Event: UAC of Nigeria (UACN) reports Q4 2017 results
Implications: Downward adjustments to consensus 2018E EPS forecast likely
Positives: No obvious positives
Negatives: Sales down -21% y/y to N20.4bn while PBT declined -88% y/y to N202m; opex grew 80% y/y to N3.5bn.
Late last week, UACN published Q4 2017 results. The results were hit by rising input, finance and operating costs as well as increasing competition across key businesses. Group sales of N20.4bn declined -21% y/y while PBT fell by c.-88% y/y to N202m. The drivers behind the significant decline in PBT were an 80% y/y rise in operating expenses to N3.5bn, a -64% y/y decline in other income to N756m and a 130% y/y rise in net finance charges. UACN also posted a large loss on the income from associates line. UACN posted a loss of -N561m after tax taxes of –N1.1bn. Sales for the food and beverages segment are now more important to the business. Combined, this segment accounted for c.86% and 83% of group sales in Q4 2017 and FY 2017 respectively. As such, increasing challenges within this segment, especially for the animal nutrition businesses, is likely to impact profitability going forward. On a sequential basis, while sales were flattish q/q, PBT declined -86% q/q. The decline in profitability was driven by higher operating costs, other income and significantly higher finance costs.
In 2017, Grand Cereals accounted for c.54% of group sales (the highest on record). Sales were up 30% y/y to N48.2bn, driven by both pricing and unit volume growth. However, price increases were not enough to offset rising input and finance costs which weighed on profitability and led to a -39% y/y decline in PBT to N1.8bn. PBT margin also contracted by –c.433bps y/y to 4%. For Livestock Feeds, sales declined -8% y/y to N10.2bn in 2017 following a shrinkage in demand for poultry feeds due to the declining bird population. The bird flu epidemic has been out of control for several quarters. In addition, competition within that segment of the animal nutrition business has grown. Livestock Feeds reported a loss before tax of –N726m, citing higher finance and input costs. Besides UAC Foods and UAC Restaurants, all other UACN businesses recorded PBT margin contraction. UAC Foods and UAC Restaurants benefitted from improved working capital and controlled costs. UPDC, UACN’s real estate business, continued to be a drag on the group. The firm posted a loss before tax of -N3.1bn, weighed down by lower housing sales and relatively higher finance costs. UACN proposed a dividend of 65 kobo (ahead of our forecast of 60 kobo) which works out to a dividend yield of 3.5%.
Compared with our estimates, sales and PBT both missed by -22% and -89% respectively. The major drivers of the variance were a weaker-than-expected topline growth and negative surprises on both operating expense and other income lines. Sales in the food & beverage segment came in -21% behind our forecast. Full year 2017 PBT of N3.3bn came in significantly behind consensus estimate of N4.7bn. Hence, we expect significant downward revision to consensus estimates. UACN shares have gained 8.9% ytd, slightly ahead of the ASI’s +8.5% gain.
We rate the stock Outperform. Our estimates are under review.
UACN Q4 2017 results vs. FBNQuest Capital Research estimates (N millions)