CardinalStone Research: UAC of Nigeria Plc. Q1'17 results - Finance costs weigh heavily on earnings

                                                                                                                                                                                                                                                                                                                                                                                                27 April 2017

Good evening,

UAC of Nigeria Plc. (UACN) Q1'17 results just out - Turnover rose by 41.4% YoY to N25.0 billion, above our estimate of N21.5 billion (+16.1% deviation). After tax earnings declined by 54.0% YoY to N0.6 billion, underperforming our estimate of N1.4 billion.

Other highlights:

·         UACN's impressive turnover was boosted by growth in its food segment (+46.3%) as well as its real estate segment (+188.9%). We think the growth in its food segment was supported by relatively higher pricing as well as increased sales volume. On a quarterly basis however, turnover declined by 7.2% QoQ.

·         Gross margin in Q1'17 contracted by 587bps to 16.5% YoY majorly due to the impact of a weaker Naira on the Company's production costs. On a QoQ basis also, gross margin contracted by 161bps from 18.1% QoQ in Q4'16.

·         Earnings declined by 54.0% YoY, weighed down by the 117.7% YoY increase in net finance costs. The rise in net finance costs was mainly the result of a 127.8% YoY increase in interest expense for the real estate segment - UAC Property Development Company (UPDC).

·         Stripping out UPDC's performance from the group's pre-tax earnings, PBT would have increased by 4.9% YoY to N2.0 billion.

Kindly click here for a copy of UAC of Nigeria Plc Q1'17 results.

Based on our last review, the counter has a target price of N23.81 (BUY).