Last week, UACN Plc fell to a new 5 year low of N9 at the end of Friday’s trading session on the Nigerian Stock Exchange (NSE).
The stock began trading at N9.40 on Friday and closed at N9, down N0.40 or 4.26%. Year to date, the stock is down 46.75%.
Likely reason for the drop
The company, one of Nigeria’s oldest conglomerates, released its results for the third quarter ended September 30, 2018, last week. While revenue fell from N68.2 billion in 2017 to N55.7 billion in 2018, profit before tax fell sharply from N3.1 billion in 2017 to N483 million in 2018. Profit after tax also declined from N2.2 billion in 2017 to N347 million in 2018.
On a quarterly basis, the performance is much worse. The company made a loss before tax of N1.6 billion in 2018, as against a profit before tax of N1.2 billion in the prior year.
The Achilles heel
A closer look at the company’s revenue segments shows that the real estate and animal feed divisions are weak links. Losses from the real estate division worsened from N1.9 billion in 2017 to N4.5 billion in 2018. The loss was due to a markdown of JV projects and impairments of receivables.
“Continued recession in the Nigerian real estate market led to a markdown of the carrying value of JV projects and impairment of related receivables.”
The animal feeds division has also performed poorly, moving from a profit before tax of N1 billion in 2017, to a loss before tax of N300 million in 2018.
Will it go lower?
In September, the stock hit a 5 year low of N11 per share. Nairametrics’ forecast was that the stock would dip lower.
Possibilities of the stock going a lot lower are quite high. The All Share Index has fallen sharply in the first few days of November and could go much lower. Month to date, the index is down 1.05%, while year to date decline is 16%.
Dividend payment could decline
The poor results mean that the company could cut down on dividend payment or dip into its retained earnings to maintain the current trend. UACN paid a dividend of N0.65 for the financial year ended December 2017, from earnings of N1.
Earnings for the 9 months ended September are N0.01 per share. The company may end up having its worst full-year performance in half a decade.
Stemming the bleeding
The firm has taken steps to rejig UPDC, but they are yet to yield returns. Fola Aiyesimoju has been appointed as Chief Executive Officer (CEO) of UPDC. Aiyesimoju is a partner with Themis Capital which took up a significant stake in UAC in April this year.
A conference call following the release of the results should provide more clarity.