UACN: Positive sentiments spur ‘Buy’ recommendation

Shortly after the release of UAC of Nigerian plc (UACN) results at the Nigerian Stock Exchange (NSE), the management of the company held a conference call with analysts and investors. They (UACN management) discussed the company’s full-year audited results and gave insights into the medium- to long-term prospects of the company.

In the full-year ended December 31, 2014, UACN reported group revenue increase to N85.654 billion from N78.714 billion; though the company’s revenue was down to N928.853 million from N1.094 billion in full-year 2013.

The group’s profit before tax (PBT) rose to N14.096 billion from N13.935 billion, while the company’s PBT declined to N5.341 billion from N7.560 billion in 2013. UACN group profit after tax (PAT) increased to N10.726 billion from N9.873 billion while the company’s PAT declined to N4.313 billion from N6.520 billion.

Also, the group reported basis earnings per share (EPS) increase to 340 kobo from 291 kobo in full- year 2013, while the company’s basis (EPS) declined to 225 kobo from 339 kobo in 2013.

The share price of UACN is hovering around N38, but analysts have set a price target well above this level.

UBA Capital analysts have a new target of N47.70 from N49.61 they earlier targeted. In their own view, investment analysts at FBN Capital say their new price target for UACN is N63.6 against new target of N56.8.

“We believe the foods and the real estate businesses would be the key profit drivers for UACN in 2015. We anticipate that the real estate business would benefit from consistent income distribution and gains from its REIT investment. At current levels, UACN shares are trading on a 2015E P/E of 11.6x for a 2016E EPS growth of 19 percent. Ytd, UACN shares have gained 9.7 percent, outperforming the market by 8.4 percent over the same period. We retain our outperform rating,” say Uwadiae Osadiaye and Tunde Abidoye, both analysts at FBN Capital Limited.

Financial analysts at UBA Capital say based on their key take-away from the conference call of UACN management, “we remain positive on the fundamentals of UACN.

“Its exposure to the food and agro-allied business (~72% of group revenue) continues to give the company important defensive characteristics. However, on the strengths of revelations from the call, we have revised our FY-15 projections, and by extension, our target price for the counter.”

The management proposed dividend of 175 kobo same as in 2013. “While 2015 revenue strategy will mostly be hinged on innovative ways to grow volumes, the company is also looking for areas within the business where it can pass a rise in input cost to consumers,” UBA Capital analysts note as take-away from the conference call.

Their views: “Q1-15 outlook for revenue is somber – management said demand was muted in January and February 2015, as consumers stayed cautious with an eye on the 2015 polls. Furthermore, pressure on consumer pockets is set to extend for the most part of 2015. Pressure from the North has increased exposure to currency volatilities as the company now has to augment locally sourced inputs with some imported commodities.

“Guidance for plausible price hike is negative for volume growth, as the current environment is more supportive of consumers’ preference for the lower end of the price ladder, in our view. We expect opex to continue to trend higher in the current year, extending 2014 trends. In our opinion, major driver of opex will be selling and distribution costs, as the company will likely intensify efforts to improve route-to-market and protect its market share, especially up North. We expect the unrest in the North to abate gradually, following the successful completion of the 2015 polls.”

 

Iheanyi Nwachukwu