The largest and most diversified conglomerate operating in Nigeria is UAC of Nigeria (UAC) with a market capitalisation of N45.8 billion (US$0.3 billion). Having started out as a trading, merchandising and shipping business over 130 years ago, UAC was restructured in 2000 to focus primarily on foods, logistics, and property. Some of its leading brands include Mr. Biggs, Gala, Grand Oils, Supreme, SWAN Natural Spring Water and Gossy Spring Water. It has 50% stakes in UAC Property Development Company Plc (UPDC) and paint manufacturer CAP Plc.
Despite concerns that the prolonged absence of Nigeria's President Yar’Adua due to ill health will have some impact on Nigeria's near term economic outlook due to potential slippage on some major reforms, we expect private consumption to remain robust due to the resilience of the unbanked economy. The recovery of oil output and our belief that banks will resume advancing credit to the real economy underpin our positive view. This, coupled with the government's efforts to diversify the economy, should be supportive for UAC going forward.
UAC has posted strong revenue growth in the last two years. Sales growth improved from 30.8% in 2007 to 44% in 2008, primarily due to the property unit, although the food businesses, logistics and paints also posted good results. The company recorded a profit-before-tax margin of 16.4% in 2008, the highest in many years despite the adverse economic environment. Margins would have been higher if the company had been able to pass on the full increase in input costs to customers.
Divisions
UAC's food and beverages segment is by far the largest in the group. Historically,
this division accounted for 80% of the group's sales. With the consolidation of the real estate business in 2009, this figure is now 63%. In addition to the fast food businesses and its bottled mineral water products, the company also has a poultry, oils and cereal business as well a dairy unit.
Although the restaurant business historically accounted for about 50% of revenues generated in this division, it now accounts for just 25% due to the growth of Grand Cereals, which is another business group within the division. Its flagship brand is the Mr. Biggs fast food restaurant, which is the market leader. Recently the company has targeted growing the franchise part of the business while UAC focused on premium locations. Franchising currently accounts for 60% of revenue generated from the business.
Grand Cereals is an agro-allied business, and accounts for about 50% of the food division's revenue. It produces premium vegetable oil from cotton, soya beans and groundnut. The oil business accounts for around 25% of the segment's turnover. Another major contributor is the poultry and fish feeds business. Poultry feeds are produced from cake obtained from vegetable oil and maize; the unit accounts for about 50% of segment revenue. Its maize milled product is supplied to brewers.
UAC Snacks (Gala) is the third largest contributor to the food division. Management recently introduced a corn-based snack with a longer shelf life of six months.
The dairy business produces ice cream and milk products and it is the smallest contributor to the food and beverages division, due to infrastructure challenges which make storage of products difficult. A new line of products (flavoured milk products under the Supreme brand) with a longer shelf life has been launched.
UAC's commercial vehicles business focuses on higher margin products and services. It operates under the Isuzu brand. Models mainly include haulage trucks and special application vehicles (fire trucks, armoured vehicles, etc).
The paints division operates under the Dulux brand with a focus on the premium segment of the market. This business unit has seen continued growth in the last two to three years. Although the slowdown in the real estate segment has weighed on the division's performance, management still sees some marginal level of growth going forward.
Its logistics business currently services leading telecoms, FMCGs and pharmaceutical companies. UAC has been able to leverage its strengths in real estate to provide warehousing services to high-end clients.
The real estate business went through a difficult period in 2009, especially in the second half of the year. Both developers and clients in the real estate business depend heavily on bank credit which was withdrawn as the banking sector crisis unfolded.
Outlook
Going forward, we expect growth across most of UAC's businesses to return to trend
levels of above 10% from 2010 onwards. However, the property business, for which asset sales form part of the revenue stream, is likely to show a more modest rate of growth than the exceptional level seen in 2008.
CSL Stockbrokers Limited (CSLS) is a wholly owned stockbroking subsidiary of First City Monument Bank and a member of FCMB Capital Market Subgroup. CSLS is one of the oldest stockbroking firms in Nigeria and was licensed in September 1977 by the Nigerian Stock Exchange to deal in securities quoted on the Exchange.
Contact Details
CSL Stockbrokers Limited
Head Office: 2nd - 3rd Floor,
Primrose Tower,
17A, Tinubu Street,
Lagos
Email: cslstockbrokers@firstcitygroup.com
Website: http://csls.firstcitygroup.com/
