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BUA Foods Plc, a firm that lists on “the exchange” NGX on January 5, 2022, has overtaken Nestle Nigeria to become the most profitable consumer goods firms in Africa’s largest economy.
For instance, BUA foods posted net profit of N95.18 billion as at June 2023 as the profit surged by 142.21 percent.
That compares with the net income of N2.76 billion; Vitafoam, (N3.69 billion); Flour Mills of Nigeria, (N10.18 billion); PZ Cussons N15.35 billion); Dangote Sugar-March figure-(N12.80 billion), and Nascon, (N5.82 billion).
Firms such as Nestle Nigeria, recorded loss after tax of (-N49.98 billion); Cadbury, (-14.53 billion); Nigeria Breweries, (-N47.34 billion), and Guinness Nigeria, (-N18.16 billion) as they capitulated to foreign exchange losses brought on by the abrupt devaluation of the central bank.
BUA Foods’ shares have gained 108.15 percent so far this year, one of the best performers on the NGXASI index.
The managers of BUA Foods deserves a pat at the back for being proactive and averting a colossal damage to the company’s balance sheet and stock price.
Some analysts say the consumer goods giant sources most of its raw material locally, which makes it less susceptible to foreign exchange devaluation losses.
BUA Foods has five business divisions that are contributing to Group earnings: Sugar, Flour, Pasta, Rice, and edible oil. It has eight plants and the second largest Sugar refinery in Nigeria.
The company adopts a focus and market penetration strategy while keeping a tab on input. Aside from its raw material and foreign exchange sourcing dynamics, it deploys aggressive sales strategy to average reduce cost per tone Middle-line cost optimisation as it uses Supply and delivery hedging on inputs and products.
As a result of cost controls and price adjustments, BUA Foods’ gross profit margin increased to 41.38 percent in June 2023 from 41.38 percent in June 2022.
Operating profit margin rose to 48.56 percent in June 2o23 from 27.11 percent the previous year.
Net profit margin moved to 27.74 percent in the period under review from 23.27 percent as at June 2022.
BUA Foods is effective in converting sales to cash as operating cash flow margin increased to 23.37 percent in the period under review from 12.68 percent the previous year.
Because of the company’s robust cash flow and strong balance sheet, its stock could be a safe haven as peer rivals’ stocks will be beaten down on the back of poor earnings results.
With the Naira expected to continue its bad run till the first quarter of next year, companies with foreign exchange obligations will be booking huge foreign exchange losses that undermine earnings.
The naira was devalued in June 2023 (from 465 NGN/USD in May’23 to 752 NGN/USD in Jun’23).
It is glaring that the increase in transportation fares due to a spike in fuel price and the inevitable hike in utility bills means more issues for sector players who are the most vulnerable to macroeconomic shocks.
The NGXConsumer goods stocks has a year to date of 48.15 percent.