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UAC of Nigeria Plc – PBT Declined by 53% YoY in Q1 2017

Proshare

Friday, April 28, 2017/ 8:55AM / FBNQuest Research

Event: UAC of Nigeria (UACN) reports Q1 2017 results
Implications:
Downward adjustments to consensus 2017 EPS forecast likely
Positives:
 Sales grew 41% y/y to N25.0bn
Negatives:
PBT declined -53% y/y on the back of a gross margin contraction of -598bps y/y and  a 118% y/y rise in finance costs

This
afternoon, the NSE published UAC of Nigeria’s (UACN) Q1 2017 results which showed that while sales of N25.0bn grew 41% y/y, PBT declined -53% y/y to N829m. A gross margin contraction of -598bps y/y to 16.5% and a more than doubling in finance costs offset any benefits coming through from the strong topline growth and an opex decline of -3%. PAT declined by a smaller margin than PBT due to relatively lower non-controlling interest expense.

Sequentially, sales declined by -7% q/q while the decline on both PBT (-44% q/q) and PAT (-55% q/q) lines were more significant. Yet again, a gross margin contraction of -161bps q/q and a 124% q/q rise in finance costs led to the decline in profitability. Compared with our estimates, PBT came in 70% behind our N2.8bn forecast. Gross margin and finance charges both surprised negatively in a significant manner while opex came in 17% ahead of our N2.1bn forecast. Income from UPDC REITs continues to disappoint, down by around 60% y/y. Sales came in around 29% higher than our N19.4bn estimate.

Sales from UACN’s food and beverage business were quite strong, up 47% y/y to N19.7bn, and ahead of our estimate by 29%. Grand Cereals posted the largest gain, up 88% y/y to N12.8bn and accounted for 65% of food and beverage sales. PBT margins for both UACN’s animal feeds businesses, Grand Cereals and Livestock Feeds contracted by around 150bps y/y on average due rising input costs.

Sales for UPDC (UACN’s real estate business) were up significantly y/y
at N2.0bn in Q1. However, UPDC posted a loss before tax of –N1.2bn due to elevated finance costs. If we exclude the real estate and paints businesses from UACN’s Q1 results, the performance was actually decent, with a PBT growth 14% y/y. Given the weak macroeconomic environment, it is unsurprising that UACN’s property business continues to struggle. Cost of funding remains a big concern for the firm. The rights issue for UPDC have recently opened. The proceeds are primarily to de-lever the firm’s balance sheet.

On a
n annualised basis, UACN’s PBT tracks well behind consensus PBT estimate of N9.2bn. We expect a negative reaction by the market to these numbers, especially because UPDC continues to be a drag on the group’s performance. 

Year to date, UACN shares have declined by around -14%, underperforming the ASI by 10%. 

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

UAC of Nigeria Q1 2017 results vs. FBNQuest estimates (N millions) 

Q1 2017

 

Actual

Y/y

Q/q

FBNQuest  est.

Act. vs      FBNQuest est (%)

Sales - group

24,973

41.4%

-7.2%

19,435

28.5%

Sales - Paints & UPDC (real estate)

3,706

-127.1%

-36.7%

3,199

15.8%

Sales - Group ex-Paints and UPDC

21,267

-32.2%

1.0%

16,236

31.0%

Cost of sales

-20,844

52.3%

-5.4%

-15,006

38.9%

Gross profit

4,129

3.8%

-15.4%

4,429

-6.8%

-Gross margin

16.5%

-598bps

-161bps

22.8%

-626bps

Dist. and admin. exp

-2,493

-3.4%

-0.7%

-2,138

16.6%

Other income

135

-49.6%

-139.4%

225

-40.2%

Share of profit from ass.

286

-56.9%

n/a

500

-42.8%

Profit from disposal of assets

0

n/a

n/a

0

n/a

Other income/ expense

0

n/a

n/a

0

n/a

Net Interest income/ expense

-1,227

117.7%

124.3%

-210

483.5%

PBT

829

-53.0%

-43.9%

2,806

-70.4%

  PBT (ex one-off item)*

 

n/a

n/a

0

n/a

PBT - Paints & UPDC (real estate)

-619

n/a

-43.6%

1,028

n/a

PBT - Group ex-Paints and UPDC

1,448

14.1%

-43.8%

1,778

-18.6%

- PBT margin

3.3%

-666bps

-217bps

14.4%

-1112bps

PBT - Paints & UPDC (real estate)

-16.7%

-1308bps

205bps

0.0%

-1669bps

PBT - Group ex-Paints and UPDC

6.8%

276bps

-542bps

11.0%

-414bps

Tax

-224

-49.9%

46.1%

-842

-73.4%

-Tax rate

27.0%

167bps

1662bps

30.0%

-300bps

PAT

606

-54.0%

-54.3%

1,964

-69.2%

- PAT margins

2.4%

-503bps

-250bps

10.1%

-768bps

Profit from discountinued operations

0

n/a

n/a

0

n/a

Other comprehensive income

0

n/a

n/a

0

n/a

Non-controlling interest

-56

-89.4%

-52.0%

-664

-91.6%

PAT after non-controlling interest

550

-30.1%

-54.5%

1,300

-57.7%

Source: NSE, FBNQuest estimates

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9.     UAC of Nigeria Plc Records 12% PBT Growth in Q2'16 Results

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