UPDC FY2020 Audited Results: Sliding Losses Meets Rising Equity

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Monday, March 15, 2021, 2:00 PM / By Adaeze Nwachukwu, Proshare Research/ Header Image Credit: UACN Property Development Company Plc


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UPDC was once the crown jewel of the UAC group. The company sat pretty on several choice property assets across the country producing steady streams of both cash flows and bottom-line earnings. Those days appear over, at least for now, as the profit straggler has in the last two years seen red with losses pouring out of its property holdings.


The recession in 2016 to 2017 put a squeeze on the local property market with a brief recovery in 2018 and a further dip in 2019 but the downturn in the demand for real estate in the wake of the COVID-19 pandemic in 2020 took a toll on the company's revenue which stumbled year-on-year (Y-o-Y) by -22.95%.


However, the home builder's loss before tax improved in 2020 in line with an increase in its equity base, this was on the back of its recapitalization and the completion of an estimated N16bn Rights Issue. The fresh capital raise resulted in a +73.94% reduction in the total debt of the company and an over +300% increase in its equity. UPDC Plc became a subsidiary of Custodian Investment Plc as a result of the sale of a 51% stake to the new core investor in 2020.

 

Key Highlights/Takeaways

  • Profit/Loss before tax improved significantly in 2020, from a loss of N16.19bn in 2019 to a loss of N262.69m.
  • Revenue declined by -22.95% year-on-year (Y-o-Y) from N2.16bn in 2019 to N1.66bn in 2020.
  • Gross profit improved significantly by +90.94% Y-o-Y, from a loss of N878.13m in 2019 to a loss of N79.54m in 2020
  • Cost of sales declined by +42.62% from N3.04 in 2019 to N1.74bn in 2020
  • Net finance cost dipped in 2020 by +43.4%, from N2.61bn in 2019 to N1.48 in 2020
  • Selling and distribution expenses declined by -41.64% Y-o-Y from N104.86m in 2019 to N61.19m in 2020.
  • The emolument of the highest director grew Y-o-Y by +49.67% from N19.62m in 2019 to N29.36m in 2020.
  • Personnel wages and salaries increased by +18.38% Y-o-Y, from N311.19m in 2019 to N368.37m in 2020.

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Share Price and Volume Movement- As Flat as a Pancake

The share price movement of UACN Property Development Company Plc (UPDC) has been unremarkable and has borne a bearish outlook with the stock price moving along a declining path. The share price took a deep dive in 2019 and sustained the decline in 2020 because of the COVID-19 global health pandemic.

 

The company saw its highest share price of N8.6 in 2019 but slumped by -90.81% at the end of 2020.

 

UPDC's year-to-date (YTD) share price appreciated by +3.80% as of 26 February 2021.

 

The volume of shares traded over the years has shown the same trend as the company's share price. The company in 2018 recorded its highest percentage volume growth but in 2020 it witnessed its highest recent percentage decline.

 

The YTD volume of shares traded shows a major increase, with traded volume YTD increasing by over +400% as of 26 February 2021 (see chart 1 below).

 

Chart 1: Share Price and Volume Traded as of 26 February 2021

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Source: NSE, Proshare Research

 


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Revenue- A Reason to Weep

UPDC's total revenue has been on a downward spiral over the last five years. In 2020, revenue declined by -22.95% Y-o-Y from N2.16bn in 2019 to N1.66bn in 2020. The decline in revenue was largely caused by the -82.75% fall in revenue from the share of James Pinnock Sale of Property Stock as was stated in its 2020 audited financials. Also, revenue from rental income and management fees on rent and sale of property dropped  Y-o-Y by -42.34% and -14.35% respectively (see chart 2 below).

 

Total revenue of the company was obtained from Nigerian operations alone, there was no revenue for any of the company's business outside the country.

 

Chart 2: UPDC's Revenue 2016 - 2020 (N'bn)

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Source: UPDC's Financial Statement, Proshare Research

 

Highest Paid Director's Income vs Corporate Revenue-Defying Gravity

Director's compensation at UPDC has been at odds with the company's fortunes. The trend for the highest-paid director against total revenue is a direct contrast from the trend of the growth of the total revenue. UPDC's revenue has experienced a downward trend while the highest-paid director's income against revenue has trended upwards. In 2019 the ratio was 0.91% while in 2020 there was a significant increase in the ratio by +94.24% to settle at 1.77%. this was on the back of a +49.67% Y-o-Y growth in the highest-paid director's emolument (see chart 3 below).

 

Chart 3: UPDC's Highest-Paid Director against Revenue 2016 - 2020

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Source: UPDC's Financial Statement, Proshare Research

 

Profit/Loss Before Tax- Better but Not Good

The property manager's loss before tax improved in 2020, from a loss of N16.19bn in 2019 to a loss of N262.69m in 2020. The +554.24% Y-o-Y growth in finance income and +122.69% growth in fair value gain/(impairment) could be responsible for the improvement in the company's loss number.

