UAC of Nigeria Plc. 9M'17 results - Margin contraction drives earnings lower

UAC of Nigeria Plc. 9M'17 results - Margin contraction drives earnings lower
(Source: CardinalStone Research, Date: 27-Oct-2017)

CardinalStone Research: UAC of Nigeria Plc. 9M'17 results - Margin contraction drives earnings lower

27 October 2017

Good afternoon,

UAC of Nigeria (UACN) 9M'17 results out - Turnover rose by 21.2% YoY to N68.8 billion, within our estimate of N71.5 billion (-3.8% deviation). After tax earnings for the nine-month period declined by 54.5% YoY to N2.0 billion, ahead of our estimate of N1.8 billion (+6.9% deviation).

Other highlights:

Â· Q3'17 revenue declined modestly by 1.7% YoY to N20.3 billion largely due to an 81.0% YoY slump in its real estate segment - UACN Property Development Company (UPDC). All other segments reported positive topline growth - Food and Beverages (+1.9% YoY), Paints (+15.9% YoY) and Logistics (+17.6% YoY).

Â· On a quarterly basis, revenue declined by 13.4%, mainly due to negative topline growth in its Food & beverages (-11.7% QoQ) and real estate (-89.7% QoQ) segments.

Â· Compared to Q3'16, gross margin contracted by 537bps YoY, likely because of higher pricing on key inputs such as Maize and Soyabean - a fallout of Q2'17 weak harvest. Sequentially, gross margin expanded by 109bps as the company unwinds inventory at relatively favourable prices.

Â· Operating expenses to sales ratio expanded by 168bps YoY and 235bps QoQ to 13.9%, due to a 23.3% YoY and 11.1% QoQ increase in administrative expenses. Likewise, net finance cost rose by 32.6% YoY in Q3'17 although, it declined by 50.4% sequentially, due to a 43.0% QoQ decline in finance cost.

Â· Given the earnings pressure above, UACN reported a 54.5% YoY decrease in after-tax earnings to N781 million. On a quarterly basis, after-tax earnings rose by 32.6%, supported by gross margin expansion and lower finance cost.

N'billion	9M'17	9M'16	YoY	CSP Est.	% Variance
Revenue	68.8	56.8	21.1%	71.5	-3.8%
Cost of Goods Sold	(57.8)	(44.3)	30.5%	(59.7)	-3.2%
Gross profit	10.9	12.5	-12.3%	11.8	-7.3%
SGA Expenses	(8.0)	(7.7)	3.6%	(8.1)	-0.5%
Other Income	3.3	2.8	15.2%	2.2	45.8%
Financial Charges	(3.1)	(0.8)	271.9%	(3.4)	-7.7%
PBT	3.0	6.7	-54.6%	2.6	18.2%
Taxation	(0.9)	(2.0)	-54.8%	(0.7)	21.6%
PAT	2.0	4.3	-54.5%	1.8	6.9%
	9M'17	9M'16
Gross profit margin	15.9%	21.9%
Operating Profit margin	9.0%	13.3%
PAT margin	2.9%	7.6%

The quarterly breakdown of UACN's result is shown below:

N'billion	Q3'17	Q3'16	YoY	Q2'17	QoQ
Revenue	20.3	20.0	1.7%	23.5	-13.4%
Cost of Goods Sold	(17.1)	(15.7)	8.6%	(20.0)	-14.5%
Gross profit	3.3	4.3	-23.7%	3.5	-7.1%
SGA Expenses	(2.8)	(2.4)	15.7%	(2.7)	4.2%
Other Income	1.6	1.4	13.9%	1.3	26.5%
Financial Charges	(0.6)	(0.5)	32.6%	(1.3)	-50.4%
PBT	1.4	2.8	-49.1%	0.8	75.1%
Taxation	(0.4)	(0.6)	-31.6%	(0.2)	105.3%
PAT	0.8	1.7	-54.5%	0.6	32.6%
	Q3'17	Q3'16		Q2'17
Gross profit margin	16.5%	21.5%		15.0%
Operating Profit margin	10.0%	16.2%		8.8%
PAT margin	3.8%	8.6%		2.5%

Kindly click here for a copy of UACN's 9M'17 results

Based on our last review, the counter has a target price of N17.00 (SELL)

Regards,

Feyisike Ilemore

Analyst, Consumer Goods

CardinalStone Partners Ltd

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