May 4, 2022/CSL Research

UACN released its unaudited Q1 2022 result last week. The company reported a 25.6% y/y increase in Revenue to N27.7bn in Q1 2022 from N22.0bn in Q1 2021. Q/q standalone, the company recorded a 7.0 q/q decline in topline from N29.7bn in Q4 2021. The company’s y/y Revenue growth was broad-based across its segments, supported by price increases on some of its products in a bid to pass on some of the increased raw material costs to consumers.

Specifically, growth in Revenue from Animal Feeds & Other Edibles (up 18.0% y/y to N16.5bn) was driven by prices to neutralize the cost impact of rising raw material costs of maize and soya beans. Likewise, Packaged Food & Beverages Revenue segment grew by 9.9% y/y to N6.5bn on the back of volume growth in water, and dairy categories as well as price increase across the categories. The Quick Service Restaurants (QSR) segment recorded 30.1% y/y Revenue growth of N591m, supported by new corporate stores and improved performance of existing stores. Revenue in the Paint segment was up 81.2% y/y to N4.6bn in Q1 2022 driven by strong volume growth (+44.0% y/y) from new stores opened to drive the retail footprint expansion. We find this performance quite impressive considering the competition in that segment.

Growth in Cost of Sales (adjusted for depreciation) was in line with that of Revenue growth, up 25.7% y/y to N22.1bnn in Q1 2022 from N17.6bn in Q1 2021. However, on a q/q basis, Cost of Sales decreased by 8.2% q/q from N24.1bn in Q4 2021. Despite the y/y elevated costs, Gross profit remained rose 5.2% y/y to N5.5bn in Q1 2022, while Gross margin remained flat at 20.1% in Q1 2022.

Operating Expenses (adjusted for depreciation) was up by 26.5% y/y to N3.5bn in Q1 2022 from N2.7bn in Q1 2021. The growth in Opex was driven by increase in Selling & Distribution Expenses (up 22.0% y/y to N1.7bn) and Administrative Expenses (up 30.9% y/y to N1.8bn). Part of the growth in Administrative Expenses was largely driven by increase in Electricity & Power (+41.0% y/y) and Information Technology Charge (+83.0% y/y).  Also, a 136.4% y/y increase in Marketing, advertising & communication expense was the main driver of the growth in Selling & Distribution Expenses. Given a surge in Net Other Income (+595.4% y/y to N457m), EBITDA growth improved greatly, climbing higher by 44.5% y/y to N2.5bn in Q1 2022. Notwithstanding the 11.2% y/y growth in Depreciation & Amortisation to N678m, Operating Profit grew by 62.2% y/y to N1.9bn in Q1 2022 from N1.2bn in Q1 2021.

The firm recorded a Net Finance Cost of N910m in Q1 2021 compared with a Net Finance Income of N95m in Q1 2021. This was driven by a spike in Finance Cost (up 296.7% y/y to N1.2bn), further elevated by a 37.5% y/y decline in Finance Income to N240.6m in Q1 2022. Notably, the higher finance costs were due to increased short-term borrowings in the Animal Feeds & Edibles segment to support its efforts to build inventory levels to mitigate risk of supply chain disruptions. The marked impact of the Net Finance Cost resulted in a 4.8% y/y decline in Pre-tax Profit to N979m in Q1 2022 from N1.0bn in Q1 2022. Profit from continuing operations also decreased, down 4.0% y/y to N642m in Q1 2021 despite the lower effective tax rate 0f 34.4% in Q1 2022 compared with 35.0% in Q1 2021. In the same vein, the company reported Loss from discontinued operations of N3m in Q1 2022 compared to nothing in Q1 2021. The N3m loss was from expense incurred as part of its voluntary winding up process of UNICO CPFA Limited, a discontinued operation.

Consequently, Profit for the year dipped by 4.5% y/y to N639m in Q1 2022 from N669m in Q1 2021. Profit attributable to equity holders was N517m in Q1 2022 compared with N341m in Q1 2021, reflecting the impact of the full recognition of UAC Foods as a wholly owned subsidiary following UAC’s purchase of Tiger Brands’ 49% stake in the subsidiary in September 2021. Consequently, EPS rose to N0.18/s in Q1 2022 compared with an EPS amount of N0.12/s in Q1 2021.

We are currently reviewing our numbers. Current Price: N8.20/s.

Source: Company data, CSL Research