CSL Unilever Nigeria Full Report

Equities
Unilever Nigeria
Nigeria | Consumer | Unilever Nigeria 24 April 2015
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Survival in a tough market
 In common with most Nigerian consumer companies Unilever Nigeria
(Unilever) faces a weak consumer environment in 2015e, and beyond. Its
product orientation is towards Home and Personal Care (HPC) brands and
these suffer particularly from price elasticity. In addition, competition has
increased in recent years. We have revised down our forecast 2015e-19e
Sales CAGR from 10.0% to 5.3%.
 Unilever has high gearing (2014 net debt/equity: 206%), and has cut its
dividend payout ratio from 100% to 16%. We see operating margins, RoCE
and RoE stabilising during 2015e-16e, before improving gradually 2017e-19e.
Currency weakness is partly offset by associated oil price weakness
(feedstock prices correlate with oil) but we still see margin pressure this year.
 Unilever trades at 1.4 standard deviations above its average historic 1-year
forward PE ratio over the past six years, and at higher PE ratios than its sister
companies in Indonesia and India (yet has lower operating margins than
them). We think the market has been over-optimistic in pricing Unilever as a
growth stock and believe the days of 40.0%+ RoE will not return.
 We value Unilever using a combination of DCF and peer multiple comparison
methods in a ratio of 60:40. We value Unilever at N24.3/s, representing 39%
downside potential from the current price (previous target price: N31.8/s). We
maintain our Sell recommendation on the stock.
 Unilever BV in late March announced its intention to bid N45.5/s for 25% of
the outstanding equity of Unilever Nigeria. Following the announcement, the
shares rallied. It is important to recall that an earlier bid by the parent of a
Nigerian consumer company was rejected (in 2013) by minority shareholders
and by Nigeria’s courts. Nevertheless, N45.5/s is above the current price and
substantially above our target price.
Source: CSL Research
Unilever Nigeria: Changes to estimates, Nm
Previous New diff Previous New diff Previous New diff Previous New diff
2015e 2015e % 2016e 2016e % 2017e 2017e % 2018e 2018e %
Sales 73,920 55,435 -25% 82,222 57,652 -30% 89,928 61,103 -32% 98,022 65,947 -33%
EBIT 11,957 5,035 -58% 12,814 5,083 -60% 14,261 6,471 -55% 15,545 7,675 -51%
PTP 11,545 2,591 -78% 12,511 2,786 -78% 14,139 4,063 -71% 15,270 5,675 -63%
Net Profits 7,966 1,814 -77% 8,633 1,950 -77% 9,756 2,844 -71% 10,537 3,972 -62%
Recommendation: Sell
Target: 24.3 Price: 40.0*
*Price as at 22 April 2015
Key data
Year to December, N bn
2013 2014 2015e 2016e
Sales 60.0 55.8 55.4 57.7
EBITDA 9.9 6.7 7.4 7.6
Net profit 4.7 2.4 1.8 1.9
EPS (N) 1.25 0.64 0.48 0.52
PE Ratio 32.0 62.7 83.5 77.6
EV/EBITDA 15.7x 24.7x 22.8x 22.0x
Div Yield (%) 3.1% 0.2% 0.2% 0.3%
Mkt. cap. N151.3bn (US$756.9m)
Free float 50%
Bloomberg UNILEVER NL
Reuters LBRO.LG
Three-year graph
20
30
40
50
60
70
80
Apr-12 Apr-13 Apr-14 Apr-15
Unilever Nigeria share price Unilever Nigeria rel. to Nigeria All-Share
Contact information
Analyst: Ifeoma Okoli
+234 (0)1 448 5436
Head of Research: Guy Czartoryski
+234 (0)1 448 5436
Sales: Temi Popoola, CFA
+234 (0) 1 448 5420
Lagos: +234 (0)1 448 5436
London: +44 (0) 207 220 1041
cslresearch@firstcitygroup.com
cslresearch@fcmbuk.com
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Contents
Investment Summary 3
Product portfolio 4
Market position 5
Defending market share at all costs? 7
Top-line growth: Constrained by the HPC segment 9
Oil and CoGs relationship 11
Devaluation impact 12
The receivables problem 15
A mismatch: using short-term debt of finance expansion 17
Returns 18
Changes to forecasts 20
Financial forecasts 22
Risks 25
Valuation 26
Appendix I: products & prices 28
Disclosure, Important risk warnings and Disclaimers 29

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Investment Summary
 Unilever Nigeria (Unilever) has a durable portfolio of Home and Personal
Care (HPC) and food brands, which gives it market leadership in several
key segments (p.5), notably oral care, detergents, seasoning, tea and
spreads. In these areas Unilever has introduced variants to meet
consumer preference and match affordability, sometimes with low-size
packaging.
 The attractions of the Nigerian market – despite current consumer
weakness – are not lost on Unilever’s international competitors.
Competition has stepped up in recent years and Unilever has met this
challenge by increasing advertising expenditure (p.7).
 Unilever’s product portfolio (p.4) is weighted towards HPC products and
this presents challenges in an environment of weak consumer demand
(p.10). Price sensitivity is greater in HPC than in food and we believe that
competition is also more intense here. Thus Unilever faces specific
challenges in developing top-line growth (pages 10, 20 & 22).
 On a positive note, the fall in oil prices (which is a source of economic
weakness in Nigeria) is beneficial to Unilever’s input costs (p.11), we
believe, since the price of key input Linear Alkyl Benzene positively
correlates with oil. Since Unilever imports some 60% of its raw materials
(p.12) this could lead to an increment in gross margins similar to that seen
in 2008/9. However, we expect oil prices to gradually recover this year
(p.13) so we doubt that gross margins will improve.
 As competition strengthens, Unilever – in common with other consumer
companies in Nigeria – has raised its receivables to accommodate
customers (p.15). It has also used short-term naira-denominated debt (it
has no foreign currency debt) to fund expansion (p.17). Net debt/equity
stood at 206% in 2014.
 We believe Unilever will moderate advertising expenditure, and stabilise
operating margins 2015e-16e that halved 2012-14 (p.22) while
maintaining a low dividend payout ratio (p.21). Beyond this, we see
Unilever actually increasing operating margins 2017e-19e, maintaining
low dividends and paying down net debt, with a consequent recovery in
ROIC and ROE 2017e-19e though not to the very high levels seen in
2009-12.
 In late March of this year Unilever BV (Not Rated) stated that it intends to
offer N45.5/share for 0.9m shares in Unilever Nigeria, 25.0% of the
shares outstanding. If successful, this bid would take Unilever BV’s stake
up to 75.0%. In view of an earlier bid by a foreign parent of a Nigerian
consumer company, however, we believe that minority shareholders, and
the courts, could prevent a bid going ahead. Nevertheless, the stated bid
level of N45.5/share is well above the current price of N40.0/s and our
target price of N24.3/s.

