rates
• Consequently, net profit margin improved by 17.3pp y/y to 19.7% in FY2023
  
  Outlook: Enhanced sales and marketing drive to sustain topline growth in 2024

• In our 9M2023 update, we anticipated continued growth in revenue for FY2023. However, we are impressed by the significant improvement in topline. We therefore expect management to continue to invest in demand-generating and brand-building activities to increase sales and sustain the strong revenue growth momentum in 2024
• Our optimism on the revenue outlook is further strengthened by management’s continued investments in brand & marketing initiatives such as Pepsodent “talk to a dentist campaign” in partnership with the Ghana Dental Association, amongst other initiatives. Management has shown firm commitment to investing in brand equity, which we believe is a critical support for medium term revenue growth
• On the cost front, we expect UNIL to keep its grip on OPEX as inflationary pressures continue to abate in the months ahead
• Overall, we view UNIL’s impressive profit outturn for FY2023 as a positive turnaround story and remain cautiously optimistic about the near-term prospects

Valuation: Under Review

• We are in the process of re-initiating coverage on UNIL and have therefore placed our recommendation under review
• UNIL is currently trading at a TTM P/E of 0.56x and P/Sales of 0.56x