BUA Foods’ robust 2022 financial results signal growth opportunities for investors

In a recent financial report for the year ending December 31, 2022, BUA Foods, a prominent integrated consumer goods company in Nigeria, announced impressive results, reflecting its robust performance and growth prospects. Despite facing significant macroeconomic challenges, such as inflation and currency devaluation, BUA Foods managed to achieve remarkable milestones, making it a noteworthy player in the industry.

**Robust Revenue Growth Across the Board**

One of the standout achievements of BUA Foods in 2022 was its substantial revenue growth. The company’s total revenue increased by an impressive 25.53% year-on-year, reaching a significant milestone of N418 billion. This noteworthy expansion was primarily attributed to the remarkable growth within its sugar segment, which contributed a substantial 66% of the group’s total revenue.

The surge in revenue was primarily driven by the outstanding performance of the Sugar division, which witnessed a 31% increase in sales, reaching N274.2 billion (compared to N209.4 billion in the previous year). The growth in the Sugar division was fueled by price adjustments and increased export sales. Additionally, the company reported a modest 1% rise in volume sold, amounting to 607,218 tons during the year.

Notably, other divisions, including Flour and Pasta, also experienced significant revenue growth, contributing 20% and 14% to the company’s top line, respectively. Despite a 16% drop in combined volumes sold in the Flour business, which includes bakery flour and wheat bran, strategic price adjustments and a revamped route to market helped drive revenue growth. The Pasta division also saw drops in volumes but successfully leveraged price adjustments to achieve higher revenue.

**Resilience in the Face of Rising Operating Costs**

Like many businesses in Nigeria, BUA Foods grappled with formidable macroeconomic headwinds. Inflation and currency devaluation led to a surge in the cost of production, including raw materials and energy expenses, causing the cost of sales to increase by 23%, reaching N282 billion. Notably, escalating energy costs, such as diesel, also contributed to higher selling and distribution expenses, despite a commendable 22% reduction in administrative costs. The company, however, managed to keep overall operating expenses rising by 15%, slightly below the inflation rate.

Despite these challenges, BUA Foods demonstrated exceptional financial resilience. The company’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) surged by 38%, reaching N119.4 billion during the year. This remarkable performance translated into an EBITDA margin of 29%, three times higher than the previous year’s figures. Such financial strength allowed the company to cover its debt service obligations effectively. In 2022, BUA Foods allocated N310.411 billion to repay loans and borrowings. Although the net cash and cash equivalent increased only marginally by N185 million, the company showcased its ability to manage its debt and generate substantial profits.

**Impressive Profitability**

On the strength of its substantial revenue growth and financial resilience, BUA Foods achieved a remarkable profit before tax of N107.230 billion, marking a substantial 38% increase compared to the N77.469 billion reported in 2021. The company also reported a profit after tax of N91.344 billion, representing a 31% year-on-year growth. Earnings per share, a crucial metric for assessing performance from a shareholder’s perspective, also exhibited robust growth, increasing by 19.58% to N5.07, up from N4.24 in the comparative year of 2021.

**Rewards for Shareholders**

In a pleasantly surprising move, BUA Foods distributed dividends to its shareholders, paying N3.50 per share, amounting to N63 billion. This dividend payout represented approximately 69% of the company’s profits, reflecting a commitment to rewarding its shareholders. At the current stock price of N102 per share, the dividend yield stands at an appealing 3.43%.

It’s important to note that while BUA Foods’ dividend yield may not be the highest in the market, a high yield doesn’t always equate to an attractive investment opportunity. Often, a high dividend yield results from a declining stock price, which may not be favorable for investors.

In the case of BUA Foods, shareholders not only received generous dividends but also enjoyed the benefit of capital gains. Since its listing in January 2022, BUA Foods has witnessed a remarkable increase in its share price, surging by N576 billion or 65%. In the current year alone, the stock has gained 57%, trading at N102 per share, which ranks it as the 9th top-performing stock on the NGX in terms of year-to-date performance.

**Promising Business Drivers**

The strong sentiment among investors regarding BUA Foods is likely rooted in the company’s impressive growth potential, supported by concrete plans and strategic variables. Notably, the Sugar division, which constitutes approximately 66% of the group’s revenue, boasts a substantial 1.5 million MT installed capacity sugar refinery, making it the second-largest refinery in West Africa.

To ensure a reliable feedstock supply for the sugar refining plants and align with the Federal government’s backward integration policy in the sugar industry, BUA Foods has invested in sugar estates within Nigeria. For example, the acquisition of the LASUCO Sugar Company Limited plantation in Lafiagi, Kwara State, covering 20,000 hectares, serves as a strategic move in this direction.

Furthermore, the company adopted a shipping vessel, MV Bundu, in May of the previous year to expedite its export expansion efforts. This development positions the company favorably to capitalize on the African Continental Free Trade Area (AfCFTA), opening up new avenues for growth and market expansion.

The company’s 200,000 MT per annum rice milling facility in Kano has been upgraded and commissioned, with full commercialization expected in 2023, offering an additional source of incremental revenue. Additionally, BUA Foods plans to have 250,000 MTPA edible oil plants operational within the next 3-5 years, further diversifying its revenue streams.

**Conclusion: A Bright Outlook for Shareholders**

The current performance of BUA Foods offers a positive outlook for shareholders, enhancing their medium to long-term view of their investments. The company’s revenue growth across all divisions, even in the face of challenging macroeconomic conditions, underscores its strong business fundamentals and growth potential.

Furthermore, BUA Foods’ strategic investments in the sugar industry, rice milling facility, and edible oil plants indicate that it is well-positioned to maintain its revenue growth trajectory in the foreseeable future.

With a current price-to-earnings multiple of 20x, BUA Foods’ stock remains attractive to investors seeking long-term capital appreciation and dividends. Consequently, BUA Foods’ current performance instills confidence and optimism among shareholders regarding their medium to long-term investments.