1H2025 Earnings Update

Unilever Ghana (“UNIL”) released its unaudited 1H2025 financial results on 30 July 2025, with an unexpected 54.6% y/y plunge in net profit to GHS 25.5mn. The decline in net profit stems from a modest revenue growth of 11.9% y/y to GHS 533.9mn, a 25.1% y/y surge in input cost to GHS 341.8mn, a 41.2% y/y plunge in finance income to GHS 0.8mn and a 45.7% y/y fall in other income to GHS 3.7mn. Operating profit declined by 29.4% y/y to GHS 49.4mn despite an impressive OPEX containment, as OPEX rose by just 4.1% y/y to GHS 146.3mn. The moderate growth in OPEX was supported by the absence of restructuring expenses and a 20.5% y/y decline in impairment losses on trade receivables to GHS 0.2mn., Despite sourcing approximately 75.0% of its raw materials locally, we believe the elevated raw material costs in 1H2025 reflect the lingering impact of prior procurement agreements locked in during periods of elevated exchange rates and inflation, compounded by palm oil price volatility. These legacy contracts continue to weigh on input costs, as the emerging stable macroeconomic environment is in its early phase. The modest revenue growth likely reflects weakened consumer demand amid sustained price hikes, signaling increased price sensitivity in the consumer goods market. We believe that the slight 0.7% y/y dip in inventory to GHS 133.5mn further reinforce this narrative. We perceive this to be slower stock replenishment due to cautious demand expectations and improved inventory efficiency in response to softer sales volumes. Although UNIL continues to invest in brand equity and demand-driving initiatives, the company is yet to fully translate these efforts into robust topline growth. This leaves us concerned about the near-term prospect for topline. Nevertheless, its diversified product mix and the essential nature of most of its offerings continue to anchor demand over the short-to-medium term. Overall, we view the continued y/y deterioration in UNIL’s earnings for a sixth consecutive quarter as disappointing with a downside risk to valuation, despite the company maintaining profitability for the eleventh straight quarter.

Thesis & Outlook: Early signs of revenue recovery but uncertainty lingers

• Unilever Ghana’s margins remain exposed to several risks that could constrain margin expansion over the short to medium term despite a relatively stable macroeconomic outlook. The Home Care category, especially the laundry bars, faces intense price competition from lower-priced alternatives offered by local manufacturers and Asian imports, which limits UNIL’s ability to pass on input cost increases without risking volume losses. To defend market share, management has relied on smaller, lower-priced Stock Keeping Unit (SKUs) and periodic promotions, strategies that protect volumes but dilute per-unit profitability. In commoditised Home Care categories, we note that lower-cost rivals continue to sustain thinner margins, enabling them to undercut Unilever’s prices and forcing the company to absorb cost increases internally or offset them through operational savings, a strategy that is not sustainable in prolonged cost-up cycles. The company continues to invest heavily in brand-building and demand activation to defend market share against cheaper alternatives. However, we believe that if these initiatives fail to deliver measurable volume uplift or enable price premiums, the high marketing outlay will weigh on operating margins without delivering strategic benefits. Given its role as an essential raw material in both the Home Care and Personal Care brands, palm oil price volatility remains a key risk to UNIL’s gross margin. However, we view competitive pricing pressure from lower-cost alternatives as the most immediate and persistent headwind to topline momentum and margin recovery. Without a durable progress in portfolio premiumisation, operational efficiency gains, and measurable returns on brand investment, we believe operating margin is likely to remain subdued. We thus forecast a five-year average operating margin of 6.6%, compared to historical average of 7.1%.

• Since divesting from the Spread business in 2018 and the Tea category in 2021, Unilever Ghana Plc has recalibrated its portfolio to concentrate on higher-margin, culturally relevant essentials within the Home Care and Personal Care segments. This deliberate shift has sharpened category focus, deepened brand loyalty, and reinforced the company’s competitive positioning in products closely tied to Ghanaian hygiene habits and daily consumption routines. The Home Care segment, anchored by detergents, bleach, and surface cleaners, retains a strong emotional and cultural resonance with Ghanaian households. Key Soap, a generational brand embedded in household routines, remains a cornerstone of the category. Its positioning as the “soap of mothers” and its affordability, albeit with margin pressure, protect it from aggressive price competition, particularly in rural and peri-urban markets. In contrast, Omo and Sunlight cater to more urban and middle-income households seeking premium quality, while Sunlight also caters to cost-conscious consumers who value multi-purpose utility. The Personal Care category is the UNIL’s strongest growth driver, underpinned by health-conscious consumption and strong public engagement. The Pepsodent brand continues to enjoy market leadership, reinforced by long-standing oral health campaigns and partnerships with schools and Non-Governmental Organisations (NGOs). The ability to offer affordable price points through smaller tubes and sachets keeps penetration high, even in periods of reduced consumer spending.  Our analysis indicates that Home Care demand is largely defensive, rooted in necessity, habit, and brand attachment, while Personal Care offers incremental growth potential through aspirational and health-led positioning. Unilever Ghana’s ability to blend cultural understanding with effective distribution and tailored pack-price formats has been the key to sustaining relevance across economic cycles. While ongoing investments in brand equity and demand activation have not significantly translated into revenue growth, we observe early signs of top-line momentum, which we attribute to the gradual materialisation of returns from these initiatives. Against this background, we expect continued brand loyalty to anchor Unilever Ghana’s topline growth, supporting our forecast topline grow of 19.3% y/y to GHS 1.1bn in FY2025 with a Compounded Annual Growth Rate (CAGR) of 30.4% over the next five-years (2025 – 2029).

• We view Unilever Ghana’s route-to-market as the backbone of its competitive positioning and a critical driver of both volume defence and market share resilience. The company’s route-to-market strategy blends national reach with channel-specific execution, ensuring that its products remain visible, accessible, and affordable across every consumer segment. Through an extensive network of primary distributors and secondary wholesalers, Unilever Ghana achieves deep penetration in rural and peri-urban markets, where brand loyalty to Key Soap and affordability drive repeat purchases. In urban centres, we believe UNIL’s partnerships with modern trade chains, pharmacies, and high-retail outlets position its premium Personal Care SKUs for higher-margin sales, while smaller pack sizes are targeted at kiosks and open markets to sustain frequency of purchase. Unilever’s route-to-market effectiveness is reinforced by robust demand activation, including in-store promotions, community campaigns, and co-branded health initiatives. These include collaborations with local health NGOs to promote hygiene awareness and maternal wellness programmes which deepen brand engagement and maintain relevance in a competitive FMCG landscape. The company’s ability to align pack–price formats to local purchasing power while ensuring consistent product availability provides a competitive buffer against both local and imported competitors. However, we think sustaining this advantage requires disciplined execution to ensure efficient stock management and avoid stock-outs. In our view, continued optimisation of the route-to-market framework with sharper focus on outlet segmentation will be instrumental in maintaining Unilever Ghana’s market leadership and supporting steady topline growth in the medium term.

Valuation: HOLD

• Our “HOLD” rating is based on our weighted average fair value of GHS 19.75 per share, representing a downside of 3.21%, using the weighted average prices from our Discounted Cash Flow (DCF) and relative valuation models. We see a compelling case for holding Unilever Ghana in anticipation of improvement in financial performance in the medium term.
• UNIL is currently trading at an annualised P/E of 18.6x and P/Sales of 2.4x