UPDC H1 2013 Earnings Review: Too Big To Produce


 

 

UPDC

 

[upme_private]UPDC released its Half year unaudited results showing revenue rose 21% to N6.3billion. Gross profit also rose 13% YoY to N2.3billion. Pre-tax profit at the end of the period rose 138% to N1.6billion YoY. The result beats the company;s forecast profits of N660million in profits even though it fell short of the N6.8billion projected in revenues. Earnings per share at the end of the period rose 141% to N1.07.

Key Highlights

  • The company obviously beat earnings expectations as a result of the N991million net gain from sale of properties. Take that off and the projection is just about right.
  • The company still carry huge debts of about N25billion producing a 80:100 Debt to equity ratio. The impact of the debt is still downplayed as interest rates still remain pretty low. However, this amount in addition to its Equity of N31.4billion suggest a huge capital outlay that the company is yet to turn into better shareholder value. Luckily for them, their debts, a hybrid of bonds and commercial loans are just about 10% and 12% respectively. 
  • A return on average asset of 3.3% is certainly where you want to be when you have a balance sheet this size. Asset turnover of just 9% also helps buttress thus view. 
  • Return on equity is even very low at 4.7% this half year and 7% at the end of FY 2012.  
  • A look at the inventory of about N15.8billion suggest the company is expanding at a rate higher than it can produce improved returns. It is not finishing its projects as quickly as it ought to.
  • It is also disappointing that the total of trade receivables and trade payables also remain flat after 6 months. Whilst it is struggling to get its debtors to pay up it is also struggling to repay its creditors. Inter-company debt of almost N2billion is also a source of worry for the company. At this rate one wonders if it will be written off eventually and more prudently that it currently is.
  • At the rate at which it is piling up inventory, Trade Payables is likely to continue to remain high even though they claim an average of 34days credit turnover period. 
  • It’s Festac 77 Acquisition is slow to pick up and still pulling down the group. It is one of those assets that will run up losses in the short term and ride of very thin margins for profitability.
  • Typically, assets like this should be sold off or they should pursue a part divestment to cash out some equity. But I understand the sentimental value attached t o the product. it only takes courage to do just that.
  • Cash generated is also very thin considering the nature of business. The company still generates negative operating cash flows a pointer to its ever reliance on overdrafts.
  • The company has impressive retained earnings of about N27billion. But it only paid dividend of N893.7million in 2012 (2011: N756.2m). It apparently can’t pay more than that for now for two reasons
  • One- It currently finances dividend payments from debts (took N3billion new debts which helped  pay dividends this year). Two- If it decides to issue script dividends that two may not look appealing as EPS will nose dive.
  • Current Share price of N15.9 suggest a 16.7x Price Earnings. Ironically that is about 69% of Book value indicating a relatively cheap valuation.
  • But remember, this is because the company is carrying very huge shareholders funds that it can’t yield better value on. Its intrinsic value may just continue to be below Book value if ROE does not cross the 12% margin at the very least.
  • This result doesn’t indicate this will be achieved anytime soon.

 

UPDC Plc 2013 H1 Results Snapshot

UPDC released its 2013 H1 Results in the website of the NSE[/upme_private]

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