From its packaged sausage rolls to packaged ice cream and cakes, UAC Nigeria has spent decades creating the perfect snack experience for Nigerians. Even with widely-known brand names like the beloved Gala Sausage Roll, the company hit new lows over the past few years, no thanks to its now-discontinued operations in its real estate subsidiary, UPDC.
In 2018, it reported a write-down of N13.7 billion due to a combined net-loss from its holdings in the subsidiaries UPDC, MDS Logistics, and UNICO with UPDC contributing N14.9 billion in losses. It eventually took a bold decision to spin off the loss making real estate unit.
However, barely a year after making the tough call to shed the dead weight, it has set off on a course to pay dividends on each of its 2.88 billion shares outstanding.
For the year ended 31st December, 2019, UAC of Nigeria Plc announced a dividend of 10 kobo per ordinary share. Come Thursday 16th July, the proposed dividends will be paid electronically to shareholders who have completed their e-dividend registration.
The UACN’s Annual General Meeting is also set to take place on the 15th of July. While the proposed dividend payment will serve as a silver lining of some sort to its shareholders, is this the best move for the company?
It’s still a loss-making company
In FY 2019, a loss of N14.6 billion arising from discontinued operations (UPDC) led to a net loss of N9.3 billion for the year, which was a marginal decrease from its loss of N9.5 billion in FY 2018. With the proposed dividends charged against 2019’s ailing books, one question to be asked is, “Why?” Even strong companies suspend dividends when there’s financial trouble.
A dividend of 10 kobo per ordinary share on its 2.88 billion shares outstanding will cost the company a total of N208.8 million. While the company’s Cash & Cash Equivalents sits at N8.13 billion as at 2019, giving it a level of flexibility to pay out dividends, the need for liquidity particularly in these times cannot be overemphasized. Given its recent challenges, the company might be better off relegating avoidable costs to the background.
A better approach
A better approach will be to focus on a growth strategy, deploying all available resources to set the company off on a course that will ensure its sustainability. It needs to come up with innovative solutions to expand its core business while also looking out for divestment opportunities that are certain to pull it out of the quagmire it has found itself in.
The UACN stock experienced a rally in May before falling to its current share price of N7.20 and a price-to-book of 0.3951. The company’s growth efforts will do well in attracting new growth investors who will embrace the idea of purchasing the company’s shares low and watching it set off on a path to success.
Even better is that its existing investors will now be presented with a better option in terms of valuing the company’s benefit to their overall investment portfolios.
*This article has been updated*