UAC of Nigeria Reports Q2 2017 Results - Sales Grew by 23% YoY to N23.5bn


Friday, July 28, 2017 5:35 PM / FBN Capital Research

Event:                       UAC of Nigeria (UACN) reports Q2 2017 results

       Downward adjustments to consensus 2017E EPS forecast likely

               Sales grew 23% y/y to N23.5bn

              PBT declined -63% y/y to N805m; PAT down -37% to N450m

This afternoon, UAC of Nigeria (UACN) reported Q
2 2017 results which showed that while sales of N23.5bn grew 23% y/y, PBT declined -63% y/y to N805m. A gross margin contraction of -686bps y/y to 15.0% and to a lesser extent a -53% y/y decline in associate income more than offset benefits coming through from topline growth.

Other income, up significantly, was boosted by sales commission
s, service charges and professional fees from UACN’s real estate business, UPDC. Opex came in flattish y/y.

On a segmental basis, sales in UACN’s food & beverage category were up 29% y/y to N19.5bn. We attribute this growth in sales to a favourable price-volume mix. Combined sales for the paints and real estate businesses were up by single-digits y/y.

Sequentially, sales declined by -6% q/q while PBT
was down -2.9% q/q on the back of strong other income growth (up +724% q/q).

PBT margin for the food & beverage category contracted by -150bps q/q on average
, offsetting PBT margin expansion across other businesses.

Rising input prices mainly for UACN’s animal nutrition businesses have weighed on profitability in recent quarters.

Compared with our estimates, while UACN’s reported sales were in line with our forecast, PBT came in behind our N1.2bn estimate by around 35%. Negative surprises on both net finance charges and opex offset positives coming through from the other income line.

On an annualised basis, UACN’s PBT tracks well behind consensus PBT estimate of N7.5bn. We expect a negative reaction by the market to these numbers, especially because UPDC continues to be a drag on the group’s performance.

In Q2, sales for UPDC declined by -5% y/y to N1.0bn and
the unit reported a loss before tax of –N868m.

This week, UACN announced the retirement of its chief executive, Larry Ettah, and the appointment of Abdul Bello (currently group ED/CFO) as the CEO designate, effective January 1, 2018.

Going forward, we do not expect a material change in the group’s corporate strategy. We expect management’s focus on cost moderation to continue in the near term given a difficult macroeconomic environment.

Additionally, proceeds from the group’s on-going capital raising efforts (if successful) could ease business funding costs.

Year to date, UACN shares are flattish, underperforming the ASI by 39%.

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

UAC of Nigeria Q2 2017 results vs. FBNQuest estimates (N millions)

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