BUA Foods Delivers Strong Returns Amid Rising Challenges, Posts 104% YTD Share Price Growth in 2024

BUA Foods has continued to generate impressive returns for shareholders, recording a 104% year-to-date gain in share price as of November 8, 2024. Closing at N394.90, the company reached a market capitalization of N7.1 trillion, leading the NGX consumer goods sector.

Since its initial listing on January 5, 2022, at N40 per share, BUA Foods’ share price has surged by an astonishing 887%, reflecting the company’s solid growth trajectory and investor confidence.

Strong Financial Performance and Expansion

BUA Foods’ growth in share price aligns with its recent financial performance. In 2024, the company achieved a 94% year-over-year growth in pre-tax profit, reaching N215.657 billion as of Q3 2024—surpassing its full-year 2023 profit by 99%. Revenue rose by 104% to N1.07 trillion, driven by expanded production capacity, increased volumes, and strategic product innovation.

BUA Foods’ Managing Director, Engr. (Dr.) Ayodele Abioye, commented on the company’s resilience and commitment to quality despite a challenging business environment. “We are thrilled to sustain this remarkable growth trajectory, highlighting the effectiveness of our strategy and innovative product development,” he said.

Abioye credited the flour and pasta divisions as key growth drivers, stating that internal cost management and product expansion supported double-digit revenue growth.

Challenges Impacting Profit Margins

Despite strong revenue growth, BUA Foods faces profit margin challenges. While the company’s price-to-earnings (P/E) ratio of 34x reflects high market confidence, it also raises questions about valuation. Notably, profit margins have seen a decline:

Gross Profit Margin: Down 11% to 31%
Operating Profit Margin: Down 1.62% to 29.43%
Pre-Tax Profit Margin: Down 5.19% to 20.14%
Profit After Tax Margin: Down 6.61% to 18.81%

This decline is mainly due to a 164% increase in foreign exchange losses (totaling N88 billion) and a 146% rise in taxes. These external economic pressures, combined with a fluctuating Naira, have affected net profitability and margin sustainability.

Strategic Steps to Tackle Forex Challenges

In an Analyst and Investor call, CFO Mr. Abdulrasheed Olayiwola addressed the impact of the Naira’s devaluation on BUA Foods’ financials. He outlined the company’s LASUCO backward integration project for the sugar division, aimed at reducing reliance on imports and lowering forex needs.

“Reducing our dependence on imports, especially for flour and sugar, is a top priority,” said Olayiwola. “We’ve minimized our forex exposure, which has helped us manage finance costs and settle part of our obligations. Moving forward, we expect a gradual decrease in finance costs as we further reduce FX reliance.”

Impressive Return on Equity and Future Outlook

Despite challenges, BUA Foods achieved a 55% Return on Equity (ROE), showcasing its effective capital use to generate substantial returns for shareholders. While the share price has remained steady at N394.90 since August 26, 2024, the company’s focus on import substitution and cost resilience could unlock future growth and justify its high valuation.

Summary

With strong fundamentals and a strategic focus on reducing import reliance, BUA Foods remains a compelling investment opportunity. As the company addresses margin pressures and completes its strategic projects, it is well-positioned to sustain growth, meet investor expectations, and potentially reignite share price momentum.