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Product portfolio
Unilever has 14 products in its product portfolio and we estimate that Omo
(detergent), Sunlight (detergent), Closeup (toothpaste), Knorr (seasoning) and
Lipton (tea) contribute c.70% of Revenues.
Source: CSL Research
A review of the table reveals that Unilever’s product portfolio is largely skewed
in favour of its Home and Personal Care (HPC) segment which offers 11
products.
Demand for HPC products is more elastic than demand for food products. We
believe this largely explains why food producers have fared better than HPC
producers and why Unilever’s food segment has outperformed its HPC
segment. Revenues in the food segment has grown at a CAGR of 7.5% over
the past five years vs. 2.2% for its HPC segment.
In our view the structure of Unilever’s product portfolio makes its Revenues
vulnerable to changes in consumer disposable income. As such, we believe
there is a need for Unilever to improve its product offerings in the food
segment where revenue growth has been more resilient.
Product launches
It appears that Unilever currently does not share this view. In 2014, Unilever
stepped up product launches and introduced five new products into the
Nigerian market. Some of the products launched include: Vaseline Total
Moisture lotion (skincare), Vaseline Cocoa Glow lotion (skin care), Sunlight
dishwashing liquid, Pepsodent Gel (oral care) and Rexona deodorant. More
recently, in March 2015, Unilever launched three new variants (Velvet Touch,
Soft Touch and Soft Cares) of its skin care product, Lux.
All the products mentioned above fall under Unilever’s HPC segment.
Product Portfolio
Segment Category Product Variant
Oral care Close up Red gel, Menthol chill, Herbal, White now, Complete 8 & Complete 8 White
Pepsodent
Skin Care Vaseline Blue seal, BabyJelly, Cocoa, Aloe fresh, Total Moisture & Cocoa Glow
Lux White, Green, Orange & Pink
HPC Lifebuoy
Detergent Omo
Sunlight Spring sensations & Tropical sensations
Household Cleaning Sunlight dishwahsing liquid
Deodorants Rexona for men & for women
BabyCare Pears
Seasoning Knorr cubes Classic & Chicken
Royco cubes Beef & Chicken
Food Spreads Blue Band Classic & Spread for bread
Tea Lipton Yellow label, Hibiscus, Tchae Mint, Forest Fruits, Vanilla, Clear Green & Lemon

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Market position
Unilever has durable brands in our view, and the company enjoys leadership
in several categories.
Oral Care
There is a lot of competition in the oral care category but Unilever is the
market leader with a market share of 35% according to Euromonitor with its
Closeup brand of toothpaste. Other brands in this category include: Macleans
and Sensodyne both from GlaxoSmithKline plc (GSK, Buy, Target Price
N78.6/s, Current Price N53.5/s), Oral-B from Procter & Gamble (N/R), Dabur
from African Consumer Care Ltd (Unlisted) and Colgate from Colgate-
Palmolive (N/R).
Closeup is the longest-standing toothpaste brand in Nigeria and we believe
this is because Unilever has invested significantly in creating brand
awareness for the product. Our review of advertising shows that Closeup is
the most advertised toothpaste brand in the country. Over the years, Unilever
has developed many variants to meet the varying preferences of the
consumer and has introduced several pack sizes (125ml family size, the 50ml
large size, the 25ml standard size, and the 10ml sachet).
Detergent
In the detergent category Unilever is a strong contender with its Omo and
Sunlight detergent brands. Some years back, Omo was the generic name for
detergent in Nigeria, however, in more recent years we believe Unilever has
lost some of its market share to Procter & Gamble after it introduced Ariel,
which we believe is widely viewed as a superior product.
Unilever’s detergent brands are mid-to-premium-priced and are in competition
with several economy brands such as So Klin from Eko Supreme Resources
Nigeria Limited (Unlisted) and Zip, Elephant and Jet detergents from PZ
Cussons Nigeria (PZ, Hold, Target Price N34.6/s, Current Price N28.4) as
well as various unbranded detergent products.
Tea
There are not many tea brands in Nigeria. The two dominant brands in this
category are Lipton tea (the market leader) from Unilever and Top Tea from
Promasidor Nigeria Limited (Unlisted). Euromonitor estimates Unilever’s
market share to be 35%. There is also competition from imported products
such as PG tips from Unilever Food Solutions in the United Kingdom
(Unlisted).
Seasoning
Unilever is a strong contender in the seasoning category, with its Knorr
(premium brand) and Royco (economy brand) seasoning cubes. There is
strong competition in this category from locally manufactured products such
as Maggi from Nestle Nigeria plc (Nestle, Hold, Target Price N777.6/s,
Current Price N948.0) and Onga from Promasidor, as well as imported
products, mainly from Asia.

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Knorr cubes are priced slightly higher than Maggi and Onga cubes.
Nonetheless, our research indicates that shop owners have observed
increased traffic for Knorr cubes because consumers widely perceive Knorr
(which is less saline than the competition’s offerings) as a superior product.
Spreads
Unilever, has a strong presence in this category with its margarine brand Blue
Band. Blue Band is produced by Unilever Ghana for Unilever Nigeria,
because it appears it is cheaper for Unilever Nigeria to import the product than
produce it locally. Blue band is very popular with bread sellers in Nigeria.
There are other margarine brands in the market such as Moi margarine from
Moi International (Unlisted) and Summer County and Flora both from
Unilever Food Solutions in the United Kingdom. These brands are also
imported.
Note: See appendix for a full list of product pricing versus competitors.

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Defending market share at all costs?
Unilever’s operating expenses have been on the rise since 2013 and these
have negatively impacted profitability. EBITDA declined 8.2% y/y in 2013 and
32.0% y/y in 2014. The spike in operating expenses is largely due to
increased promotional and advertising expenditure, which became the single
largest component of Opex in 2014.
Source: Company, CSL Research
In 2014 advertising and promotional spend was c.11% of sales, the highest
level in three years. We view the spike in operating expenses (which is now a
feature of Nigeria’s FMCG industry in general) as Unilever’s response to
heightened competition across product categories.
Unilever: EBITDA vs Opex growth
23%
22%
21%
22%
23% 27%
0%
5%
10%
15%
20%
25%
30%
-
2,000
4,000
6,000
8,000
10,000
12,000
2009 2010 2011 2012 2013 2014
EBITDA Nm, lhs Opex % of Revenues, rhs
Unilever : Components of Opex
0%
10%
20%
30%
40%
50%
2012 2013 2014
Advertising & Promotion Overheads Selling & Distribution Service Fees

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Unilever has undertaken several advertising campaigns for its products over
the past two years (2013-14). Some notable ad-campaigns include: The
Lipton tea party, The Lipton Wakeup Call, The Lipton Open Surprise and
Close up Cupid.
We believe that maintaining Opex at current levels is not viable for Unilever.
Management will need to cut its advertising budget to raise profits, in our view.
In 2014, both Unilever’s Return on Equity (RoE) and Return on Capital
Employed (RoCE) declined sharply as Net Profits dropped. Our modelled
forecasts indicate that if Opex is maintained at the current level, the pace of
recovery for RoE and RoCE could be slow.
Source: Company, CSL Research * Modelled forecasts assuming Opex to sales ratio remains in
line with 2014 level. ** Modelled forecasts assuming gradual declines in Opex to sales ratio
through 2015e-2018e (CSL base case)
When we compare Unilever’s expenditure as a percentage of revenues with
PZ Cussons Nigeria which has a more robust product portfolio (PZ Cussons
has 33 products vs. 14 for Unilever), we find a much stronger commitment to
advertising in our opinion.
Source: Company, CSL Research * May year-end
We forecast Unilever’s Opex-to-Sales ratio to gradually reduce to 23% over
our forecast horizon.
Unilever: RoCE and RoE
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e 2018e 2019e
RoCE * RoCE**
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e 2018e 2019e
RoE* RoE**
Advertising and Promotional Expenses % of Revenues
0%
3%
6%
9%
12%
15%
2012 2013 2014
Unilever PZ*

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Top-line growth: Constrained by the HPC segment
Unilever has two reporting segments i) Food and 2) Home and Personal care
(HPC). Over the past five years Unilever’s food segment has contributed an
average of c.45% to Revenues while HPC contributed c.55%.
Unilever’s Revenues declined by 7% y/y in 2014, its worst performance in
eight years. We believe, the fall in Revenues was partly due to security
challenges in the North East of Nigeria. The market in the North of Nigeria
accounts for c.30% of Unilever’s Revenues.
We believe heightened competition in the Fast Moving Consumer Goods
(FMCG) space also contributed to weakness in Revenue growth. Trade
disruptions in the North of Nigeria forced consumer companies to rely on
markets in the South which were already competitive.
Furthermore, the Nigerian consumer remained under pressure and this
negatively affected demand in our view. In 2014, for example, electricity tariffs
were raised and import duties on used cars increased from 20% to 35%.
We believe weak consumer demand had a greater (negative) impact on
Unilever’s HPC segment than its Food segment because demand for HPC
products are more price elastic than demand for food.
A breakdown of Revenue, shows that the decline in the HPC segment in 2014
– sales in the HPC segment declined 15% y/y in 2014 – was the primary
cause for the drop in Revenues. The food segment grew 3% y/y in 2014.
Unilever: Change in Revenues, y/y
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2007 2008 2009 2010 2011 2012 2013 2014

