Stock & Analyst Updates | |
Stock & Analyst Updates | |
765 VIEWS | |
![]() |
Tuesday,
April 17, 2018 /04:48 PM/ Vetiva Research
• Revenue up 8% y/y, supported by Food and Paints
segments
• High production, operation and finance costs derail
margins
• FY’17 PAT clocks in 59% weaker than Vetiva estimate
• Board
announces FY’17 dividend/share of ₦0.65 (FY’16: ₦1.00)
FY’17 PAT moderates 79% y/y as cost pressures bite
Despite
an 8% y/y rise in Revenue, UAC of Nigeria (UACN) recorded a 79% y/y decline in
PAT (₦1.3 billion) - weakest bottom line
performance in 16 years. The dismal performance was driven by sharp rises in
expense lines which outpaced weak topline growth. Notably, FY’17 gross profit
moderated 6% y/y following a 261bps deterioration in gross margin –
specifically dragged by cost pressure from expensive raw materials procured in
Q4’16/Q1’17.
Also,
largely driven by an acceleration in selling & distribution expenses,
Operating Expenses rose 19% y/y to ₦11.5 billion (Vetiva estimate: ₦11.0 billion). With this, Operating Profit declined 19% y/y to
₦7.0 billion (Vetiva: ₦7.3 billion) despite a ₦2.6 billion boost from Other income (FY’16:
₦1.4 billion). Earnings were further
undercut by a jump in net interest expense, up 218% y/y to ₦4.3 billion (Vetiva: ₦3.8 billion), as interest rate on bank
loans rose 521bps y/y to 19%.
Furthermore,
following a higher than expected effective tax rate in the final quarter,
bottom line turned negative in Q4’17 with overall FY’17 profit after tax coming
in 59% lower than we had expected at ₦1.3 billion.
Watch out for outcome of defining strategic review in FY’18
The tough operating environment and changing
industry dynamics in Nigeria has weakened earnings over the past few years -
exposing vulnerabilities in UACN’s business model. In light of this, and given
the new face of the Conglomerate’s Management team, a holistic business review
is underway to reposition the business on the path of organic growth and
profitability.
We believe this is essential given the seemingly
bleak near-term outlook for most of the business segments and overall lack of
synergies on the Group level. We expect a number of big announcements at the
conclusion of the review, scheduled for H1’18.
This may include mergers, divestments and sale of
assets/properties. That said, we cautiously forecast a 4% y/y revenue decline
to ₦86 billion, while PAT is
expected to recover from the FY’17 low base to ₦4.0 billion – supported by better cost
containment expectations. We revise our 12-Month post rights issue Target Price
to ₦20.87.
However, given the expected changes in the
business structure upon completion of the strategic review, we place UACN on a
HOLD until further notice.
Author
Ifedayo Olowoporoku of Vetiva Capital Management
Limited can be reached vide i.olowoporoku@vetiva.com
Plot 266B Kofo Abayomi Street | Victoria Island |
Lagos | Nigeria| +234-1-4617521-3
Related News
1. UACN Declare N962.8m PAT in 2017 Audited
Result,(SP:N18.40k)
2. UAC Reports Q4 2017 Results – Sales Down
by -21% YoY to N20.4bn
3. UACN Plc - Changes in Beneficial Ownership of Shares
4. UAC of Nigeria Q3 2017 Results Review - Waiting for
Underlying Business to Recover
5.UACN Rights Issue of 960.43m Ordinary Shares Opens Today
6.UAC of Nigeria Plc Proposed Rights Issue
7.UAC of Nigeria Plc - The Fly in FMCG Ointment?
8.UAC of Nigeria Plc H1’17 Earnings Update - Cost Remain a
Major Drag to Profits
9.UAC-PROP declares N2.06 billion Loss in Q2'17
Results,(SP:N2.93k)
10.UAC of Nigeria Reports Q2 2017 Results - Sales Grew by 23% YoY to N23.5bn