UACN Gross Margin Expands by 258bps in Q4'15; Shares Rated Outperform


Friday, April 01, 2016 4:05PM /FBNQuest Research

­Event: UAC of Nigeria (UACN) reports Q4 2015 results

Implications: Slight downward revisions to consensus 2016 EPS forecast expected

Positives:  Gross margin expanded 258bp y/y and 359bp q/q to 24.6%

Negatives: Sales and PBT down 26% y/y  and 31% y/y resp.; share of profit from associates down 76% y/y to N356m

This afternoon, the NSE published UAC of Nigeria’s (UACN) Q4 2015 results which showed that sales, PBT and PAT all declined by -26% y/y, -31% y/y and -40% y/y respectively. The topline decline, a 116% y/y rise in net finance charges and to a lesser extent a 76% y/y decline in profits from associates more than offset any benefits coming from a 258bp y/y gross margin expansion to 24.6% to lead to the PBT decline during the quarter.

The y/y decline on the PBT line was primarily driven by the poor performance in UACN’s foods segment which was down -42% y/y. PBT for CAP and UPDC, UACN’s paints and real estate businesses respectively declined by around -18% y/y. In Q4 2015, UPDC posted a PBT of N2.0bn compared with after-tax losses of -N1.8bn and -N327m in Q2 and Q3 2015 respectively.

Based on UPDC’s Q4 2015 numbers which were published yesterday, we infer that UPDC booked a write-back of around N2bn in Q4. We await management’s comments on this line. Sequentially, sales were up 8% q/q while PBT was up significantly q/q.

Again, we suspect that the write-back was primarily responsible for the q/q PBT growth. PAT of N2.4bn was well ahead of a post-tax loss of N136m that the company reported in Q3 2015. Compared with our estimates, sales missed by -17%, while PBT and PAT were both ahead by 54% and 23% respectively primarily due to the write-back.

UACN proposed a DPS of N1.00 (vs. our N0.71 forecast) implying a dividend yield of 5%

In terms of the segmental drivers behind the y/y topline decline, sales for UACN-(ex-Paints and real estate), our proxy for UACN’s food business, declined by 20% y/y to N15.3bn in Q4. UACN’s real estate subsidiary also saw sales decline by -77% y/y to N814m while sales for CAP were up by just 1% y/y which resulted in a full year y/y growth of similar magnitude. CAP’s full year 2015 y/y growth compares with a five year average growth of around 17%.

UACN’s full year 2015 PBT of N7.9bn came in ahead of consensus full year forecast of N5.7bn. Again, we believe the numbers were helped by the write-back of N2.0bn, implying that the underlying performance was soft. Given this, we expect slight downward adjustments to consensus 2016 estimates. We expect the market to react negatively to these numbers and expect a possible sell-off in UACN shares in the short term.  

At current levels, on our published estimates, UACN shares are trading on a 2016E P/E multiple of 8.6x for 13% EPS growth in 2017E. Year to date, UACN shares have declined -1.3% outperforming the NSE ASI which has shed -11.2%.

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


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