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Competition in the HPC market is more intense than in the food market. Apart
from locally-produced and imported branded products, Unilever’s HPC
products, which are mid-to-premium-priced, also compete with unbranded
products that are generally cheaper. Unbranded products are very common in
the detergent and skincare categories.
Segment performance, Sales Nm
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2009 2010 2011 2012 2013 2014 Q1 2015
Home and Personal Care Foods
Growth in Food y/y, rhs Growth in HPC y/y, rhs

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The oil and CoGs relationship
Unilever’s key inputs are 1) Linear Alkyl Benzene (LAB), used in the
manufacture of detergent, 2) Tallow for the manufacture of soap, 3) Sorbitol
for production of toothpaste and, 4) Monosodium Glutamate (MSG) for the
production of seasoning cubes. These inputs constitute c.70% of Unilever’s
input cost requirements.
We do not have specific details of the weight each item carries in Unilever’s
input cost mix. But the observed relationship between Unilever’s Cost of
Goods Sold (CoGs) and crude oil prices leads us to believe that LAB likely
carries the largest weight.
Source: Bloomberg, Company, CSL Research
LAB is a petrochemical product and the price of its principal component
benzene closely tracks oil prices. And this largely explains the inverse
relationship between oil prices and Unilever’s gross margins, in our view.
Source: Bloomberg, CSL Research
Unilever : Oil price and CoGs % of Revenues
58%
59%
60%
61%
62%
63%
64%
65%
66%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
2008 2009 2010 2011 2012 2013 2014
Growth rate in average oil prices, lhs COGS % Revenues, rhs
Benzene and crude oil prices
0
20
40
60
80
100
120
140
160
0
200
400
600
800
1000
1200
1400
1600
Jan-07
Jun-07
Nov-07
Apr-08
Sep-08
Feb-09
Jul-09
Dec-09
May-10
Oct-10
Mar-11
Aug-11
Jan-12
Jun-12
Nov-12
Apr-13
Sep-13
Feb-14
Jul-14
Dec-14
Benzene Brent, rhs

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Devaluation impact
The Central Bank of Nigeria (CBN) effectively devalued the naira on 12 and
14 February 2015. The CBN entered the interbank market to trade at
N198.00/US$1.00, abandoning its N168.00/US$1.00 core rate used in the
Retail Dutch Auction System (RDAS) since November 2014. On 18 February
it took the RDAS out of business altogether. Our view is that the naira will find
a floor no lower than N220.00/US$1.00 in the interbank market in 2015 (see
CSL Nigerian Banks report ‘A Disaster is priced in. Buy, 30 Jan 2015).
Impact on the company
Unilever, in its 2014 financial statements, discloses that c.60% of its bought-in
raw materials and services were imported. The large volume of imported raw
materials exposes the company to foreign exchange risks. Unilever’s primary
currency exposure is to the euro and the US dollar.
However, there is evidence that the Gross Profit margins of Unilever can
increase during a period of naira devaluation, if the devaluation is
accompanied by a strong fall in oil prices.
This was the case in 2009. In 2008/09 the naira was devalued by c.26% and
this was associated with a 36.8% y/y decline in crude oil prices (comparing
average prices over those years). During that period, Benzene prices also fell
by 28.3% y/y and this led to a 4.3pp y/y expansion in Unilever’s gross margins
in 2009. As at 9M 2014, average oil prices had declined by c.2% y/y and
benzene prices we down by c.1%y/y. Consequently, 9M 2014 gross margins
expanded 189bps y/y.
The CBN devalued the naira by c.8% in November 2014 and we believe this
largely underpinned the 12pps y/y contraction in Q4 2014 gross margins
(2014 gross margins declined by 124bps y/y despite the 9% y/y decline in oil
US dollar & Euro exchange rates
150
180
210
240
01-Jan-14
01-Feb-14
01-Mar-14
01-Apr-14
01-May-14
01-Jun-14
01-Jul-14
01-Aug-14
01-Sep-14
01-Oct-14
01-Nov-14
01-Dec-14
01-Jan-15
01-Feb-15
01-Mar-15
01-Apr-15
Naira/USD Naira/EURO

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prices), as the decline in average oil prices was likely not strong enough to
offset the impact of a weaker naira.
In the first quarter of 2015, the dollar traded within the range of N184.6 –
N206.0/US$. Our base case of N220.00/US$ for the currency in 2015e,
implies a 28.7% devaluation of the naira compared with the average rate in
9M 2014.
We expect crude oil prices to recover marginally in 2015e and forecast
US$75/bbl (c.23.5% lower than average crude oil prices in 2014) and
US$90/bbl in 2016e (See, CSL Oil Sector report, 23 December 2014).
The devaluation of the naira in 2015e and our expectations for oil prices imply
that the fall in oil prices may not be enough to offset the effects of a weaker
naira. Consequently, we forecast a 44bps y/y contraction in 2015e gross
margins.
Debt exposure to FX
Unilever does not have foreign currency loans on its balance sheet.
Impact on the consumer
We note that in 2009 Unilever recorded its strongest revenue growth in seven
years (2008-14), when Revenues rose 19% y/y. This was also the case with
Nestlé Nigeria, when it recorded its best Sales growth for many years, up 32%
on the year.
There is a possibility that Unilever can record strong sales figures in 2015e.
However, the disparity between the economic and commercial environment
Unilever: Growth rate in crude oil prices vs Gross margins
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
32%
33%
34%
35%
36%
37%
38%
39%
40%
2008 2009 2010 2011 2012 2013 2014
Gross margins , lhs Growth rate in average oil prices

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of 2009 and the present day leads us to believe that this may not be the case
in 2015e. Our argument is based on the following grounds:
a) The marketplace is more competitive than it was in 2009. The security
crisis in the North East of Nigeria has forced companies to rely on
markets in the South which are already very competitive.
b) The government in 2009 had sufficient fiscal resources to stimulate
the economy, notably some US$20.00bn in the Excess Crude
Account (ECA) which was added to budget allocations. The current
level of the ECA is some US$2.45bn (as at December 2014). In 2015
government budgets are being cut. We are even aware of payment
issues affecting some public sector employees.
c) Foreign exchange reserves were close to US$50.0bn (of which the
ECA was a part) in 2009, compared with US$29.6bn now. The
Central Bank of Nigeria, dealing with a banking crisis, adopted an
accommodative stance. GDP grew by some 6.9% in 2009, while the
IMF recently cut its growth forecast for Nigeria in 2015 from 7.3% to
4.8%.
d) Specifically, the CBN cut its Monetary Policy Rate (MPR) from
10.25% to 9.75% in September 2008, then to 8.00% in April 2009 and
to 6.00% in July 2009. Given the CBN’s current attitude to naira
liquidity in its current struggle with naira devaluation, we doubt that
such interest rate decreases are in the pipeline. The current MPR is
13.00%.

