EUR 53.02 For Business Accounts Only

UAC OF NIGERIA PLC - Q2 Earnings bow to higher tax rate

• ​ In spite of tepid consumer demand, UACN reported a mild 2% y/y revenue decline in H1’16 (outperforming Vetiva’s -7% y/y estimate). This comes following a re-consolidation for its Warm Springs Water business (previously held for sale) in FY’2015 and Q1’16 results which raised topline marginally in both periods. Looking at the Q2 performance stand alone, revenue was up 9% q/q – 8% below Vetiva’s estimate. According to management, minimal increases in retail prices and some volume growth was responsible for this improvement. In the quarter, all but one operating division recorded revenue growth, with a surprising 54% q/q rise in top line recorded in the Real Estate segment. Whilst PBT rose 23% q/q (3% above Vetiva’s estimate), a 40% effective tax rate in the quarter kneecapped bottom line, down 1% q/q. 

• Though operating expenses remained unchanged at N5.3 billion and net interest expense declined 48% y/y (amidst lower borrowings and higher interest income), bottom line still came in 16% lower y/y at N2.6 billion, deviating 6% from our N2.8 billion estimate. This was majorly due to a 20% y/y decline in UPDC’s REIT income contribution and a 700bps increase in effective tax rate to 33% (H1’15: 26%, Q1’16: 25%, Q2’16: 40%).Whilst UACN reported an impressive performance in Q2’16, with the 9% q/q and 23% q/q rise in revenue and PAT respectively, we maintain our flat y/y revenue performance at N74 billion given our tepid consumer demand outlook of for the rest of 2016. That said, we lower our EPS estimate to N1.50 (Previous: N1.75). With this, our 12-month target price for UACN is revised downwards to N28.75 (Previous: N30.27).