July 30, 2021/CSL Research

In its recently released H1 2021 results, UACN recorded a sturdy 26.9% y/y increase in Revenue to N46.5bn in H1 2021 from N36.6bn in H1 2020. On a q/q basis, Revenue grew by 11.2% to N24.5bn in Q2 2021 from N22.0bn in Q1 2021. Interestingly, all segments drove the y/y topline growth in H1 2021; Animal Feeds & Other Edibles (+13.9% y/y), Paints (+58.7% y/y), Packaged Food & Beverages (+45.3% y/y), QSR (+62.0% y/y) and Others (+30.4% y/y). Amidst the intense competition faced in its Paint business, the Revenue growth was impressive considering the weak performances recorded in prior times. We believe the impact of improved patronage of housing projects supported the growth seen. Its Quick Service Restaurant (QSR) segment also grew significantly, up 62.0% y/y to N11.9bn.

Growth in Cost of Sales (adjusted for depreciation) grew faster than Revenue, up 29.4% y/y to N37.5bn in H1 2021 from N28.9bn in H1 2020. This resulted in a 17.6% y/y growth in Gross Profit to N9.1bn in H1 2021 from N7.7bn in H1 2020. Gross margin contracted by 154bps to 19.5% compared with 21.0% recorded in H1 2020.

Operating Expenses (adjusted for depreciation) was up 11.6% y/y to N6.5bn in H1 2021 from N5.8bn in H1 2020. The growth in Opex was driven by growth in Administrative Expenses (+20.1% y/y) and Selling & Distribution Expenses (+2.8% y/y). Despite the increased Opex pressures, EBITDA grew by 39.6% y/y to N2.9bn in H1 2021 from N2.1bn in H1 2020 while EBITDA margin expanded by 57bps to 6.3% in H1 2021 from 5.7% in H1 2020. Also, Operating Profit improved, up 105.4% y/y to N1.7bn buoyed by a decline in Depreciation & Amortization, down 3.3% y/y to N1.2bn in H1 2021 from N1.3bn in H1 2020.

Finance Costs grew strongly (up 83.9% y/y to N675m) masking the 29.0% y/y increase in Finance Income. A 116.7% y/y increase in Interest Expense on bank loans drove the rise in Finance Costs reflective of significant borrowings as total borrowings increased by 308.5% to N17.3bn when compared with N4.2bn in FY 2020. On the other hand, the growth in Finance Income to N649.8bn in H1 2021 was supported by N193m Interest Income on bonds relative to nothing in the previous period.

Bucking the impact of the Net Finance Costs and a N379m arising from the share of loss from associates, Pre-Tax Profit still grew by 25.3% y/y to N1.3bn in H1 2021 from N1.0bn in H1 2020. A lower effective tax rate of 41.0% in H1 2021 compared with 79.3% in H1 2020 led to further improvement in Post-Tax Profit from continuing operations, up 257.6% y/y to N764.7m in H1 2021 from N213.8m in H1 2020. That said, the company recorded a loss of N2.1m from discontinued operations in H1 2021 compared with a profit of N944.3m in H1 2020. As a result, Profit for the period declined by 34.1% y/y to N762.6m in H1 2021 from N1.2bn in H1 2020. EPS fell to N0.05/s in H1 2021 from N0.32/s in H1 2020.

Our estimates and target price are under review. Current price; N10.20/s.