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UACN Q4'16 Results -PBT Declined by -47% on the Back of Weak Performance in the Real Estate Business

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Friday, March 31, 2017 04.40 PM / FBNQuest Research

Event: UAC of Nigeria (UACN) reports Q4 2016 results
Implications: Downward adjustments to consensus 2017 EPS forecast likely
Positives:  Sales grew 44% y/y and 29% q/q to N26.9bn; opex declined 8% y/y and 14% q/q to N2.5bn
Negatives: PBT declined -47% y/y on the back of weak performance in the real estate business

This morning, the NSE published UAC of Nigeria’s (UACN) Q4 2016 results which showed that while sales of N26.9bn grew 44% y/y, PBT declined -47% y/y to N1.5bn. A gross margin contraction of -657bps y/y to 18% offset any benefits coming through from the strong topline growth and an opex decline of -8%. PAT declined by a smaller margin due to a relatively low tax rate of 10% vs. 24% in the corresponding period of 2015.

Sequentially, the trend was similar, while UACN’s sales grew 29% q/q, PBT declined -38% q/q. Yet again, a gross margin contraction of -249bps q/q more than offset topline growth and an opex decline of -14%. Compared with our estimates, PBT came in 24% behind our N1.9bn forecast. Sales came in around 53% higher than our N17.6bn estimate; however, this was offset by negative surprises on the cogs, opex and share of profit from associates lines.

In particular, sales from UACN’s food and beverage business were quite strong, up 45% y/y to N21.7bn, and ahead of our estimate by 42%. Grand Cereals posted the largest gain, up 59% y/y to N14.3bn and accounted for 66% of food and beverage sales. This is the strongest quarter on record for this subsidiary. According to management, UACN’s animal feeds businesses benefitted from a concentrated market as fx shortages led to fewer competitors.

Sales for UPDC (UACN’s real estate business) were up significantly y/y at N3.1bn in Q4. However, UPDC posted a loss before tax of –N1.8bn following impairments to its inventory. If we exclude the real estate and paints businesses from UACN’s Q4 results, the performance was actually decent with sales and PBT growth 38% y/y and 32% y/y respectively.

Given the weak macroeconomic environment it is unsurprising that UACN’s property business continues to struggle. Cost of funding is also a big concern for the firm. Management stated that UPDC has now received regulatory approval to raise equity via a rights issue.

The proceeds are primarily to de-lever the firm’s balance sheet. Based on our conversations with management earlier today, we would not be surprised if de-consolidation of the property business from the group is being muted as a medium to long term option given the volatility of this segment.

On a full year basis, while sales were up 15% y/y, PBT came in flattish. Compared with our estimates, while sales were ahead by 12%, PBT was behind by 6%. Compared to consensus, both sales and PBT came in ahead by around 10%. UACN proposed a dividend of N1.00 which implies a yield of 8%; this figure is higher than our forecast (79kobo) and consensus estimate (60kobo).  

At current levels, on our published estimates, UACN shares are trading on a 2016E P/E multiple of 8.2x for 13% EPS growth in 2017E. Year to date, UACN shares have declined by around -23% vs. the NSE ASI’s -5.0%.

We rate the shares Outperform. Our estimates are under review.

UAC of Nigeria Q4 2016 results vs. FBNQuest estimates (N millions)





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