UAC of Nigeria Plc H1’17 Earnings Update - Cost Remain a Major Drag to Profits


Thursday, August 3, 2017 9:10AM/CBPResearch

Investment Summary
In a similar performance to its Q1’17 score card, UAC Nigeria Plc released its HY’17 numbers to the public in which the company’s operations continued to be weakened by significantly rising cost of sale as well as the massive increase recorded in finance cost.

Impressively, the company reported a 31.64% growth in revenue to
48.44 billion (vs. 36.80 billion in HY’16). Segment revenue reported the largest contribution to total revenue from its food and beverage business however its real estate business reported the largest growth for the period.

Real estate grew by 76.64% to
2.92 billion (vs. 1.65 billion in HY’16), followed by its food and beverage business which grew by 37.38% to 38.70 billion (vs. 28.17 billion in HY’16), while its paints segment grew by 4.97% to 4.51 billion (vs. 4.29 billion in HY’16).

Unimpressively, revenue contribution from its other business segment contracted for the period by 10.70% to
166.20 million (vs. 186.11 million in HY’16) while its logistics business contracted by 13.94% to 2.14 billion (vs. 2.49 billion in HY’16).

For the period, the company administrative expenses moderated lower to
3.47 billion (vs. 3.54 billion in HY’16) while its selling and distribution expense dropped in similar manner by 1.86% to 1.72 billion (vs. 1.75 billion in HY’16) representing a decline of 1.86%.

Going forward, we forecast earnings for FY’17F to be depressed; however we have revalued the company to reflect its current earnings and re-affirm our long term target price at

Costs remain a major drag to profits

Giving that growth in revenue was not reflected in gross profit for the period due to the 42.44% rise in cost of sale to
40.79 billion (vs. 28.63 billion in HY’16) which drove gross profit down by 6.25% to 7.65 billion (vs. 8.16 billion in HY’16).

While cost of sale to revenue increased to 84.20% from 77.82% in HY’16, decent moderations in expenses and growth in other income saw the company’s operating profit grow by 11.17% to
3.70 billion (vs. 3.32 billion in HY’16).

This growth was however enveloped by the significant rise in finance cost having grown by 253.00% to
3.50 billion (vs. 993 million in HY’16). Regardless of the growth in revenue, finance cost to revenue for the period increased to 7.24% against 2.70% reported in HY’16 while finance income stood at 2.09% (vs. 1.71% in HY’16).

Profit after tax plunged by 54.52% for the period

Profit before tax was reported at
1.63 billion against 3.93 billion in HY’16 representing a drop of 58.44% while profit after tax dropped by 54.52 to 1.19 billion against 2.62 billion in HY’16.

The improvement in profit after tax for the period was aided by a lower tax provisioning of
440 million against 1.30 billion reported in HY’16. Given its recent HY’17 performance, the company’s ratios and valuation multiples have significantly diminished.

Earnings per share weakened from
0.78 HY’16 to 0.52 in HY’17. Net asset per share also declined by 13.92% to 33.09 In HY’17 (vs. 38.44 in HY’16).

Interest coverage ratio reduced significantly to 0.47x against 3.96x indicating the significant rise in finance cost for the period. PBT margin also dropped to 3.37% against 10.69% in HY’16 while PAT margin dropped to 2.47% (vs. 7.14% in HY’16).

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