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The receivables problem
Rising Trade Receivables have become a feature of the FMCG space in
Nigeria. Players in the consumer goods sector are easing trade terms as
competition within the sector intensifies. We estimate Unilever’s receivable
turnover at 6.7x in 2014, the lowest in five years, while days of sales
outstanding stood at 55 days in 2014, up from 42 days in 2013.
Rising receivables put a strain on Unilever’s working capital in 2014. Working
capital further deteriorated to a negative balance of N12.8bn from a negative
balance of N9.7bn in 2013.
The company’s cash flow from operations turned negative to the tune of
N1.8bn and Free Cash Flow declined to a negative balance of N5.8bn in
2014.
Source: Company, CSL Research N.B Free Cash Flow is defined as Operating Cash Flow
minus Capital Expenditure.
Unilever: Days of sales outstanding & Receivable turnover
0
10
20
30
40
50
60
70
80
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2008 2009 2010 2011 2012 2013 2014
Days of sales outstanding, rhs Receivable turnover
Unilever: Trends in cashflow from operations & Free Cash Flow
(8,000)
(6,000)
(4,000)
(2,000)
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2011 2012 2013 2014
Cashflow from operations Free Cash Flow

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So, Unilever took on more short-term debt to augment shortfalls in working
capital with knock-on effects resulting in a 75% y/y rise in interest expense.
The sharp rise in interest expenses coupled with weak sales growth and rising
operating expenses, resulted in a sharp decline in Unilever’s interest coverage
ratio to 2.4x in 2014 from 6.7x in 2013.
Source: Company, CSL Research N.B Interest coverage ratio is defined as EBIT/ Interest
Expense
Unilever’s interest expense weighed on earnings. In 2014, PBT declined 58%
y/y and PAT declined 49% y/y (the softer decline in PAT is due to a tax credit
in Q4 2014).
We believe Unilever will likely maintain flexible trade terms as competition
within the consumer sector remains strong. On the back of this, we foresee
sustained pressure on working capital and believe debt will remain elevated.
Consequently, we believe interest expense is likely to continue to weigh on
earnings in the near-to-medium term.
Unilever: Interest coverage ratio
0.0x
10.0x
20.0x
30.0x
40.0x
50.0x
60.0x
70.0x
80.0x
2008 2009 2010 2011 2012 2013 2014

Unilever Nigeria
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Equities
A mismatch? Unilever uses short-term debt to
finance expansion
Over the past four years, Unilever has invested about US$101m (N20bn) in
upgrading and expanding capacity. The company launched its Mega
distribution centre in 2013 and launched a new liquids factory in Agbara, Ogun
State in November 2014. Unilever’s management has disclosed that it plans
to make an additional investment of US$200m in Nigeria. Details on the
nature and duration of this investment have not been provided.
In addition to using short-term debt to augment working capital, Unilever also
uses short-term debt to finance its Capex. The company prefers to use short-
term debt (Unilever had overdraft facilities to a limit of N24.5bn in 2014) to
finance Capex because of the high interest rate environment, according to
management. Unilever paid an average rate of 14% on its short-term bank
loans in 2014.
Unilever has been able to utilise short term loans because the cash flows
generated by the business have been sufficient to pay off outstanding debt, in
our view.
However, the company’s free cash flow has turned negative and this could
make it difficult for Unilever to repay its short-term debt, in our view.
Consequently there is a possibility that the company may need to shift the
balances of its short and long-term loans.
Unilever’s debt-to-equity ratio was 224% (above the industry average of 26%)
in 2014 up from 68% in 2013. This, coupled with the sharp decline in its
interest coverage ratio (2.4x in 2014 from 6.7x in 2013) leaves little room for
the company to take on more debt, in our view. As such, we believe Unilever
may have to increase equity to finance any new investments.
Unilever: Capex vs. Long & short term debt, Nm
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2008 2009 2010 2011 2012 2013 2014
Capex Short-term loans Long-term loans

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Equities
Returns
Unilever’s RoE has been steadily declining since 2012. The decline in RoE is
largely due to the sharp drop in Net Profits despite rising financial leverage.
Over the past four years, Unilever has increased borrowing to finance
capacity expansion and upgrade its existing facilities in anticipation of a rise in
consumer demand.
However, consumer spending has remained weak and we believe this has led
to under-utilisation of capacity. We estimate Unilever’s capacity utilisation at
c.60%. Consequently, Unilever’s revenue growth has slowed and rising
financial leverage has negatively affected profitability.
In 2014, however, Unilever still had the second highest RoE amongst its
domestic peers.
Source: Companies, CSL Research *PZ Cussons has a May-year end
When comparing the returns of Unilever Nigeria with the returns of other
Unilever companies in emerging markets, we observe that Unilever Nigeria’s
returns have historically been below those of India and Indonesia. Both
companies have enjoyed relatively stronger Revenue growth – Unilever
India’s Revenues has grown at a five-year CAGR of 6.0% while Unilever
Indonesia has grown Revenues at a five-year CAGR of 13.6% - than Unilever
Nigeria, and with superior profit margins.
Unilever: Dupont analysis
2008 2009 2010 2011 2012 2013 2014
Net profit margin 0.07 0.09 0.09 0.10 0.10 0.08 0.04
Total asset turnover 1.59 1.89 1.89 1.88 1.62 1.50 1.25
Financial leverage 3.52 3.17 3.00 3.24 3.49 4.14 5.32
RoE 39% 55% 51% 62% 57% 49% 29%
RoE peer comparison
2010 2011 2012 2013 2014
Unilever 51% 62% 57% 49% 29%
PZ* 14% 13% 6% 11% 10%
Nestle 99% 87% 74% 60% 58%
GSK 27% 27% 29% 25% 15%
Cadbury 9% 25% 19% 27% 11%

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Equities
We forecast further declines in RoE for Unilever Nigeria in 2015e to 22% and
in 2016e to 20%. However we forecast a gradual recovery in RoE 2017e-19e.
Unilever companies: RoE and Profit margins
20%
40%
60%
80%
100%
120%
140%
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Unilever Nigeria Unilever India
Unilever Indonesia Unilever UK
RoE
0%
5%
10%
15%
20%
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Unilever Nigeria Unilever India
Unilever Indonesia Unilever UK
Profit margin

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Equities
Changes to forecasts
We expect consumer demand to remain weak in the near-to-medium as
recent naira devaluation is likely to raise living costs and put pressure on
consumers. A recent market survey by CSL Research indicates that the costs
of imported items have gone up by an average of c.20% since the devaluation
of the naira.
In January 2015, the IMF cut its growth forecasts for Nigeria in 2015e to 4.8%
from 7.3%, and in 2016e to 5.2% from 7.2% (the IMF estimates that the
Nigerian economy grew by 6.1% in 2014).
Unilever’s sales in the North of the country could be supported by pacification.
In recent months, the Nigerian Army has recorded success in its efforts to
bring the activities of Boko Haram to an end. The army has liberated some of
the towns - including Bama, Damboa, Baga and Gwoza in the North East -
which had previously been held by the terrorists.
However, there are still reports of terror attacks in parts of the North East of
Nigeria. Consequently we believe commercial activities in this region are likely
to remain subdued.
We expect competition in the consumer sector to remain strong as players try
to maintain or increase market share.
In view of our expectations, we have revised downwards our Revenue growth
forecasts and now expect revenues to grow at a five-year (2014-19e) CAGR
of 5.3% which is 4.7pps lower than our previous forecast of 10.0%.
We also revised downwards our 2015e–2019e EBITDA forecasts by an
average of 44%. We forecast EBIT margins in the range of 9-12% in 2015e-
19e from our previous forecast of 15-16%.
Revenue growth
-10%
-5%
0%
5%
10%
15%
20%
25%
2009 2010 2011 2012 2013 2014 2015e 2016e 2017e 2018e 2019e
Old estimates New estimates

