EUR 56.22 For Business Accounts Only

UAC OF NIGERIA PLC - Earnings outperform, 9M’16 PAT up 23% y/y

• UACN recorded an impressive 18% y/y revenue growth in the third quarter of 2016, with the topline outperforming Vetiva and Consensus estimates by 14% and 15% respectively. With this, 9 months revenue growth for the Conglomerate came to 5%, compared to -2% in H1’16. With all other operating divisions recording revenue declines as at 9M’16, the Food & Beverages segment (up 11% y/y) singlehandedly buoyed the Group’s topline performance. We believe UACN will continue to ride on the strength of this segment through the difficult operating landscape, even as we expect the resilient Food subsector to outperform the broader Consumer Goods sector in the near term.
• Looking at the Q3 performance stand alone, revenue was up 9% q/q, supported by a strong performance from its agro-allied subsidiary, Grand Cereals (in the Food & Beverages segment).Surprisingly, UACN recorded gross margin moderation in Q3’16 to 21% (Q2’16: 22%). Though exposure to FX inputs remains minimal, management has stated that sustained FX unavailability and exchange rate volatility have led to cost increases, and in some cases, production disruptions.
• We have raised our forecasts to reflect this Q3’16 outperformance, possible volume boost from new product offerings (such as Gala mega and Supreme Cutie ice cream) and better volume performance across key operating divisions (particularly Foods & Beverages and Paints) in the festive season of the final quarter. We have chosen to maintain a conservative stance on Grand Cereals’ performance amidst uncertainty concerning poultry feed volumes. Our FY’16 revenue growth forecast is raised to 8% y/y (Previous: 1%) and our FY’16 EPS forecast to ₦1.69 (Previous: ₦1.49). Our 12-month target price for UACN is revised upwards to ₦28.26 (Previous: ₦26.50).