UACN: Solid Quarter on the Back of Improved Market Share

UACN: Bracing For Growth Through Restructuring
UACN Plc, in its recently released Q3’2020 earnings results, reported a 10% year-on-year (YoY) revenue growth, from N19.15bn in Q3’2019 to N21.16bn in Q3’2020. Operating profit, however, declined by 24% YoY. Meanwhile, discounting the impact of non-recurring earnings that were reported in Q3’2019, operating profit grew by 65% YoY from N720.00mn in Q3’2019 to N1.19bn in Q3’2020.

UACN Profit before tax declined by 25% YoY from N1.91bn in Q3’2019 to N1.44bn in Q3’2020. However, underlying profit before tax (adjusted for non-recurring earnings) grew by 34% YoY from N1.07bn in O3’2019 to N1.44bn in Q3’2020. Profit after tax (from continuing operations) stood at N1.23bn in O3’2020, representing an 8% YoY increase from N1.14bn in Q3’2019.

Solid Performance Across all Business Segments

The business segments of the Group all recorded significant improvements in Q3’2020. Animal Feeds 8 Other Edibles (c.60% of total revenues) grew by 10% YoY. The revenue growth recorded was driven by higher prices and improved mix (increased sale of higher-margin products). We note that the sustained border closure by the national authorities positively impacted the Group’s operations in this segment, as increased access to market meant higher volume and higher pricing power.

In the Paints segment (c.12% of total revenue), topline grew by 18% YoY. According to the management, the relaxation of the lockdown and gradual economic recovery resulted in a strong rebound in sales. In our view, we believe that price increases also took place during the period to offset the impact of higher costs induced by the exchange rate devaluation.

The Packaged Food and Beverages (c.22% of total revenues) recorded an 8% YoY growth, driven by increased demand for products in key categories (snacks, dairy, and water). We believe that the increased demand for the Group’s product reflected an increased market share.

UACN had earlier stated that its strategy for value creation was to expand route-to-market and drive sales in existing and new markets. The Group also planned to launch marketing and promotion campaigns to reinforce brand equity and explore brand extension and product development. We believe that these efforts had a significant impact on the revenue growth recorded in the segment.

The Quick Service Restaurants (QSR) business segment grew by a double-digit rate of 16% YoY, driven by sales from recently launched company-owned restaurants.

Higher Prices Keep Margins at Bay

Cost margin lowered by 200 basis points from 81% in Q3’2019 to 79% in Q3’2020. The decline in cost margin was due to the impact of higher prices of products during the period. Owing to the exchange rate devaluation and the pass-through effect on costs, the Group offset the higher costs in the form of higher prices. As a result, gross profit grew by 20% YoY from N3.67bn in Q3’2019 to Q3’2020.

Non-recurrence of one-off earnings Dampen Earnings

In Q3’2019, UACNgenerated an N631.30mn income, which represented profit from the sale of non-core real estate. Also, the Group recorded an N206.30mn ‘writeback of statute-barred unclaimed dividend’. The non-recurrence of the one-off earnings in Q3’2020 resulted in a 3% YoY decline in operating income from N4.66bn in Q3’2019 to N4.52bn in Q3’2020.

Personnel Costs Drive Higher Operating Expenses

In previous periods, the Group embarked on an aggressive hunt for talent and did a nearly total overhaul of management teams of its subsidiaries. Consequent to the increased investment in human capital, administrative expenses grew by 18% YoY from N 1.57’bn in Q3’2019 to N 1.19bn in Q3’2020. On the other hand, selling and distribution expenses declined by 2% YoY from N1.53bn in Q3’2019 to N1.51 bn in Q3’2020. Overall, operating expenses rose by 7% YoY from N3.10bn in Q3’2019 to N3.33bn in Q3’2020.

UACN: Solid Quarter on the Back of Improved Market Share

Strong Bottomline Growth Underpins Solid Quarter

The combination of a lower operating income (-3% YoY) and a higher operating expense (+7%) resulted in a 24% YoY decline in operating profit from N 1.56bn in Q3’2019 to N 1.19bn in Q3’2020. Meanwhile, the underlying operating profit growth (i.e. adjusted for non-recurring earnings) stood at 65% YoY.

Net finance cost declined by 42% YoY from N353.99mn in Q3’2019 to N204.64mn in Q3’2020, due to the low-interest-rate environment. We note the significant decline in yields in fixed income instruments, driven by the accommodative stance of the monetary policy authorities. Nonetheless, underlying profit before tax grew by 34% YoY from N1.07bn in Q3’2019 to N1.44bn in Q3’2020.

Financial Performance Summary

UACN: Solid Quarter on the Back of Improved Market Share
Source: Company Accounts WSTC Research “2019 figures were restated.

UACN/Custodian Transaction

UACN is still currently in the process of selling its controlling interest in UACN Property Development Company Plc to Custodian Investment Plc. As stated in our previous report, the divestment in UPDC by the Group is value accretive to the Group in that cash proceeds from the sale will be used to support and drive growth opportunities in other profitable business segments. We note that UPDC has been consistently loss-making over the last four years.

CAP Plc/Portland Paints Plc Merger

Recently, Chemical and Allied Products Plc and Portland Paints Plc jointly announced a merger, where the assets, liabilities and business undertakings of Portland Paints will be transferred to CAP Plc. The transaction is structured in a cash/stock acquisition. Shareholders of Portland Paints have an option of receiving N2.90 in cash for every Portland Paints share held or one new ordinary share of CAP for every eight Portland Paints shares held.

We note that UACN has c.52% ownership in CAP Plc and c.85% ownership in Portland Paints. In our view, the Group stands to benefit by receiving cash proceeds based on its stake in Portland Paints or in the form of higher dividends inflows from CAP if it decides to go for the stock option. We did not incorporate the impact of the transaction in our model because we are uncertain whether the Group will opt for cash or stock, with either option having a different impact on the Group’s numbers.


UACN’s Q3’2020 results were better than anticipated, as we did not expect price increases during the period due to the impact of competition. However, the increased access to market and persistent high costs possibly made it inevitable. Given the weak macroeconomic fundamentals in the economy, we expect consumers to react to higher prices in the future. Meanwhile, the extent of the buyer’s power will be significantly influenced by the border closure policy. If the border remains closed for an extended period, the buyers’ power would be weak.


We revise our estimates and adjust our FY’2020 EPS forecast to N0.57 (previous: N0.36). Overall, we estimate a fair value of N8.79 for the stock. At current market price, the stock trades at a 30% discount to our fair value. Hence, we recommend a BUY.