Unilever Nigeria
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Equities
Source: CSL Research * Bloomberg consensus
Dividends
Dealing with weaker returns, and weaker cashflows, than in previous years,
Unilever cut its dividend payout ratio from 100% in 2013 to 16% in 2014. In
part this reflected, we believe, management’s desire to continue investing in
capacity at a time when debt/equity had reached 224% (net debt/equity
206%). We believe that Unilever will continue to keep its dividend payout ratio
low in forecast years 2015e-19e.
Unilever Nigeria: CSL forecast changes
Nm Previous forecast New forecast diff Consensus* diff
Revenues 2015e 73,920 55,435 -25% 62,700 -12%
Revenues 2016e 82,222 57,652 -30% 67,053 -14%
Revenues 2017e 89,928 61,103 -32% 80,576 -24%
Revenues 2018e 98,022 65,947 -33% N/A
EBIT 2015e 11,957 5,035 -58% 6,170 -18%
EBIT 2016e 12,814 5,083 -60% 7,064 -28%
EBIT 2017e 14,261 6,471 -55% 9,293 -30%
EBIT 2018e 15,545 7,675 -51% N/A
PBT 2015e 11,545 2,591 -78% 4,916 -47%
PBT 2016e 12,511 2,786 -78% 5,771 -52%
PBT 2017e 14,139 4,063 -71% 7,481 -46%
PBT 2018e 15,270 5,675 -63% N/A
Net Profit 2015e 7,966 1,814 -77% 3,483 -48%
Net Profit 2016e 8,633 1,950 -77% 4,129 -53%
Net Profit 2017e 9,756 2,844 -71% 7,355 -61%
Net Profit 2018e 10,537 3,972 -62% N/A

Unilever Nigeria
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Equities
Financial forecasts
Source: Company, CSL Research estimates *Re-stated by CSL Research, for modelling
purposes, to strip out part of the depreciation charge which is included in the Cost of Goods sold,
Marketing and Distribution, and Administrative Expenses as presented in company accounts
Unilever Nigeria, Profit & Loss account, Nm
Nm 2009* 2010* 2011* 2012* 2013* 2014* 2015e 2016e 2017e 2018e 2019e
Revenue 44,481 46,808 54,725 55,548 60,004 55,754 55,435 57,652 61,103 65,947 72,010
change 19% 5% 17% 2% 8% -7% -1% 4% 6% 8% 9%
Cost of Sales* (26,575) (28,646) (34,035) (32,690) (36,265) (34,156) (34,203) (35,917) (37,273) (39,898) (43,566)
Gross Profits 17,906 18,162 20,689 22,857 23,740 21,598 21,231 21,735 23,830 26,049 28,444
change 32% 1% 14% 10% 4% -9% -2% 2% 10% 9% 9%
margin 40% 39% 38% 41% 40% 39% 38% 38% 39% 40% 40%
Marketing and Distribution* (1,938) (2,166) (2,347) (2,377) (2,377) (2,136) (2,217) (2,306) (2,444) (2,638) (2,880)
change 26% 12% 8% 1% 0% -10% 4% 4% 6% 8% 9%
Administrative Expenses* (8,217) (8,240) (9,189) (9,740) (11,494) (12,717) (11,641) (11,819) (12,221) (12,860) (13,682)
change 21% 0% 12% 6% 18% 11% -8% 2% 3% 5% 6%
Total Opex (10,155) (10,406) (11,536) (12,117) (13,871) (14,853) (13,859) (14,125) (14,665) (15,498) (16,562)
change 22% 2% 11% 5% 14% 7% -7% 2% 4% 6% 7%
EBITDA 7,750 7,756 9,154 10,740 9,868 6,746 7,373 7,610 9,165 10,552 11,882
change 48% 0% 18% 17% -8% -32% 9% 3% 20% 15% 13%
margin 17% 17% 17% 19% 16% 12% 13% 13% 15% 16% 17%
Depreciation (689) (954) (917) (1,616) (1,719) (1,904) (2,120) (2,336) (2,525) (2,726) (2,891)
Amortization - (218) (334) (233) (196) (168) (145) (124) (107)
Operating Profit 7,061 6,802 8,237 8,907 7,815 4,609 5,057 5,105 6,495 7,701 8,884
change 58% -4% 21% 8% -12% -41% 10% 1% 27% 19% 15%
margin 16% 15% 15% 16% 13% 8% 9% 9% 11% 12% 12%
Other Income - 5 (39) (12) (24) 6 (22) (23) (24) (26) (28)
EBIT 7,061 6,807 8,198 8,895 7,791 4,615 5,035 5,083 6,471 7,675 8,856
change 58% -4% 20% 9% -12% -41% 9% 1% 27% 19% 15%
margin 16% 15% 15% 16% 13% 8% 9% 9% 11% 12% 12%
Interest Income 164 77 248 108 163 168 120 216 279 222 286
Interest Expense (1,000) (101) (428) (817) (1,161) (1,910) (2,565) (2,512) (2,688) (2,223) (2,169)
Net Finance Income/(Cost) (836) (23) (180) (709) (997) (1,742) (2,445) (2,296) (2,409) (2,001) (1,883)
Exceptional items (563) (405) - - - - - - - - -
Pension and Similar Obligation - (227) - - - - - - - - -
PBT 5,661 6,152 8,018 8,186 6,794 2,873 2,591 2,786 4,063 5,675 6,972
change 37% 9% 30% 2% -17% -58% -10% 8% 46% 40% 23%
margin 13% 13% 15% 15% 11% 5% 5% 5% 7% 9% 10%
Tax (1,567) (1,971) (2,492) (2,588) (2,069) (461) (777) (836) (1,219) (1,702) (2,092)
Effective tax rate 28% 32% 31% 32% 30% 16% 30% 30% 30% 30% 30%
PAT 4,094 4,181 5,526 5,598 4,724 2,412 1,814 1,950 2,844 3,972 4,880
change 58% 2% 32% 1% -16% -49% -25% 8% 46% 40% 23%
margin 9% 9% 10% 10% 8% 4% 3% 3% 5% 6% 7%

Unilever Nigeria
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Equities
Source: Company, CSL Research estimates
Unilever Nigeria, Balance Sheet, Nm
Nm 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e 2018e 2019e
Property, plant & equip 9,975 11,209 14,264 19,266 23,225 24,831 25,483 26,029 25,947 25,860 25,129
Employee loan receivables - 71 78 88 122 128 128 128 128 128 128
Intangible Assets 1,152 1,962 1,628 1,398 1,202 1,034 889 765 658
Non-current asset held for sale 501 501 - - - - - - - -
Other non current assets 56 56 260 222 398 398 398 398 398 398
Pension scheme surplus - - 73 144 156 410 410 410 410 410 410
Total Non- Current Assets 9,975 11,838 16,123 21,719 25,353 27,165 27,621 27,999 27,773 27,561 26,723
Inventories 4,927 6,287 7,706 7,230 6,988 8,615 7,594 7,985 8,654 8,997 9,875
Trade receivables 6,798 5,054 5,426 5,638 8,143 8,544 11,087 11,530 13,443 15,827 17,283
Employee loans receivables 50 52 53 86 77 77 77 77 77 77
Cash and cash equivalents 1,981 2,678 2,942 1,858 3,184 1,335 2,400 3,100 2,471 3,174 1,458
Total Current Assets 13,706 14,069 16,127 14,778 18,401 18,571 21,158 22,692 24,645 28,076 28,693
Total Assets 23,682 25,906 32,250 36,498 43,754 45,736 48,779 50,691 52,418 55,637 55,416
Deferred Taxation 1,148 1,137 1,242 1,233 2,341 2,853 2,853 2,853 2,853 2,853 2,853
Provisions for gratutity 1,927 2,068 2,450 2,595 2,707 2,757 2,757 2,757 2,757 2,757 2,757
Long service award obligations 356 342 342 342 342 342 342
Other employee benefits 61 44 44 44 44 44 44
Deferred income 86 128 128 128 128 128 128
Loans and borrowings - Longterm - - 31 145 782 763 797 500 647 698 587
Total Non-Current Liabilities 3,074 3,205 3,723 3,974 6,334 6,887 6,921 6,624 6,771 6,822 6,711
Trade Payables 9,135 11,678 16,068 14,930 21,092 15,111 14,023 14,726 16,027 15,959 18,298
Loans and Borrowings - Short-term 8 23 3,028 12,061 13,160 14,432 14,174 13,763 8,231
Current Tax payable 1,769 1,986 2,816 2,987 1,360 213 213 213 213 213 213
Bank Overdraft 1,500 731 - 4,359 2,571 3,953 5,500 4,174 2,577 3,245 2,668
Provisions 182 - - - - - - -
Deffered Income - 22 33 33 33 33 33 33
Total Current Liablities 12,405 14,395 18,892 22,480 28,073 31,371 32,929 33,577 33,024 33,213 29,443
Ordinary Share Capital 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892 1,892
Share Premium 46 46 46 46 46 46 46 46 46 46 46
Retained Earnings 6,265 6,369 7,697 8,106 7,411 5,541 6,992 8,553 10,685 13,665 17,325
Total Equity 8,203 8,306 9,635 10,044 9,348 7,479 8,930 10,490 12,623 15,602 19,262
Total libs & shrhldrs' funds 23,682 25,906 32,250 36,498 43,754 45,736 48,779 50,691 52,418 55,637 55,416
Net Debt to Equity -6% -23% -30% 27% 34% 206% 191% 153% 118% 93% 52%
RoCE 71% 66% 86% 63% 43% 22% 14% 14% 17% 19% 21%
RoE 55% 51% 62% 57% 49% 29% 22% 20% 25% 28% 28%