 

In 2019, there was a noticeable dip in loss before tax, the -85.32% decline in finance income and +213.66% growth in impairment charges drove the loss before tax (see chart 4 below).

 

Chart 4: UPDC's Loss Before Tax 2016 - 2020 (N'm)

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Source: UPDC's Financial Statement, Proshare Research


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Highest Paid Director's Income vs Loss Before Tax-The C-Suite Mirror

Over the last five years, the company has posted losses that have worsened year-on-year except in 2020 when the direction of losses reversed. The same trend was seen for the emolument of the highest-paid director with 2020 again being an exception. As loss before tax worsened, the highest-paid director's income took a knock.

 

For the highest-paid director, 2019 recorded the highest percentage decline by -12.39% while 2020 recorded the highest percentage growth in income with the highest-paid director's income rising by+49.67%.

 

Concerning loss before tax, 2018 saw the highest percentage decline by -201.41% while 2020 recorded the highest recent percentage increase by +98.38% (see chart 5 below).

 

Chart 5: Highest Paid Director and Loss Before Tax 2016 - 2020 (N'm)

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Source: UPDC's Financial Statement, Proshare Research

 

Liquidity Position-Ways to Go

UPDC's current ratio (an indicator of the company's liquidity and its ability to meet its short-term debt obligations) improved in 2020 on the back of a -65.96% decline in its current liabilities. In 2020 current ratio was 1.56 which was an improvement from 0.52 in 2019, 1.56 was the best current ratio performance of the company in the past five years. The major driver of the decline in current liabilities was the -93.04% decrease in short-term interest-bearing loans and borrowings (achieved primarily from the sale of equity in 2020).

 

UPDC also recorded an improvement in its working capital for 2020, from a negative figure of N10.48bn in 2019 to N4.10bn in 2020, representing a Y-o-Y of +139.16% (see chart 6 below).

 

Chart 6: UPDC Current Ratio 2016 - 2020 (%)

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Source: UPDC's Financial Statement, Proshare Research

 

Acid-Test Ratio-Hot but Not Boiling

Analysts broadly believe that an acid-test ratio (or quick ratio) of less than one means that a company cannot cover its short-term liabilities without selling inventories. For the real estate firm, the quick ratio improved in 2020, from 0.25 in 2019 to 0.98 in 2020 which was the company's best quick ratio performance in the last five years (see chart 7 below).

 

Chart 7: UPDC Acid Test Ratio 2016 - 2020 (%)

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Source: UPDC's Financial Statement, Proshare Research

 

Liquidity Ratio- A Matter of Cash

The FY2020 audited results showed a sharp rise in the realtor's liquidity ratio, from 4.36% in 2019 to 13.22% in 2020. Liquid assets grew significantly by +133.61% in 2020 as against the -22.96% decline in the total asset of the company.

 

Most of the decline in total assets was largely due to the -51.19% fall in intangible assets and -24.98% Y-o-Y slide in investment assets (see chart 8 below).

 

Chart 8: UPDC Liquidity Ratio 2016 - 2020 (%)

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Source: UPDC's Financial Statement, Proshare Research


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Leverage Ratio- Bashing Down on Debt

The company turned around a pallid leverage position which fell by -94.13% from 958.05% in 2019 to 56.24%. The dip in leverage was the result of a -73.94% Y-o-Y fall in the debt stock as total equity grew by +343.95%.

 

In 2019, the company posted a huge increase in its leverage ratio which was caused by a -87.97% decline in total equity and a +12.12% increase in total debt (see chart 9 below).

 

Chart 9: UPDC Leverage Ratio 2016 - 2020 (%)

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Source: UPDC's Financial Statement, Proshare Research


Conclusion- Wriggling out of A Crisis; The Good Hard Part

UPDC appears to have prepared itself for a reversal of a nightmare of a half-decade with investor value disappearing down a rabbit hole of tumbling property values, rising debt, and low inventory turnover.  

 

The capital raised in 2020 was a hard deal that needed to be done to get the company back on the path of profitability. However, beyond the raising of capital the property company needs to realign its business model within a reimagined property market after 2020. People's lifestyles may never remain the same after the COVID-19 pandemic has been tackled, the way people congregate and interact may change sharply as the fear of crowds and congested communities may result in new building designs, new communal living practices, and a revised perspective of interpersonal relationships.

 

Also, depressed disposable incomes (the January 2021 inflation rate was put at 16.47% by the National Bureau of Statistics (NBS)) would reduce the demand for properties as efforts at containing inflation could raise interest rates and cut back credit and property demand. The company has admirably taken on a hard part by raising cash and capital but it must take on the harder part of meeting the challenge of a slowth-growth economy, a matter it has no control over.



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