Wednesday, April 24, 2019 11:10AM /
Slight cut to 2019-21E EPS forecasts
UACN’s earnings conference call, we have made slight downward adjustments to
our 2019-21E forecasts, despite the new management’s assurance that things are
turning around for the better. Although large impairments taken on real estate
investments in 2018 – which drove the pre-tax loss of -N5.5bn – are expected to
be non-recurring over the forecast period, we see the biggest challenge coming
from the animal nutrition and other edible businesses (Grand Cereal and Livestock
Feeds; c.54% of group sales). Indeed, group sales which declined by -12% y/y
were weighed down by weaker sales in Grand Cereal (-28% y/y) and Livestock
Feeds (-23% y/y).
Looking ahead, these businesses are unlikely to show a healthy pick-up in the near term, given sustained competition from global food company Olam International. Our forecasts already reflect a tough competitive environment, though we have made a slight cut of -60bps on average to our 2019-21E EPS estimates.
However, on the back of lower sum-of-the-parts valuation assumptions, our new price target of N10.2 is around -19% lower than previous. Year-to-date, UACN’s shares have shed -28.7%, underperforming the broad index by 24.3%. Although our new price target implies a potential upside of 45% from current levels, we retain our Neutral rating on the shares, considering the overall bearish picture in the near-to-medium term.
-N6bn in pretax loss made in Q4
sales for the group plummeted -48% y/y to N23.0bn, while pre-tax and after-tax
losses of –N6.0bn and –N9.8bn were incurred for the quarter. A gross margin
contraction of -39bps y/y to 16.9% and other operating net losses of –N8.9bn
(Q4 2017: -N955.9m) also contributed to the squeeze in profitability during the
quarter. These negatives completely offset the gain from lower net finance
costs of N347m (down -86% y/y).
Sequentially, sales increased by 22% q/q whereas Q4 pre-tax loss compares with -N1.6bn for Q3. Compared with our forecasts, sales beat by 10%, but PBT and PAT were significantly lower than our forecasts of N260m and N176m respectively.
9. UACN Declares N4.64 bn loss in Q3''18 Results,(SP:N9:50k)