Unilever Nigeria
Page 24
Equities
Source: Company, CSL Research estimates.
Unilever Nigeria, Cash Flow, Nm
Nm 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e 2018e 2019e
PBT 5,661 6,152 8,018 8,186 6,794 2,873 2,591 2,786 4,063 5,675 6,972
- - - - - -
Taxation - - - - - -
Interest Income (164) (77) (248) (108) (163) (168)
Interest Expense 631 327 428 817 1,161 1,910
Depreciation of fixed assets 689 954 917 1,616 1,719 1,904 2,120 2,336 2,525 2,726 2,891
Inventory write down - - - 18 - -
Net impairment charge/(Write-back) 145 310 149 (281) 210 466
Write off of fixed assets - - - - 110 29
Amortization of intangible assets - - - 218 334 233 196 168 145 124 107
Net charge in retirement benefit obligation - - 415 565 590 666
Impact of foreign exchange difference on intercompany loans - - - - - -
(Gain )/ loss on the disposal of fixed assets (13) (5) 39 12 24 (6)
change in employee loan receivable - - (8) (11) (67) 2
Restructuring provision - - - 182 (182) -
(Write back)/Provision for gratuity - - - - - -
Provision for long service awards - - - - 143 8
Other employee benefits (3) (17)
Changes in long term receivables - - - - - -
(Increase)/decrease in long term debtors and prepayments - - - - - -
Stock related exceptional items not involving cash movement - - - - - -
- - - - - -
Working Capital Changes - - - - - -
(Increase)/decrease in inventories 299 (1,359) (1,420) 459 242 (1,626) 1,020 (391) (669) (343) (878)
(Increase)/decrease in Trade receivables (295) 1,567 (372) (212) (2,506) (401) (2,542) (443) (1,912) (2,385) (1,455)
(Increase)/ Decrease in other receivables - - - - - - - - - - -
(Increase)/decrease in other non-current assets 733 141 0 (204) 38 (176)
(Increase)/decrease in amount due from related companies - - - - - -
(Increase)/ decrease in Short-term investments - - - - - -
Increase/ (decrease) in amount due to related companies - - - - - -
Increase/ (decrease) in trade payables (1,042) 4,046 4,403 (1,134) 6,222 (5,981) (1,088) 703 1,301 (68) 2,339
Increase/ (decrease) in other payables - - - - - -
Increase/ (decrease) in dividend payable - - - - - -
Increase/ (decrease) in deffered income - - - - -
Changes in Short term provisions - - - - - - - - - - -
Increase/ (decrease) in current tax payables - - - - - - - - - - -
6,645 12,056 12,321 10,121 14,665 (283) 2,297 5,160 5,452 5,729 9,976
Retirement Benefit Paid (530) - (141) (336) (452) (232)
Long service award obligations paid (1,491) - (23) (22)
Tax paid (946) (1,765) (1,558) (2,473) (2,509) (1,288) (777) (836) (1,219) (1,702) (2,092)
Net Cash provided by operating activities 5,170 8,800 10,622 7,312 11,681 (1,825) 1,519 4,324 4,234 4,026 7,884
Purchase of fixed assets (1,773) (3,036) (4,203) (5,853) (6,025) (4,024) (2,772) (2,883) (2,444) (2,638) (2,160)
Short term investments - - - - - -
Purchase of intangible asset - - (1,152) (1,028) - (3)
Proceeds from sale of fixed assets 33 12 44 6 3 24
Interest received 164 77 248 108 163 168
Net cashflow from investing activities (1,576) (2,947) (5,063) (6,767) (5,859) (3,834) (2,772) (2,883) (2,444) (2,638) (2,160)
Free Cash Flow 3,397 5,764 6,419 1,459 5,655 (5,849) (1,252) 1,441 1,790 1,389 5,724
Dividend paid (2,573) (4,060) (4,174) (5,301) (5,297) (4,729) (363) (390) (711) (993) (1,220)
Interest paid (631) (101) (428) (817) (1,149) (1,712)
Increase/ (decrease) in bank overdraft - - - - - -
Increase/(decrease) in long-term loans - - - 138 790 447 34 (297) 147 51 (111)
Repayments of Long term loan - (227) - (8) (52) (179)
Change in long-term deferred taxes - - - - -
Change in provisions - - - - -
Increase/(decrease) in Short term loans - - 39 - 3,000 8,600 1,099 1,272 (258) (412) (5,532)
Net cashflow from financing activities (3,204) (4,387) (4,564) (5,988) (2,708) 2,427 771 585 (822) (1,354) (6,863)
Net Increase/(Decrease) in cash and cash equivalent 389 1,466 995 (5,443) 3,114 (3,232) (482) 2,026 968 35 (1,139)
Cash and Cash equivalents, beginning of the year 91 481 1,947 2,942 (2,501) 613 (2,618) (3,100) (1,074) (106) (71)
Bank Overdrafts 1,500 731 - 4,359 2,571 3,953 5,500 4,174 2,577 3,245 2,668
Cash and Cash equivalents , 31st December 1,981 2,678 2,942 1,858 3,184 1,335 2,400 3,100 2,471 3,174 1,458

Unilever Nigeria
Page 25
Equities
Risks
The market in the North of Nigeria is important to Unilever. The company
could enjoy a peace dividend if terror attacks by Boko Haram are brought
completely to an end. Improved security conditions could spur commercial
activities and cause Unilever to record higher sales than those we have
forecast.
The increase in electricity tariffs and raised duties on wheat, rice and used
vehicles has elevated living costs. This has negatively impacted consumer
spending. However, a rebound in consumer spending could increase demand
for Unilever’s products and drive sales and profits above our forecasts.
We estimate that c.60% of Unilever’s raw materials are imported. This
exposes Unilever to foreign exchange risk. In the first quarter of 2015, the
naira devalued to a level in the interbank market of close to N200/US$ and
our base case is that the naira will settle at N220/US$ later this year. Further
devaluation of the naira could lead to increased costs of imported raw
materials.
Unilever is currently working to substitute imported sorbitol (the key input used
in toothpaste) with locally-manufactured sorbitol which is cheaper. If Unilever
is successful, this could reduce input costs with knock-on-effects pushing
gross margins higher than we have forecast.
Having noted the relationship between crude oil prices and Unilever’s input
prices, further declines in crude oil prices could result in cheaper input prices
for Unilever. However, a quicker-than-anticipated recovery in oil prices could
raise input costs higher than we have forecast and reduce Unilever’s gross
margins.
Major General Muhammadu Buhari of the All Progressives Congress (APC)
won the March 28 presidential election. Consequently, a new Government will
be sworn in on the 29 of May, 2015 and this creates some uncertainty about
the economic policies that would be adopted by the new administration.

