After six consecutive quarterly losses, UACN rebounded into profit in Q2'23. The rebound mirrored improvements in EBIT and net finance income. The gains in the former were mainly driven by passthrough from higher firm-wide revenue due to price increases and volume growth in Paints, which masked the impact of soaring operating costs. Furthermore, the company recorded a net finance income of N2.9 billion, primarily bolstered by a foreign currency revaluation gain of ₦3.6 billion on the holding company's treasury investment portfolio, of which c.30.0% is denominated in foreign currency.

In FY'23, we expect UACN to report a loss after tax of N1.1 billion compared to the FY'22 loss of N4.0 billion. While revenue could be stronger in H2'23, we anticipate more cost and expense pressures. Our 3.0% revenue growth projection (vs -0.2% YoY decline in our last forecast) is premised on the company's ability to pass on escalating costs to the final consumer (product prices have been raised by 20.0% on an average YtD) and the typically strong top-line proportions in H2s. However, we see scope for a loss before interest & taxes of N2.9 billion, driven by higher OPEX and production costs. Specifically, OPEX pressures could worsen in H2'23 due to higher energy (Diesel: +11.2% YoY, PMS: +210.3% YoY as of July 2023) and distribution expenses, which should mirror the passthrough from sustained currency pressures and the 7.5% VAT implemented on the AGO. According to management, the Food and Quick Service Restaurant (QSR ) segments typically rely more on diesel, even though the former has switched to gas for power.