Since 2023, the Nigerian business environment has been turbulent, marked by macroeconomic challenges.

    Amid these turbulent economic conditions, Nigerian conglomerates have showcased resilience and adaptability.

    Two standout players; Transcorp Plc and UAC Nigeria, have notably weathered these challenges, achieving impressive financial performances.



    Strong Pre-Tax Profit Growth

    Transcorp Plc and UAC Nigeria have both experienced substantial growth in pre-tax profits despite the challenging economic backdrop.

    Transcorp reported a significant 94% increase in pre-tax profit for the year 2023, amounting to N58.81 billion, with Q1 2024 continuing this upward trend at N45.685 billion.

    Meanwhile, UAC of Nigeria’s pre-tax profit surged by an impressive 348.5% from 2022, transitioning from a loss of N4.822 billion to a profit of N11.984 billion in 2023.

    The momentum carried forward into Q1 2024, with UAC Nigeria recording a promising N9.03 billion in pre-tax profit, a stark improvement from the N937 million loss in Q1 2023.


    Profitability Sources

    UAC Nigeria attributes its profitability to increased revenue across all segments due to a combination of volume growth and price increases, cost-saving measures implemented in the Animal Feeds and Other Edibles segment, and gains from the disposal of non-core property assets.

    However, a review of the financial statements suggests that foreign exchange gains also played a significant role.

    • UACN recorded impressive growth in foreign exchange gains. In 2023, FX gains increased by 1,175% year-on-year to N4.164 billion. By Q1 2024, UACN had achieved about 142% of the 2023 figure, reaching N5.92 billion, representing an 8,190% year-on-year growth.
    • The FX gains represent on average 50% of the company’s pre-tax profit

    In contrast, Transcorp’s profitability appears to be driven more by robust core operational activities than by foreign exchange (FX) gains:

    • Transcorp reported minimal growth in FX gains, with N945 million in 2023 and N210 million in Q1 2024. This contributed only about 1.61% to the pre-tax profit, unlike UACN.
    • Furthermore, Transcorp demonstrated substantial year-on-year revenue growth of 47% in 2023 and an impressive 173% in Q1 2024. The Q1 2024 revenue of N88.552 billion represents 45% of the total revenue for 2023. This high proportion indicates an exceptionally strong start to the year, suggesting that if this trend continues, Transcorp could surpass its previous year’s performance by a significant margin.

    In the context of profitability and its sources, the distinction highlights Transcorp’s advantage in maintaining a more stable, sustainable, and reliable source of profitability compared to UAC Nigeria.

    Despite their differences, both companies experienced positive impacts on their retained earnings and shareholders’ funds due to growth in profitability.

    • Transcorp’s shareholders’ equity surged by 20% to reach N224.354 billion, whereas UAC Nigeria’s increased by 11% to N59.17 billion as of Q1 2024.
    • The growth in shareholders’ equity for both UAC Nigeria (UACN) and Transcorp indicates strengthened capital bases, potentially leading to improved returns for shareholders.
    • In 2023, UACN achieved a return on equity (ROE) of 18%, whereas Transcorp reported a slightly lower ROE of 17.34%.
    • A higher ROE generally suggests that a company is more efficient in generating profit from shareholders’ investments. UACN’s higher ROE indicates that it earned 18% on every unit of equity invested by shareholders, while Transcorp earned slightly lower at 17.34%

    In terms of earnings per share, it appears UACN generated higher earnings per outstanding share compared to Transcorp.

    In Q1 2024, Transcorp reported earnings per share (EPS) of 0.61, whereas UAC Nigeria (UACN) recorded an EPS of 1.85 during the same period.

    This suggests that UACN’s profitability, relative to its number of shares, was more favourable than Transcorp’s during that quarter.

    Investors often use EPS as a metric to assess a company’s profitability on a per-share basis and to evaluate its valuation.

    Based on trailing twelve-month earnings per share (EPS), UAC Nigeria (UACN) is trading at lower earnings multiple of 2.7x, while Transcorp’s earnings multiple stands higher at 11x.

    In essence, UACN’s lower earnings multiple suggests that it is priced more attractively relative to its earnings compared to Transcorp.

    Investors may perceive UACN as potentially undervalued or having better earnings efficiency, making it a potentially more favourable investment choice based on this valuation metric alone

    When comparing their price-to-book and price-to-sales ratios, UAC Nigeria (UACN) shows a lower price-to-book ratio of 0.69, while Transcorp’s ratio is higher at 2.7.

    Similarly, UACN’s price-to-sales ratio is lower at 0.29, whereas Transcorp’s ratio stands higher at 1.73.

    These metrics indicate that UACN’s stock is potentially undervalued relative to its book value and sales compared to Transcorp.

    Investors might interpret this as UACN being undervalued based on its book value and sales per share.

    Overall, UAC Nigeria appears to offer better valuation metrics with lower ratios, potentially indicating it is undervalued compared to Transcorp.

    However, Transcorp’s profitability from core operations and higher earnings may appeal to investors looking for stability and growth in diversified sectors.

    Investors should consider these factors alongside their own investment objectives, risk tolerance, and market outlook when evaluating which company aligns better with their investment strategy.

    Each company’s financial health, growth prospects, and market position play crucial roles in determining their attractiveness as an investment opportunity.



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