Unilever Nigeria
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Equities
Valuation
We update our valuation of Unilever and revise our price target to N24.3/s
from N31.8/s. Our new price target implies 39.2% downside potential from its
closing price of N40.0 on 22 April. We retain our Sell recommendation on the
stock.
We have changed our valuation method for Unilever. Prior to this we only
used a Discounted Cash Flow (DCF) valuation. However, we now combine
DCF and a Relative Valuation (RV) applying a ratio of 60:40. We assign a
heavier weight to the DCF valuation because we believe it better captures the
value of growth.
DCF Valuation
Using the DCF valuation method, we arrive at a target price of N14.4/s. Our
DCF valuation incorporates the use of a three stage model. The three stages
include the explicit forecast stage (2015e-19e), the semi-explicit stage (2020e
-29e), and perpetuity.
For our explicit stage (which incorporates our modelled forecasts), we assume
a Weighted Average Cost of Capital (WACC) of 18.0%. To derive our WACC,
we adopt a cost of equity of 19.0% and an after tax cost of debt of 10.2%.
We compute our cost of equity by applying a 13.0% risk free rate, a market
risk premium of 6.0% and a beta of 1.0.
Through our semi-explicit stage (2020e-29e) we model growth to decline
linearly to 5.7%. We forecast the WACC to decline 200bps to 16.0% and by
another 200bps to 14.0% by the terminal phase.
Relative Valuation
Here we use EV/EBITDA spot multiple comparison. Comparison is made with
a selection of emerging market HPC companies. Unilever trades at a 2015e
EV/EBITDA of 22.8x and this is at a discount to its emerging market peer
average of 25.0x (we have used consensus estimates to arrive at valuations
for companies outside Nigeria). Using the current price, we forecast
EV/EBITDA of 22.0x in 2016e, 18.1x in 2017e, 15.7x in 2018e and 13.6x in
2019e. Using this method, we arrive at a target price of N39.2/s for Unilever.
Combining our DCF valuation of N14.4/s and our RV valuation of N39.2/s with
a ratio of 60:40 gives us a target price of N24.3/s.
Valuation history
Unilever’s share price was marked down sharply in Q4 2014 (down 33.5% in
FY 2014) when declining oil prices and naira devaluation weakened investor
sentiment. However, its share price began to recover towards the end of
March 2015 (+12.2% y/t/d) after its parent company announced plans to
increase its stake in Unilever Nigeria to a maximum of 75%.
In light of the recent share price rally, Unilever’s PE valuations now appear
rich when compared to its historical average.
We measure this in terms of historic price-to-earnings (PE). In the chart
below, we plot the 1-year forward PE, prospective.

Unilever Nigeria
Page 27
Equities
Source: Bloomberg (prices only), CSL Research *Re-set each 1 July for the following year’s
earnings
Unilever trades at 1.4 standard deviations above its average historic 1-year
forward PE ratio over the past six years. We estimate that for Unilever to trade
in line with its average 1-year forward P/E (of 40.0x), a share price of N19.2/s
would be needed, rather than its current market price of N40.2/s.
Unilever Nigeria also appears richly priced when compared to its sister
companies in other emerging markets, notably Indonesia and India.
Valuation history*: Unilever
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Unilever 1-yr fwd PE Unilever av 1-yr fwd PE
+ 1 stdev - 1 stdev
Historical PE: Emerging market peers
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Dec-05
May-06
Oct-06
Mar-07
Aug-07
Jan-08
Jun-08
Nov-08
Apr-09
Sep-09
Feb-10
Jul-10
Dec-10
May-11
Oct-11
Mar-12
Aug-12
Jan-13
Jun-13
Nov-13
Apr-14
Sep-14
Feb-15
Unilever Nigeria Unilever Indonesia Unilever india

Unilever Nigeria
Page 28
Equities
Appendix I: Products & Prices
Source: Company, CSL Research. Note prices were taken on 23rd
April 2015 from a large
discount retailer in Lagos. *Imported products
Product pricing vs competition
Product type Manufacturer Price, N Size
Oral Care
Closeup Unilever Nigeria 190 160g
Pepsodent Unilever Nigeria 200 140g
Oral-B Procter & Gamble 190 140g
Macleans GlaxoSmithKline 210 157.5g
Sensodyne GlaxoSmithKline 500 75g
Colgate Colgate Palmolive 220 140g
Detergent
Omo Unilever Nigeria 480 1 kg
Sunlight Unilever Nigeria 320 1 kg
Ariel Procter & Gamble 570 1 kg
So Klin Eko Supreme Resources Nigeria Limited 410 900g
Zip PZ Cussons Nigeria 375 900g
Canoe PZ Cussons Nigeria 410 1 kg
Elephant PZ Cussons Nigeria 730 1 kg
Tea
Lipton tea Unilever Nigeria 110 25 bags
Top Tea Promasidor 125 26 bags
PG Tips* Unilever Food Solutions UK 340 40 bags
Tetley* Tata global beverages 390 40 bags
Seasoning
Knorr Chicken Unilever Nigeria 400 400g
Knorr Beef Unilever Nigeria 380 400g
Royco Unilever Nigeria 290 400g
Mr. Chef Chicken Bayw ater Industries Limited 280 400g
Onga Beef Promasidor 160 200g
Onga Chicken Promasidor 165 200g
Maggi Chiken Nestle Nigeria 340 400g
Maggi Beef Nestle Nigeria 330 400g
Spreads
Blue Band Unilever Nigeria 240 450g
Moi* Moi International 420 500g
Rama* Unilever South Africa 700 500g
Household Cleaning
Sunlight dishw ashing liquid Unilever Nigeria 430 950ml
Mama Lemon Holdent International Limited 390 1100ml
Morning Fresh PZ Cussons Nigeria 350 1000ml
Skin Care
Vaseline skin jelly Unilever Nigeria 630 450ml or 318.6g
Dettorl skin jelly Reckitt Benckiser 460 160g
Dax* Imperial Dax 1050 397g
Vaseline body lotion Unilever Nigeria 750 400ml
Nivea body lotion* Beiersdof 1140 400ml
Soaps
Lux Unilever Nigeria 86 125g
Camay Procter & Gamble 80 70g
Imperial Leather PZ Cussons Nigeria 65 70g
Lifebuoy Unilever Nigeria 80 75g
Dettol Reckitt Benckiser 100 120g
Safe guard Procter & Gamble 94 70g
Premier PZ Cussons Nigeria 120 120g

