UAC of Nigeria Q3 2016 Results Review - Outperfom Rating Maintained


Tuesday, November 29, 2016/5:16 PM /FBNQuest Research

PT unchanged; 2016-17E EPS forecasts up 3%

UAC of Nigeria’s (UACN) Q3 2016 results were quite encouraging following a run of very difficult quarters. The group posted sales and PBT growth of 20% y/y and 231% y/y to N20.9bn and N2.4bn resp. and were ahead of our estimates by 19% and 28%. Sales for UACN’s food & beverage segment performed better than expected and were complemented by a positive surprise in UPDC’s (UACN’s real estate business) topline.


Strong growth for UACN’s animal feeds businesses, Grand Cereals and Livestock Feeds, was a key driver behind this topline growth. Grand Cereals posted a double digit sales growth (14% y/y) for the first time since 2013 with PBT margin also improving by c.600bps y/y to 11%.


Livestock Feeds now accounts for c.15% of group sales vs. below 10% in 2014, aided by fish feeds sales in Lagos and the northern region. Looking ahead, we expect a gross margin compression of around -130bps y/y in 2016E on the back of the weakening naira and rising input & energy costs. Benefits coming through from UACN’s strategy to optimise the price-volume mix across key consumer products are likely to be limited in 2016E.


As expected, profits from associates were down both on a y/y and q/q basis. This is attributable to weaker demand for key commercial spaces as a result of the economic slowdown. We do not see any material changes to the trend as market fundamentals are likely to remain unchanged/worsen.


Given the strong performance delivered in the food & beverage segment which accounts for c.50% of the group’s PBT, we have raised our EPS estimates for the 2016-17E period slightly, by 3%. Our price target of N30.3 is unchanged. Our PT implies a potential upside of 88%.


At current levels, UACN shares are trading on a 2016E P/E multiple of 10.2x for an average EPS growth of 13% in 2017E. Ytd, UACN shares have shed –22% compared with the broad market performance of -11.6%. We retain our Outperform rating.

Q3 2016 PBT up significantly y/y
In Q3 2016, both sales and PBT were up 20% y/y and 231% y/y to N20.9bn and N2.4bn respectively. PAT came in at N1.1bn compared with a loss of –N137m in the corresponding quarter of 2015.

Sales were boosted by improved figures in both food & beverage and real estate businesses. The PBT growth delivered within the quarter is flattered by easy comparables.


In Q3 2015, UACN incurred an asset impairment charge of N473m for investments in its real estate business. Other income was also boosted by gains from the sale of investment properties. Compared with our estimates, while sales were 19% ahead of our N17.6bn forecast, PBT beat by 28%.

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