UACN Cost Impediment a drag on Firms Profitability strive
UACN is the second market player in the conglomerate sector of the NSE classification a position ascribed to the firm on the basis of its Total Asset and Equity as at 31st December, 2018 (Total Asset :Transcorp-68% & UACN-28% & Equities: Transcorp-56% & UACN -40%). Although both are not closely related in terms service offering but are related based on conglomerate business set up and existing service similarity (Real Estate/ Hotel Business Offering and Agro allied to Animal Feeds, Package feeds & QSR). Upon the review of UACN costs ratio to its income generation, the cost proportion had a drag on the income, which has consistently affected the profitability endeavors of the company. The major cost magnifier of the organization resides with its cost of sales, which have averagely depicted that for every N1 income earned, N0.75k has been utilized in generating such income. While on a comparable basis, Transcrop Cost has been reasonable, as the firm’s Cost to Income ratio for a 5 year average is 32%, which thus give headroom for executive to return sufficient profit for asset deployed in the operation of the firm.
Interpretation Ratio- Trailing Performance:
Price-Earnings Ratio: The price multiples of UACN for a 5years trends has indicated a strong potentials for growth of its anticipated future earnings, which have constantly supported the revamping of its share prices above during the period considered, as the 5years multiples of the firm indicated that investors were willing to pay N9.95 premium for every N1 of its trailing earnings, this premium was however fueled as a result of decreasing earnings per shares, as such in actual terms of future performance, this premium are not realizable, because earnings has constantly been on a decline. Every well-informed investor will discard the average premium of N9.95, based on trailing unimpressive performance of the firm.
Dividend Yield: UACN average Return on Investment for a 5years period is approximately 5.1%, while the average ROI in respect of T-Bills for the same period of 5 years, has returned 13.4%, which implies that investors would be better off if they opted for a lesser risk investment opportunity, than getting exposed to higher risk potential that offers lower return, as such investors have not been better-off holding on to UACN in their investment portfolio. However on the basis of forecasted dividend payout for 2019 with a base price of N7.50, as at 3rd December, 2019, the Firms dividend yield is 8.53%, which is higher than 364 days T-Bills Yield of 8.37%.
Enterprise Value/EBITDA: Upon a five years period simple average of UACN’s EV/EBITDA was 6.71x, while its comparable firm reported a EV/EBITDA of 7.76x for same period and comparing both multiple to our adopted benchmark cut-off multiple of 8.77x, given that any firm whose EV/EBITDA are lower than the adopted cut-off multiple will be considered to be an undervalue stock on the basis of its trailing value. However, this should not be considered as a generalised rule of thumb. Investors are expected to take advantage of opportunity offered based on the EV/EBITDA multiple, as the current trading price of the stock on floor of Nigeria stock exchange gives investors a headroom for some marginal gains if locked in at the current trading price of N8.00 (as at 29th November, 2019).