UAC of Nigeria Plc (Ticker: UACN) – Equity Research Report
Current Price: ₦88.30 | 52-Week Low: ₦54.95 | Market Cap: ~₦317bn | Target Price: ₦95.00 | Recommendation: HOLD (with positive bias)
Investment Thesis
UACN has experienced a 61% market value surge in five days, driven by strong Q2 2025 earnings momentum and investor optimism following its acquisition announcement of Chivita | Hollandia. The deal, if completed, would significantly expand UACN’s footprint in Nigeria’s fast-moving consumer goods (FMCG) sector, unlocking growth potential in dairy, juice, and snacks.
Q2 2025 results show a solid turnaround in operational performance, underpinned by volume growth, price adjustments, and cost optimization, leading to a 146% YoY growth in underlying pretax profit (ex-FX gains). However, H1 2025 performance remains weak relative to H1 2024 due to the absence of one-off FX gains and higher finance costs.
The acquisition could provide strategic synergies and margin expansion, but near-term risks include integration costs, high borrowing expenses, and regulatory approval delays. At ₦88.3, the stock trades near fair value based on our DCF and EV/EBITDA valuation, limiting upside in the short term.
Key Headlines
1. Q2 2025 Performance – A Strong Recovery
- Revenue: ₦54.4bn (+27% YoY) driven by paint segment growth and price adjustments.
- Gross Profit: ₦14bn (+46%), margin expanded by 321bps to 26% due to pricing strategy and production efficiency.
- Operating Profit: ₦5.8bn (from ₦3.3bn in Q2 2024), reflecting robust operational leverage.
- Underlying PBT: ₦6.1bn (+146% YoY excluding FX gains in 2024).
- EPS: ₦1.32 (vs ₦1.19 in Q2 2024).
2. Cost & Margin Analysis
- Operating Expenses: ₦8.9bn (+30% YoY), driven by:
- Higher power and energy costs
- Increased marketing & distribution expenses
- Staff cost adjustments for inflation.
- Opex-to-Sales Ratio: 16.4% vs. 16.0% last year.
- Net Finance Cost: ₦1.5bn (vs net finance income of ₦2.7bn in Q2 2024) due to higher short-term borrowing and absence of FX gains.
3. H1 2025 vs H1 2024
- PBT: ₦11.1bn (-25.8%)
- Net Income: ₦7.36bn (-23%)
- Reflecting absence of ₦3.5bn FX gains in 2024 and increased finance cost.
4. Strategic Acquisition – Game Changer
- Chivita | Hollandia Deal: Market leader in dairy and juice.
- If approved, expected earnings accretion from FY2026.
- Synergy Opportunities: Cross-brand distribution, operational efficiency, product innovation.
- Regulatory Approval Pending – timeline and structure unknown.
Strengths
✔ Q2 earnings recovery (underlying PBT +146%) ✔ Volume growth and pricing discipline in key segments ✔ Strong brand equity in paints and animal feed ✔ Strategic acquisition of Chivita & Hollandia for diversification and scale ✔ Stable currency and cost optimization efforts improving margins
Weaknesses
✖ H1 2025 earnings still down 23% YoY ✖ Sharp rise in finance costs (₦1.5bn) ✖ Integration and execution risk for acquisition ✖ Inflationary pressure on input and distribution costs ✖ Regulatory uncertainty for deal approval
Valuation
Assumptions
- WACC: 14%
- Terminal Growth: 3%
- Revenue CAGR (2025–2029): 10% (post-acquisition scenario)
- EBITDA Margin Normalization: ~20%
1. Discounted Cash Flow (DCF)
- FCFF Projection (₦bn): 2025E ₦30 → 2029E ₦50
- Terminal Value: TV = FCFF₅ × (1+g) / (WACC - g)
- Equity Value: ₦340bn → per share ≈ ₦95
- DCF Fair Value Range: ₦92–₦100
2. EV/EBITDA Method
- Industry Average EV/EBITDA: 6.0x
- 2025E EBITDA: ₦52bn
- Implied EV: ₦312bn
- Net Debt: ~₦40bn (post-financing)
- Equity Value: ~₦272bn → per share ~₦90–₦94
Price Target & Recommendation
- Current Price: ₦88.30
- Target Price: ₦95 (Base Case), ₦100 (Bull Case with acquisition synergy)
- Upside: 8–13%
Recommendation: HOLD (Positive Bias) Rationale: Strong Q2 recovery and strategic acquisition underpin long-term growth potential, but near-term upside is limited after a 61% rally in one week. Better entry points likely after integration clarity and financing structure details.
Disclaimer
The user WaneInvestmentHouse holds no position in NGSE:UACN. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.