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UAC of Nigeria plc (UACN) may need to fortify its strategy in the remaining two quarters of this year if it remains committed to actualizing 2015 revenue target and improve profitability level.
UACN, which is one of the largely capitalized companies on the Nigerian Stock Exchange (NSE) is a diversified business with activities in the following principal sectors: manufacturing and processing; warehousing and logistics; and real estates.
Though, financial analysts are optimistic that the shares of UACN may outperform the stock market index by year end, but the first-quarter (Q1) 2015 results which UAC of Nigeria plc released to investors could not impress potential equity buyers because it shows more negatives from top-to-bottom line figures.
The consolidated statement of comprehensive income for the period ended March 31, 2015 revenue dropped by 11% to N17.729 billion from N19.888 billion in the corresponding first-quarter (Q1) of 2014. The company’s Profit before Tax (PBT) was also down by 12% from to N2.296bn from N2.623bn in Q1’14.
Profit After Tax (PAT) dipped by 15% to N1.676bn from N1.970bn in Q1’14. The company’s Q1’15 Basis Earnings per Share dipped to 50kobo from 56kobo in Q1’14.
Listed under the diversified industries subsector of the conglomerates sector, UAC of Nigeria plc has a market capitalization in excess of N79.715bn and shares outstanding of 1,920,864,387 units. As at Tuesday, its share price rose to N41.5.
“UAC of Nigeria’s (UACN) Q1 2015 PBT was down 13% year-on-year (y/y) and missed our estimate by 14%. Given that modeling the outlook for the real estate business is challenging, amongst other factors, we have cut our Earnings Per Share (EPS) forecasts by 6% on average over the 2015-16E period and our price target by 10% to N57.6,” Uwadiae Osadiaye led team of analysts at FBN Capital Limited stated in their recent view on UAC of Nigeria Q1’15 results.
The analysts further said, “Our new price target implies a potential upside of 39% from current levels. UACN shares currently trade on a 2015E P/E multiple of 14.0x for 27% EPS growth in 2016E. Year-to-date, the shares have gained 22%, outperforming the NSE ASI by 24%. We retain our outperform rating on the stock”.
“Q1 2015 results showed double-digit y/y declines in sales, PBT and PAT. While sales were down by 11% y/y to N17.7bn, PBT and PAT fell by 13% y/y and 10% y/y respectively. The decline in sales more than offset a 168bp y/y gross margin expansion and 3% y/y decline in opex. In terms of sequential trends, while sales were down 29% q/q, both PBT and PAT declined more. PBT was down 69% q/q while PAT declined 76% q/q.”
“The q/q trend is attributable to: seasonal effects as Q4 is typically the strongest quarter of the year and the first time recognition of income from UPDC’s REIT investments. Compared with our estimates, while sales and PBT missed by 19% and 14% respectively, PAT beat by 23% as a result of a lower tax rate of 27% (we modeled 30%) and minorities coming in 35% lower than we had forecasted,” FBN Capital analysts noted.
The analysts at FBN Capital also noted that UACN real estate sales showed some volatility.
“Sales for the real estate business, UPDC, were down 53% y/y to N1.5bn and came in around 45% behind our N2.7bn forecast. While hospitality numbers were flattish y/y, property sales which were down 65% y/y, in addition to soft sales for the foods business, were the primary driver for the comparatively weaker group sales.”
“UACN’s cereals businesses were adversely affected by a bird flu outbreak in 11 states across the country. Looking ahead, we have cut our sales forecast for both UPDC and the foods business by around 25% and 5% respectively in 2015E. As such, we estimate sales to come in flattish y/y and EPS to decline by around13% y/y,” they added in their report titled “volatile real estate sales upset Q1 performance”.