Event

UACN Plc (‘UACN’ or ‘the Group’), in its recently released Q3 2022 earnings results, reported a 4% year-on-year (YoY) revenue growth, from N24.87bn in Q3 2021 to N25.76bn in Q3 2022. The weak revenue growth despite price increases across products suggests pressures on volume during the period. We believe that consumer demand declined in Q3 2022, on the back of weak purchasing power due to heightened inflationary pressures.

Segmental Performance

Animal Feed and Other Edibles

Revenue grew marginally by 1% to N15.03bn in Q3 2022 from N14.90bn in Q3 2021. The lean revenue growth was on the back of lower volume sales amid price increases to offset rising cost and competitive pressures. Lower volume sales were recorded in poultry feed, fish feed, and oil products categories. The segment recorded a N1.90bn loss before tax (Q3 2021: profit before tax of N210mn). The loss was driven by higher operating expense and higher finance cost.

Paints

Riding on her market leadership status with the ability to transfer cost burden to consumers, the paint segment revenue grew by 24% YoY to N4.32bn from N3.47bn in Q3 2021.

Operating profit grew 8x to N560mn from N59mn in Q3 2021. The performance was the effect of higher pricing and improved volume sales which partially offset raw material cost and operating expenses. Furthermore, profit before tax grew by 1% to N623mn from N90mn recorded in Q3 2021.

Outlook

Due to the competitive nature of their industry amid rising input costs pressures, we expect weak revenue growth in the Animal Feeds segment

We expect weak household purchasing power, owing to heightened inflationary pressures to negatively impact topline growth in the Food and Beverages segment. Hence, we also expect to see weak revenue growth in this segment.

We believe that the Paint and QSR segments will maintain their revenue growth momentum into Q4 2022, but the impact of slower growth in the Animal Feeds and Food and Beverages segments will dampen the Group’s overall topline performance. For context, Animal Feeds and Food and Beverages segment account for an average of 74% of the Group’s total revenue.

Overall, we expect the Company incur a net loss in FY 2022 following their weak quarterly financial performance and weak growth expectations in the near term. However, we maintain a dividend estimate of 65 kobo. We posit that the Group’s cash levels are sufficient to pay dividends.

Please follow the link “UACN Q3 2022 – Higher Operating Costs Subdue Profitability” to view the whole report.

Thank you.