Unga Group Limited Announces Half-Year Results

Unga Group Limited (NSE: UNGA), released their semi-annual results for the period ended 31st December 2015, with the following highlights:

9% Growth in Net Revenues; Decline in Profit after Tax by 20.63%:

Unga Group Limited registered a gain in net revenues of 9% – to KES 10.52Bn – as compared to KES 9.64Bn registered in the previous half year announcement. A 9% decline in operating profit margin spells trouble for the food manufacturer that may have witnessed an increase in overhead costs. Manufacturers have recently been hit by an increase in input prices, as illustrated by the Producer Price Index, which took a significant leap in the 4Q15.

Profit before tax advanced by 23.31% to KES 463.89Mn, as operating profits grew by 20.25% to KES 492.72Mn; bolstered by higher sales volumes, including modest gains from conversion efficiencies. Foreign exchange translated into losses for the half year period, though 37.36% lower than the previous half year results- that stood at KES 32.63Mn; significantly impacted by the depreciation of the Kenya and Ugandan Shilling against the US Dollar. Other incomes declined by 79.54% to KES 3.79Mn, noting the sale of the group’s investment in Bullpak limited.

Though profits from continuing operations advanced by 25.26% to KES 327.19Mn, the one off sale of Bullpak limited did see the overall profits for the period decline by 20.63% to KES 327.19Mn. Despite 26% Increase in EPS; Financial Ratios Well in the Red:

With limited data, Unga posted lacklustre ratios; particularly on their profit margins. The manufacturer saw a significant 12% decline of its EBIT margin, down to 3.89%; as the company could be facing adverse effects from depreciation and amortization and/or well as interest costs.

Outlook: Adverse Effects of Economic Conditions

We maintain our WEAK BUY recommendation for Unga, with a target price of KES 45.8; therefore an upside of 19%. The counter is weighed down by high operating costs and cost of debt, as current economic conditions continue to take a toll. Furthermore, the recently ended El-Niño rains are set to have an effect on maize purchases as grain quality has deteriorated. However, Unga Group has recently completed its second sales depot for animal nutrition and health business to better serve the central Kenya region. Further on, increased production efficiencies and increased plant capacity utilization of its Ennsvalley Bakery will broaden the subsidiaries market presence. The introduction of a new integrated enterprise business system (ERP) that was implemented in January 2016 will grow business efficiencies and information flow of the organization.

Article by Genghis Research.