02 Aug 2018 ( Lagos ) : On an annualised basis, H1 2018 PBT of N2.1bn is tracking slightly behind consensus full year 2018E estimate of N4.5bn. Therefore, analysts expect slight downward adjustments to consensus 2018E EPS forecast. UACN’s Q2 PBT grew 28% y/y to N1.1bn, driven primarily by a +500bs y/y gross margin expansion to 21.4% and a -51% y/y decline in net finance expenses. To a lesser extent, an 89% y/y growth in share of profit from associates helped. 

The Q2 PBT figure is the strongest the firm has posted since 2016. However, losses from discontinued businesses, such as UPDC Hotels, UNICO CPFA’s pension business and Warm Spring Nigeria Ltd of –N223m ultimately led to a PAT decline of -10% y/y to N392m. Compared with analyst's estimates, both sales and PAT were in line. Therefore, analysts expect a muted response by the market to these results.

On a positive note, Gross margin expanded by +500bps y/y to 21.4% while net interest charges declined by c.51% y/y to –N630m. The decline in net finance charges was due to lower finance costs of N2.4bn (down -31% y/y). Sequentially, all key line items improved.

On a negative note, Continued weakness in the Food & Beverage segment, driven primarily by a Q2 sales decline of -33% y/y to N10.3bn for the Animal Feeds business. Similar to Q1, the Animal Feeds business posted losses before tax of –N46m in Q2 and now accounts for c.51% of UACN’s topline. Y/y growth in the share of profit from associates was driven mainly by the recognition of reduced losses from UPDC’s investments in First Festival Mall.

Analysts rate the stock Outperform.

Source : Uwadiae Osadiaye, CFA and Gregory Kronsten, Olubunmi Asaolu, Chinwe Egwim from FBNQuest Capital Limited.

Reporting for EasyKobo on Thursday 02 August 2018 in Lagos, Nigeria