Unga Group Releases Annual Results

Unga Group Ltd (NSE: UNGA), released their annual results for the period ended 30th June 2015, with the following highlights:

Unga Group Limited registered a 10% increase in revenue to KES 18.72Bn, as the company benefited from improved conversion efficiencies and overall volume growth. A 40% jump in gross profits, to KES 754.63Mn, was attributable to the company making the most of stable maize prices, in the first three quarters of the year; a problem it faced the previous financial year.

Extensive losses made due to depreciation of the Kenyan and Ugandan shilling amounted to KES 186.40Mn, a 1084% increase from the previous financial year. A further 55% increase in finance cost to KES 40.24Mn, however, failed to offset the manufacturing company from raking in profits; the company registered a profit before tax of KES 635Mn, a 12% increase.

In light of financial ratios, Unga Group recorded some encouraging results. The 27% and 2% increment on gross profit-and profit before tax margins, respectively, are evidence of this.

As expected, the company has an improved current ratio of 2.37x, up 4%, and a 12% return on equity; both spurred by an improved performance, reflected on their balance sheet. In regards to the nutrition company’s P/E ratio, the 13% decline is reflective of the current market conditions.

Outlook

We maintain a HOLD recommendation for Unga Group, with a target price of KES 49.71; extending an upside potential of 14%. Despite dry weather in Russia and Ukraine and the introduction of a wheat export tax (by the former), wheat production and export estimates have been increased, particularly in the black sea region; therefore we can expect favourable effects on wheat prices.

In addition to this, Unga has implemented strategies that will increase the manufacturing company’s efficiency, product availability and consumer reach; the most notable strategies is the new route-to-consumer and the new ERP business system. The group’s entry into the bakery sector, by acquiring majority shareholding in Ennsvalley Bakery Limited, coupled with the disposal of shareholding in Bullpak Limited, further illustrates the company’s attempt to remain competitive.