Culled—Proshare

May 3, 2018/FBNQuest Research

­Event: UAC of Nigeria (UACN) reports Q1 2018 results

Implications: Downward adjustments to consensus 2018E EPS forecast expected

Positives:  Net interest expense declined -64% y/y to –N446m

Negatives: Q1 sales of N18.3bn down -25% y/y and -10% q/q respectively; Opex up 14% y/y to N2.6bn

Late on Monday, UACN published its Q1 2018 results. The results were primarily hit by weaker sales across key businesses. Group sales of N18.3bn declined -25% y/y while PBT and PAT of N974m and N709m (before discontd ops) respectively both came in flattish y/y. On a segmental basis, sales for the food & beverage business declined by -29% y/y to N14.0bn, driven by lower (down -41% y/y) revenues within the Animal Nutrition business.

Additionally, UACN’s real estate and paints businesses posted relatively weaker revenues. A gross margin expansion of +304bps y/y to 19.5% and a -64% y/y decline in net finance charges were the primary drivers behind the recovery in profitability. We note however that PBT for the food & beverage segment declined by around -50% y/y to N416m, driven by increased operational and input costs in the Animal Nutrition business.

According to management statements, this particular business posted a combined (Grand Cereals and Livestock Feeds) loss before tax of –N26m in Q1 2018. On a sequential basis, sales declined -10% q/q while PBT was up significantly (+382% q/q). The q/q PBT growth was primarily driven by base effects on the net finance expense line (–N1.2bn in Q4 2017 compared with –N446m in Q1 2018).  

Compared with our estimates, sales and PBT both missed by -6% and -37% respectively. The major drivers of the variance were the y/y topline decline and negative surprises on the gross margin, opex and other income lines. Combined, these more than fully offset benefits coming through from the moderating interest expense line.

All revenue lines surprised negatively. On an annualised basis, UACN’s Q1 sales and PBT are tracking well behind of consensus’ N96.4bn and N8.2bn forecasts, respectively. Hence, we expect significant downward revision to consensus 2018E estimates. UACN shares have gained 1.5% ytd, underperforming the ASI by 6.5%.

We rate the stock Outperform. Our estimates are under review. 

UACN Q1 2018 results vs. FBNQuest Capital Research estimates (N millions)