This morning, the NSE published UAC of Nigeria’s (UACN) Q2 2016 results which showed that while sales of N19.3bn declined -3.5% y/y, PBT was up by 11.7% y/y to N2.2bn. PAT declined by -4.9% y/y to N708m due to a relatively higher tax rate of 39.7%. A net finance income of N198m more than offset a decline in profits from associates of around -34.3% y/y and led to the PBT growth during the quarter. Gross margin and opex were flattish y/y. The net finance income posted during the quarter suggests that realised benefits are already coming through from UACN’s property development company’s (UPDC) refinancing program. Sequentially, UACN’s sales and PBT were both up by 10.1% q/q and 22.6% q/q respectively. Yet again, the net finance income posted in Q2 more than offset a slight gross margin contraction of -42bp q/q and a double-digit rise in opex. PAT declined by -10.0% q/q on the back of a higher tax rate in Q2 of 39.7% vs. 25.3% in Q2 2015. Compared with our estimates, while sales were 9% ahead of our N17.8bn forecast, PBT was in line mainly due to opex coming in around 30% higher than our forecast and a negative surprise on the profit from associates line.
For the listed subsidiaries, CAP’s (UACN’s pioneer paints business) Q2 numbers were slightly behind our forecast. PBT of N527m, down -5.5% y/y, came in around -8.5% behind our N576m estimate. Livestock Feeds’ Q2 sales were up 16.3% y/y to N2.5bn. We had forecasted slightly softer growth of 10% y/y to N2.3bn for the quarter. Growth was likely supported by increased fish feeds sales. However, we await management’s comments on this. PBT of N58m however declined by 11% y/y on the back of higher production and operating costs. Gross margin contracted by around 680bps y/y to 9.4% while opex grew by 12% y/y. Q2 PBT came in ahead of our N52.8bn forecast by around 10%. Sales for UPDC were down 48% y/y to N1.1bn in Q2. PBT came in at N248m compared with a loss before tax of N1.8bn in the corresponding quarter of 2015. Notably, property sales were up 162% q/q to N600m. Given that Q1 sales were quite weak, we expect management to provide guidance on this line on its conference call next week. More importantly, UPDC’s finance cost is more moderate post the conclusion of the first tranche of the firm’s commercial paper program. The firm recorded a negligible net finance charge in Q2. Rising opex is however a major concern for now (up 30% y/y during the quarter). Compared with our forecast, Q2 PBT was in line with our N254m estimate.
On an annualised basis, Q2 sales and PBT are both broadly in line with consensus estimates of N74.0bn and N7.6bn respectively. Given this, we expect slight adjustments to consensus 2016 estimates and a muted reaction by the market to these numbers.
At current levels, on our published estimates, UACN shares are trading on a 2016E P/E multiple of 12.5x for 20% EPS growth in 2017E. Year to date, UACN shares have declined by around -1.2% broadly in line with the NSE ASI.