CardinalStone Lifts Target Price for BUA Foods BY 14%
CardinalStone Securities analysts have raised BUA Foods 12-month target by about 14% to N314.16 per share from N275.76, details from its equity report revealed. Analysts retain hold recommendation, noting that the food company is trading at premium, suggesting that it’s currently overpriced on the Nigerian Exchange at N379.
BUA Foods Plc posted improved revenue driven by higher prices of goods in the consumer market in 2023. Its cost profile has increased due to inflation, and customers are still adjusting volume to fit their budgets. Sales volume growth was depressed amidst expectations of higher economic growth in 2024.
Inthe first quarter 2024 earnings scorecard, the food producer reported net income of N55.8 billion, which represents 37.9% year-on-year growth, driven by stellar growth in its top line. Revenue increased by 147.3% year on year to N356.9 billion, according to details from its recently released financial statement. In its projection, CardinalStone Securities revised its 2024 revenue forecast to N1.2 trillion from N964.7 billion in 2023.
Analysts said this revision reflected the positive impact of pricing actions in response to higher input costs. They support their argument with BUA Foods introduction of three new products- 5kg semolina flour, pasta premium spaghetti, and pasta twist macaroni- in Q1-2024 to diversify revenue streams and meet consumer needs and preferences.
They also noted there will be positive impact on the company’s performance due to increased contribution from the rice segment, aided by investments in community partnerships in Lafiaji town of Kwara State related to paddy rice agriculture.
Analysts stated there will be positive impacts on the company’s earnings due to volume growth, which is expected to be supported by production capacity expansion and utilization across the sugar and rice segments
The company has demonstrated operational efficiency, a strong brand presence, and a competitive edge in terms of market leadership that provide some justification for its valuation. Furthermore, where most FMCG companies have struggled, BUAFOODS has maintained the highest revenue growth, gross margin, and net profit margin, corroborating our view that there is some justification for its premium compared to peers.
BUAFOODS is likely to report a lower FX loss in 2024 due to the relatively benign Naira outlook and the company’s framework to accelerate its backward integration program, CardinalStone estimated.
Notably, the company has committed to a capital expenditure budget of N40-60 billion for the current financial year, CardinalStone said. There has also been the acquisition of 20,000 hectares of land in Kwara state and notable partnerships with communities on paddy rice supply for the company’s re-commissioned rice mill. Africa loses $7bn to $15bn yearly to climate change- Adesina
