UAC of Nigeria Plc recently released its Q2 2024 results, showing a 44% growth in pre-tax profit to N5.92 billion.
This brings the company’s pre-tax profit for the first half of 2024 to N14.950 billion, representing an impressive 373% year-on-year increase.
The company’s shares have experienced significant price fluctuations this year, rising to highs of N17.50 and dropping to lows of N10.60 per share. Such movements can provide investors with opportunities to enter the stock at potentially lower prices.
The key question is whether UACN’s current trading price of N17.30 accurately reflects its true market value, or if it is currently undervalued, presenting a buying opportunity.
To determine this, it is crucial to examine UACN’s outlook and evaluate its value based on the most recent financial data, identifying any potential catalysts for a price change.
Financial Performance:
A review of UACN’s recent financial statements reveals that the company returned to profitability in 2023 after a loss in 2022.
The company reported a pre-tax profit of N12.340 billion, a significant turnaround from the N4.4 billion loss before tax in 2022, marking an impressive 383% year-on-year growth. This performance far exceeds its five-year compound annual growth rate of over 13%.
The positive trend continued into 2024, with the company reporting a pre-tax profit of N14.950 billion in the first half of 2024; 21% higher than the full-year figure for 2023, suggesting that UACN is on track for another strong financial year.
The impressive bottom-line performance appears to be driven by strong revenue growth outpacing the increase in cost of sales over the two quarters, resulting in substantial gross profit growth.
This dynamic drove the first-half 2024 revenue up by 57.5% year-on-year to N82.25 billion, while the cost of sales increased at a slower rate; rising by 46% year-on-year to N64.54 billion. Consequently, gross profit reached N18.71 billion, more than 87% of the entire 2023 figures.
UACN attributes this revenue growth to increased volume, effective pricing strategies, and improved efficiency. Commenting on the Q2 2024 results, Group Managing Director Fola Aiyesimoju stated: “We navigated margin pressure by balancing the profitable growth of volumes with a disciplined approach to pricing, alongside implementing efficiency initiatives across our operating segments.”
While the CEO’s assertion is encouraging, especially considering the 22% gross profit margin and 18% pre-tax profit margin, the operating profit margin at 8% suggests that there may still be challenges and opportunities for further improvement to enhance profitability.
The relatively strong pre-tax margin of 18% (up 1,198 bps) and net profit margin of 11.5% (up 914 bps) was bolstered by an exchange gain in the quarters, which pushed the first half-year gain to N9.372 billion.
While exchange rate gains significantly boost profitability, it’s important to note that these are often one-time or short-term gains, primarily financial rather than operational, and may not necessarily reflect the company’s core operational performance or long-term profitability.
However, the balance sheet health remains strong, with a good mix of profitability, efficiency, and financial stability, suggesting that the company is well-positioned to sustain its operations and potentially grow in the future.
The reduction in debt levels, a lower equity multiplier (down to 2.03x), and an improved asset turnover ratio (up to 0.67) all point to improved financial stability and operational efficiency.
Furthermore, the improved current ratio (up 12.35% to 1.36) demonstrates good liquidity management, ensuring the company can meet its short-term obligations.
What Is UACN Worth?
Over the past three months (May 14 – Aug 13, 2024), UACN has traded a total volume of 164 million shares across 3,442 deals, valued at N2.45 billion. This averages out to 2.61 million traded shares per session.
This suggests that UACN is quite volatile, offering more opportunities for investors to buy, as the share price could potentially sink lower or rise higher in the future.
That said the key thing is that UACN seems like a bargain right now based on the price multiple model; which compares the company’s price-to-earnings (P/E) ratio to the industry average.
UACN’s P/E ratio of 3.06x is well below the industry average of 8.29x, indicating that the stock is trading at a lower price compared to its peers in the Conglomerates Sector.
Also, UACN’s Price-to-book (P/B) and price-to-sales (P/S) ratios of 0.85x and 0.33x respectively, which are lower than the average sector ratio of 1.35x and 0.52x suggest that the stock is trading at a discount relative to its peers in the Conglomerates sector.
Despite the undervaluation, UACN has experienced the highest share price gain of 34.64% in its sector YtD, which suggests that the company is performing better.
Can We Expect Growth from UACN?
Investors seeking growth in their portfolios should carefully assess a company’s prospects before buying its shares.
While value investors often prioritize intrinsic value relative to price, a more compelling investment thesis combines high growth potential with an attractive valuation.
Given UACN’s strong market momentum, undervaluation, operational efficiency improvements, and healthy balance sheet, there is indeed potential for growth. These factors should contribute to stronger cash flows, ultimately leading to a higher share value.
Caution: While the combination of undervaluation and growth potential makes UACN an interesting option, the stock’s volatility presents both opportunities and risks, which investors should carefully consider.
Investors need to align any decision with their individual investment goals and risk tolerance.