In its recently released FY2019 UNAUDITED results, UACN’s Revenue grew 10% y/y to N83.9bn, in line with our FY 2019 estimate of N83.8bn. Pre-tax Profit also grew 5% y/y to N8.1bn, well above our FY 2019 estimate of N7.4bn.
The growth in Pre-tax Profit was driven by higher Revenue in the Animal feeds (up 14% y/y) and Packaged Food (up 10% y/y) segments as well as a 1.2x jump in the Other Operating Income line- supported by Profit on sales of Investment property (N631mn in FY 2019 vs 15m in FY 2018). However, we highlight that a loss of N15.3bn arising from discontinued operations (share of loss from UPDC) masked the sustained improvement in its operating performance.
Revenue grew 10% y/y to N83.9bn, on the back of higher revenue from its Animal Feeds (+14% y/y accounting for 58% of group Revenue) and Packaged Foods segment Feeds (+10% y/y accounting for 21% of group Revenue). We note that the Group Revenue excluded Revenue from the Real Estate business (UPDC) following the classification of UPDC as discontinued operations.
EBITDA grew 3% y/y and 37% q/q to N6.5bn and N1.6bn respectively. The low single-digit y/y growth in EBITDA was affected by the growth in OPEX (up 27% y/y) following the increase in Selling and Distribution (up 41% y/y) and Administrative costs (up 15% y/y). The stronger growth in Q3 EBITDA (up 37% q/q) was due to stronger growth in Revenue (up 15% q/q) which offset the growth in OPEX (up 42% y/y).
We observed a marked decline in the debt of the group (down 73% y/y to N6.5bn in FY 2019 from N24.2bn in FY 2018). This was driven by the exclusion of debts belonging to UPDC in the group financials following the de-recognition of UPDC in Q3. Consequently, the group reported a Finance Cost of N451m in FY 2019 (Post-derecognition of UPDC) compared to N1.8bn in H1 2019 (Pre-derecognition of UPDC).
Although Pre-tax profit grew 5% y/y to N8.1bn, the loss of N15.3bn emanating from discontinued operations (UPDC), wiped off the Pre-tax Profit, resulting in a Net loss of N9.2bn in FY 2019. We, however, reiterate our view that the unbundling exercise embarked upon by the firm will enable UACN to deliver more value to shareholders as the results of UPDC (which was a loss-making subsidiary with Pre-tax loss of N9.2bn as of FY 2018) will no longer be consolidated into that of UACN.
We recall that headwinds from the real estate business (UPDC) has been a major drag to the overall performance of UACN. In 2018, UPDC contributed just 3% to Group Revenue of N78.7bn, however, non-cash impairments and losses on asset sales which amounted to N10.2bn, plunged UACN to its first Pre-Tax Loss of N5.5bn in over a decade.
We have a target price of N17.0/s on UACN with a BUY recommendation (current price; N9.00).
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