Unilever Nigeria Plc Q2/H1 Result– Riding on Strong Earnings Recovery and Operational Restructuring

📌 Subject: Unilever Nigeria Plc H1 2025 – Strong Earnings Rebound Fueled by Pricing Power and Efficiency

Unilever Nigeria Plc delivered a stellar earnings rebound in H1 2025, achieving a 224.6% YoY increase in profit after tax to ₦14.41 billion, driven by strategic pricing actions and improved cost discipline. Revenue surged by 53.5% YoY to ₦98.10 billion, thanks to price hikes implemented between H2 2024 and Q1 2025 and a modest recovery in volume growth. This reflects the company’s brand strength and effective market penetration amid persistent inflation and changing consumer dynamics.

Catalysts

• Strategic Price Increases: Between late 2024 and early 2025, Unilever implemented targeted price hikes. Despite a challenging macroeconomic environment, the company maintained volume stability—indicating strong brand loyalty and inelastic demand for its products.
• Margin Expansion: Gross profit improved meaningfully as cost of sales grew slower (48.5%) than revenue (53.5%), boosting gross margins. With operating expenses rising modestly by 21.9%, operating leverage kicked in, fueling bottom-line growth.
• Dividend Payout: The interim dividend of ₦0.50 per share (vs. ₦0.00 in H1 2024) signals confidence in cash generation and sustainable earnings.
• Improving Macros: A disinflation trend and relative currency stability in Nigeria provide a favorable backdrop for consumer spending recovery and input cost moderation in H2 2025.

📈 Assumptions

• Revenue Outlook: Assuming annual revenue grows at a conservative CAGR of 15%, driven by moderate volume recovery and strategic price adjustments, Unilever Nigeria could surpass ₦200 billion in revenue by 2029.
• Earnings Projection: With sustained gross margin expansion, disciplined cost control, and moderate finance costs, net margins could rise to 12–15% in 5 years. This implies net income of ₦24–₦30 billion by 2029, up from ₦14.4 billion in H1 2025.

⚠️ Risks

• Consumer Sensitivity: While recent price hikes were absorbed, future increases may trigger volume declines if inflation flares up or if competition intensifies.
• Raw Material Costs: Unilever is exposed to imported input cost risks. Any resurgence in naira depreciation or global commodity price spikes could pressure margins.
• Rising Finance Costs: Finance costs rose 89% YoY due to increased borrowings. Sustained high interest rates could erode profit margins if leverage is not curtailed.
• Regulatory Risks: Potential price controls, FX restrictions, or tax policy changes could impact profitability.

💰 Valuation Outlook

• Short-Term (3 Years): With EPS at ₦2.51 in H1 2025, full-year EPS could hit ₦5.00+. At a conservative P/E of 15x, the stock could trade around ₦75 per share, up from current levels.
• Mid-Term (5 Years): If Unilever sustains earnings growth of ~15% CAGR and improves margins, a P/E re-rating to 18–20x could drive the stock to ₦90–₦100/share, assuming earnings of ₦6.0–₦7.0.
• Long-Term (10 Years): With continued expansion, increased market penetration, and regional exports, Unilever Nigeria could evolve into a ₦300–₦350 billion market cap company, justifying a high-teens valuation multiple.

Strengths:

• Strong brand and pricing flexibility
• Solid margin expansion
• Interim dividend payout
• Cash-rich balance sheet

Weaknesses:

• Rising finance costs
• Foreign exchange exposure
• Dependency on consumer sentiment