Unilever Nigeria
Page 29
Equities
Analyst Certification
Each research analyst(s) principally responsible for the preparation and content of all or any identified portion of this research report
hereby certifies that all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or
securities that the research analyst covers in this research report. Each research analyst(s) also certify that no part of their
compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that
research analyst in this research report.
Important disclosures
Ratings and Target Price History
Unilever Nigeria
Date Price (N) Old Target (N)
New Price Target
(N) Old recommendation
New
recommendation
24-Jan-14 54.0 31.8 31.8 Sell Sell
1-Apr-14 45.2 31.8 31.8 Sell Sell
21-Jul-14 52.8 31.8 31.8 Sell Sell
29-Oct-14 40.0 31.8 31.8 Sell Sell
27-Mar-15 37.5 31.8 31.8 Sell Sell
24-Apr-15 40.0 31.8 24.3 Sell Sell
Analysts' compensation is based upon activities and services intended to benefit the investor clients of FCMB (UK) Limited and the
affiliates of First City Group, Lagos, Nigeria (“the Group”). Analysts receive compensation that is impacted by overall profitability of
the Group, which includes revenues from, among other business units, Institutional Sales and Trading and Capital
Markets/Investment Banking.
CSL Research Ratings Distribution
BUY HOLD SELL Not Rated Total
Coverage universe 10 11 6 0 27
% distribution 37% 41% 22% 0%
Investment banking clients 1 0 1 0 2
Explanation of CSL Research's equity research rating system
Buy: The analyst expects the stock to outperform the Benchmark over the next 12 months or the stated investment
horizon.
Hold: The analyst expects the stock to perform in line with the Benchmark over the next 12 months or the stated
investment horizon.
Sell: The analyst expects the stock to underperform the Benchmark over the next 12 months or the stated
investment horizon.
Not Rated: The rating and price target have been suspended temporarily to comply with applicable regulations and/or firm
policies in certain circumstances including when FCMB UK or the Group is acting in an advisory capacity in a
merger or strategic transaction involving the company or due to factors which limits the analysts ability to
provide forecasts for the company in question.

Unilever Nigeria
Page 30
Equities
Benchmark: The benchmark is the trailing three year average yield of the 12 month T-Bill plus one standard deviation
rounded to the nearest percent.
Price targets: Price targets, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement
of any price target may be impeded by general market and macroeconomic trends, and by other risks related
to the company or the market, and may not occur if the company's earnings fall short of estimates.
Asset allocation: Asset allocation is the responsibility of the strategy team. The recommended weight (Buy, Hold and Sell) for
equities, cash and fixed income instruments is based on a number of metrics and does not relate to a
particular size change in one variable.
Other disclosures
Nestle Nigeria: N/A
A. The analyst(s) responsible for the preparation and content of this report (as shown on the front page of this report)
holds personal positions in a class of common equity securities of the company.
B. The company beneficially owns more than 5% in FCMB UK or First City Group (“the Group”).
C. FCMB UK or the Group is a market maker in the publicly traded equity securities of the company.
D. FCMB UK or the Group beneficially owns 1% or more of the equity securities of the company.
E. FCMB UK or the Group beneficially holds a significant interest of the debt of the company.
F. FCMB UK or the Group has been lead manager or co-lead manager over the previous 12 months of any publicly
disclosed offer of securities of the company.
G. The company is a client of the investment banking division of the Group.
H. FCMB UK or the Group has lead managed or co-lead managed a public offering of the securities of the company
within the last 12 months.
I. FCMB UK or the Group has received compensation for investment banking services from the company within the
last 12 months.
J. FCMB UK or the Group expects to receive, or intends to seek, compensation for investment banking services from
the company during the next 3 months.
Companies from which FCMB UK or the Group’s investment banking division has received compensation in
the last 12 months
Buy Hold Sell Not Rated Total
1 0 0 0 1

Unilever Nigeria
Page 31
Equities
Important Risk Warnings and Disclaimers
CSL STOCKBROKERS LIMITED (“CSL Stockbrokers”) is regulated by the Securities and Exchange Commission,
Nigeria.
FCMB (UK) LIMITED (“FCMB UK”), trading in the name of ‘CSL Stockbrokers’, is authorised by the Prudential
Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA in the United
Kingdom. The details of the authorisation can be viewed at the Financial Services Register at
http://www.fsa.gov.uk/register/home.do by entering the Firm Reference Number 502704. FCMB UK is registered in
England and Wales No. 6621225.
Both CSL Stockbrokers and FCMB UK are members of the FCMB Group (“the Group”) of Nigeria, a group of
companies which also includes First City Monument Bank Ltd.
RELIANCE ON THIS PUBLICATION FOR THE PURPOSE OF ENGAGING IN ANY INVESTMENT ACTIVITY MAY
EXPOSE YOU TO A SIGNIFICANT RISK OF LOSS. By receiving this document, you will not be deemed a client or
provided with the protections afforded to clients of CSL Stockbrokers and FCMB UK. When distributing this document,
CSL Stockbrokers, FCMB UK or any member of the Group is not acting for any recipient of this document and will not
be responsible for providing advice to any recipient in relation to this document. Accordingly, CSL Stockbrokers,
FCMB UK or any member of the Group will not be responsible to any recipient for providing the protections afforded to
its clients.
If you are in the UK, you are a person to whom either Articles 19 or 49 of the Financial Services and Markets 2000
(Financial Promotion) Order 2005 apply or a person to whom this communication may otherwise be lawfully made.
In the United Kingdom, this document is available only to such persons described above and persons of any other
description should not rely on this document. Transmission of this document to any other person in the United
Kingdom is unauthorized and may contravene the Financial Services and Markets Act 2000 (FSMA). If you are not
such a person or if the distribution of this document is otherwise unlawful where you are, you are required to return
the document immediately to CSL Stockbrokers. In the UK, the content of this document has been approved by an
authorised person within the meaning of FSMA. This document is not intended for Retail Clients in the UK.
This document is not an offer to buy or sell or to solicit an offer to buy or sell any securities. This document does not
provide individually tailored investment advice. It has been prepared without regard to the individual financial
circumstances and objectives of persons who receive it. The appropriateness of a particular investment will depend
on an investor’s individual circumstances and objectives. The investments and shares referred to in this document
may not be suitable for all investors.
CSL Stockbrokers, FCMB UK or any other member of the Group may effect transactions in shares mentioned herein
and may take proprietary trading positions in those shares, and may receive remuneration for the publication of its
research and for other services. Accordingly, this document may not be considered as objective or impartial.
Additionally, information may be available to CSL Stockbrokers, FCMB UK or the Group, which is not reflected in this
material. Further information on CSL Stockbrokers’ and FCMB UK’s policy regarding potential conflicts of interest in
the context of investment research and CSL Stockbrokers and FCMB UK’s policy on disclosure and conflicts in
general are available on request.
This document is based on publicly available information obtained from sources which CSL Stockbrokers believes are
reliable, but which it has not independently verified. Neither CSL Stockbrokers, FCMB UK nor their advisors, directors
or employees make any guarantee, representation or warranty as to the accuracy, reasonableness or completeness
of this information and neither CSL Stockbrokers and FCMB UK nor their advisors, directors or employees accepts
any responsibility or liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of
this document or its contents or otherwise arising in connection with this document. The opinions contained in this

Unilever Nigeria
Page 32
Equities
document are subject to change without notice and are not to be relied upon and should not be used in substitution for
the exercise of independent judgment.
Nothing herein excludes or restricts any duty or liability to a customer which FCMB UK has under the FSMA or under
the Rules of the FCA. A recipient who chooses to deal with any person who is not an authorised representative of
FCMB UK in the UK may not enjoy the protections afforded under the UK regulatory regime.
Past performance is not a guarantee of future performance. Investments may go down in value as well as up and you
may not get back the full amount invested. Where an investment is denominated in a currency other than the local
currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the
value, price or income of that investment. In case of an investment for which there is no recognised market it may be
difficult for investors to sell their investment or to obtain reliable information about their value or the extent of the risk
to which they are exposed.
The information contained in this document is confidential and is solely for use of those persons to whom it is
addressed and may not be reproduced, further distributed to any other person or published, in whole or in part, for any
purpose.
@Copyright CSL STOCKBROKERS LIMITED, 2015. All rights reserved.
CSL STOCKBROKERS LIMITED FCMB (UK) LIMITED
Member of the Nigerian Stock Exchange (Trading as CSL Stockbrokers)
First City Plaza, 44 Marina 81 Gracechurch Street
PO Box 9117 London EC3V 0AU
Lagos State United Kingdom
NIGERIA

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