Monday, May 14, 2012

•UAC Property Development Company Plc (UPDC) recently released Q1 2011 results, reporting a 117% YoY revenue growth to N2.58billion--in line with our N2.55 billion forecast. The significant YoY rise however partly reflects a 42.6% readjustment in Q1 2011 revenues after these were restated in compliance to IFRS procedures. 
 

Rising costs compress margins further 

•Gross margin dipped to 32.6ppts, well below the 50% trailing 3 year average but close to the 37% 5 year average that formed the basis of our forecast. At N1.6 billion, cost of sales was substantially higher than the restated figure of N350 million, reflecting both new accounting procedures and costs associated with the company’s continued investment in new mid-tier projects. Management also attributes some of the rise in cost of sales to the current sales mix with an increased proportion of newly developed projects compared to the mature property sales in 2011. Our lower margin forecasts were premised on the fact that this segment is characterised by lower margins, but though realised Q1 2012 margins are still lower than FY2012 forecast, Q1 typically has lower margins than other quarters.
 

•PBT and PAT rose 18.7% and 28.5% to N270 million and N175 million respectively. Although, PBT came in line with our N274 million forecast, PAT fell short of our N210 million forecast on the back of a variation in its effective tax rate from the 26% on which our FY 2012 assumptions were premised to 35% in Q1 2012. These results translated to a PBT and PAT margin of 10.7% and 7% respectively, down from 25.2% and 19% recorded in FY 2011.   
 

Robust pipeline should support sales 

•According to management, the company launched a number of mid-tier housing projects in Lagos and Abuja in 2011, which enjoyed healthy off-plan sales. We expect the impact of these improvements to persist through 2012, and with ongoing healthy projects pipeline the company is well positioned to improve sales.

•In addition, according to management, UPDC’s plans to issue a REIT, which is currently at an advanced stage, providing the company new options to finance projects. However, the feasibility of the UPDC REIT largely depends on the investment objectives and constraints of the REIT, which will be released at the time of the offer. We do not factor this into our forecasts at this point.
 

Valuation assumptions intact 

•We believe the company is on course to match our FY forecasts and maintain our valuation parameters for the stock. The stock currently trades at a trailing  P/E of 5.60x and P/S of 1.83x--comparing favourably to its closest listed peer’s[1] P/E of 8.51x and P/S of 8.043x— and an estimated 2012 P/E and P/B of 9.59x and 0.94x.

•At current valuation, our 12M TP is N13.94 a 26% premium to the current market price and we reiterate our BUY on the stock.

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Source: Company financials, ARM Estimates

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http://www.proshareng.com/quote/UAC-PROP

Reference: UAC-PROP declares N175.1m PAT in Q1 '12 result, (SP:N11.01k) 

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