Slight increase to our EPS forecasts over the '21-22f period
We have raised our '21-22f EPS forecasts by 4.4% due to UACN's impressive FY '20 results. We have equally increased our price target by 6% to NGN12.6 from NGN11.9 and maintained our Outperform rating. We derived our price target using a sum-of-the-parts valuation methodology (employing EV/EBIT multiples for the food, animal feeds and paints businesses).
Across divisions, we estimate animal feeds turnover at NGN54.8bn (up +6% y/y in FY'21f), broadly in line with our prior forecast. We do not expect another price increase in animal feeds in FY'21f, especially in light of competitive pressures and the thriving local feeds market. For the paints business, we expect the merger of CAP Plc and Portland Paints Plc to be completed in FY'21f. Post-merger, CAP (enlarged business) will be the largest paint manufacturer in Nigeria. The combined revenue of each business is projected at NGN10.6bn, up +3% y/y.
Also, activity within the food (packaged food and QSR) segments is poised to continue its recovery from a difficult 2020 due to the easing of COVID-related restrictions and the country's vaccination drive which commenced in Q1 '21. We project this division's turnover at NGN19.9bn, up +3% y/y. On aggregate, our sales forecast for the group is relatively unchanged at NGN85.5bn in '21f. On costs, a major tailwind is the import-linked activity for wheat (for animal feeds) and chemical imports (for paints) amidst potential fx devaluation and scarcity. Nonetheless, gross margin should expand by around +35bps y/y to 20%. Further down the P&L, we estimate UACN's PBT at NGN7.3bn (animal feeds - NGN2.3bn; UAC paints - NGN2.3bn; and foods - NGN2.1bn, and the group - NGN589m).
On the back of these revisions, we estimate EPS growth of 26% y/y to NGN1.72. Valuation-wise, UACN is trading on '21f P/E and EV/EBITDA multiples of 5.8x and 2.3x respectively compared with global peer averages of 17.9x and 15.9x. Year-to-date, UACN shares have gained 31.0% vs. the ASI's -3.9% decline.
UACN declares special dividend; sale of controlling stake in UPDC completed
In Q4 '20, sales expanded by around 26% y/y and 11% q/q to NGN23.6bn (highest level since Q4 '18). However, EPS declined by around 8% to NGN0.53, due to a contraction in animal feeds and paints segment margins. The company in H2 '20 concluded the sale of 51% stake in UPDC to Custodian Investment Plc. UACN received NGN6.6bn in cash proceeds and retained a 42.85% shareholding in UPDC. The company declared a total dividend of NGN1.20/share, which included an ordinary dividend of NGN0.65 and a special dividend of NGN0.55. This implies a dividend yield of 13.3%, ahead of our estimate of 7.4%.