UAC of Nigeria Q2 2021 Results Review: Cost Pressure is a Concern; Neutral Rating Maintained


Wednesday, August 18, 2021 / 09.59 AM / by FBNQuest Research/ Header Image Credit: UACN


Earnings miss in Q2'21 induces a 15.0% & 16.1% cut to EPS and price target respectively

UACN's EPS in Q2'21 missed our forecast by 89.3%. While, the company's Q2'21 turnover  of NGN24.5bn (+43.3% y/y) was ahead of our forecast by 16.7%, PAT came in at NGN96m, significantly behind our estimate by -89.3%. Cost pressures were a significant driver, due to escalation in commodity prices. Across segments, management mentioned that it raised prices for the animal feeds portfolio to offset rising raw material costs.


In addition, food & beverages segment benefitted from high volume growth, especially in the snacks, water and dairy categories. Paints equally received higher volumes on the back of supportive low base effects while the QSR segment expanded due to an increase in company-owned restaurants (corporate stores). These disclosures helped shape the changes in our turnover forecasts. For our new sales estimate, we have raised our forecasts for animal feeds segment by 3% to NGN55.2bn (from NGN53.3bn), while the combined food division (QSR and UAC Foods) is raised by +14% to NGN24.9bn (from NGN21.9bn previously). Similarly, turnover of the paints division is now expected at NGN14.3bn (+40% from NGN10.2bn).


Cumulatively, group turnover is expected to now come in at NGN94.7bn (higher by 10.4%). Due to the rising commodity prices, our gross margin estimate is now 18.6% (from 20.3% previously). We have also raised opex estimate to NGN16.1bn (higher by 10.4%). Down the P&L, our net interest cost estimate is now NGN157m (with a higher interest cost of NGN1.3bn vs. prior estimate of NGN849m). The higher interest cost is due to a 272% ytd rise in total debts. For the bottom-line, we now have a PBT forecast of NGN3.4bn for '21f (lower by 36.5%).


We have also slashed our PAT forecast by 47.0% to NGN2.3bn (from NGN4.3bn previously). Following these revisions, we have reduced our '21-23f EPS forecasts by c.15% on average. These changes imply a new sum of the parts (SoTP) derived price target of NGN9.9 (down by -16.1%), and an implied potential downside of -1.5% at current levels. We maintain our Neutral rating on UACN. Year-to-date, UACN shares have gained +38.6 vs. the AS's decline of -1.9%.


Mixed results in Q2 '21; merger of paints division is now completed

UACN's Q2 '21 were a mixed bag. According to management, business segments recorded strong growth in the quarter, supported by price increases and volume growth. Sales expanded 43.3% y/y to NGN24.5bn in Q2 '21 (beating our estimate of NGN21.0 by 16.7%). Opex grew by 21.9% y/y to NGN4.0bn, (vs our NGN3.4bn estimate) while net interest expense fell by 63.0% y/y to -NGN123m (vs. our -NGN25mn forecast). Management has now received preliminary regulatory approvals for its proposed UPDC REIT unbundling, as well as completed the merger between CAP and Portland Paints. CAP emerged as the surviving enlarged entity.


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 Proshare Nigeria Pvt. Ltd.


 Proshare Nigeria Pvt. Ltd.

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