Performance: Strong revenue growth expectedly sustains profit momentum

• UNIL’s earnings improved from a loss of GHS 12.2mn in 9M2022 to a profit-after-tax of GHS 92.1mn in 9M2023.
• The profit outturn was anchored on a 49.8% y/y surge in revenue to GHS 694.8mn, underpinned by upward price adjustments implemented in 9M2023
• Input cost increased by 20.2% y/y to GHS 434.3mn in 9M2023, below the 24.6% y/y rise in 1H2023 and the 22.9% Cedi depreciation against the US Dollar in 9M2023
• Consequently, gross profit swelled by 153.8% y/y to GHS 260.6mn, leading to a 15.4pp increase in gross profit margin to 37.5%
• Operating expense surged by 34.0% y/y to GHS 153.8mn, largely influenced by brand & marketing investment expense (+93.7% y/y) and administrative expense (+23.3% y/y) in 9M2023. Impressively, we note that the rise in administrative expense was substantially below the 9M2023 average inflation of 44.3% and the 40.0% y/y rise witnessed in 1H2023
• Despite the cost pressures, operating profit switched from a loss of GHS 2.2mn to a profit of GHS 113.5mn, on the back of the strong topline growth amidst cost savings and operational discipline
• Resultantly, operating profit margin increased by 16.8pp y/y to 16.3%
• Finance costs declined by 19.3% y/y to GHS 8.9mn as management reduced its use of bank overdraft amidst the rising interest rates
• Consequently, net profit margin improved by 15.9pp y/y to 13.3% in 9M2023

Outlook: A mixed bag of seasonal demand boost and marketing drive will sustain topline growth in 4Q2023

• We expect the upcoming festive season to drive demand for consumer staples across the UNIL brands and support topline growth in 4Q2023
• 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 streak of profits for four straight quarters 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 P/E of 7.3x, a TTM P/E of 2.5x and P/Sales of 0.73x