Investors who have not bought the shares of Unilever Nigeria Plc may be scratching their heads later as the company is expected to gain N5.82 billion from the spinoff of its Home Care Home Care and Skin Cleansing business which will lead to the declaration of a jumbo dividend.
This is according to a recent research by investment house Chapel Hill Denham Limited and analysts at the research house estimate a dividend pay-0ut of 80 percent in 2023 see yields rise to 12.10 percent.
They estimate the value of the Home Care Home Care and Skin Cleansing business at N11.48 billion.
Of course, Unilever has two main segments: the Foods Products and the Home and Personal Care (HPC) and the divestment is in the latter unit as the firm seeks to increase its share in a country where over 50 percent of its population are youth who crave for consumption.
“The company envisages that the divestment and other measures will lead to improvement in profitability and a more sustainable business post completion in 2023,” said analysts at Chapel Hill Denham.
“It also plans to digitize and simplify operations processes. Importantly, Unilever plans to focus on measures that will reduce exposure to currency devaluation and liquidity risks,” said the analysts
It is interesting to note that the consumer goods firm now trades at a dividend yield of 2.02 percent and a price to earnings multiple of 13.48 percent and a market capitalisation of N74.5 billion as at April 07, 2023.
As a result of weak results, exit of foreign portfolio, and broad market selloffs induced by the coronavirus pandemic, Uniliever did not pay dividend in 2019 and 2020 financial years.
But the company started rewarding its owners out of distributable profit in 2021 when it returned to profit, thanks to the spinoff of the tea business and it recorded a gain of N2.76 billion from the deal.
Companies are operating in a challenging environment beset by rising inflation, foreign exchange scarcity, decrepit infrastructure, and a high interest rate environment.
Nigeria inflation rate has risen to 21.91%, compared to January 2023 inflation rate which was 21.82%
Despite the monumental challenges bedeviling businesses, Unilever Nigeria saw net income spike by 75.78 percent to N6 billion as at December 2022 from N3.40 billion the previous year.
Net profit margin increased to 6.75 percent in the period under review from 4.83 percent the previous year.
Unilever Nigeria is not susceptible to liquidity crisis as it has ability to cover its short-term obligations using only cash and cash equivalents. It has a cash ratio of 1.34 as at December 2022, according to MoneyCentral calculations.
The cash ratio is a measurement of a company’s liquidity.
A calculation greater than 1 means a company has more cash on hand than current debts, while a calculation less than 1 means a company has more short-term debt than cash.
The consumer goods giants whose parent company has been investing in has a much more attractive valuation than its African and emerging market peer rivals, an appropriate entry point for investors who crave for stellar investment.
Unilever is currently trading at FY-23E EV/EBITDA of 1.1x vs Emerging Markets consumer sector average of 16.4x, according to data from Chapel Hill Denham.
“Notably, Nigeria is the only country where Unilever is at the cheapest valuation, considering that Unilever London and Unilever Indonesia trade at EV/EBITDA of 11.5x and 20.1x in their respective markets,” said the analysts.