The newly listed BUA Food Plc has the potential to deliver impressive performance and reward investors given its well diversified business operations, write Goddy Egene and Kayode Tokede

Stock market investors began 2022 on a very interesting note as a new investment opportunity opened for them to make more money. The new investment opportunity is a consolidated entity known as BUA Foods Plc, that was listed on the Nigerian Exchange Limited (NGX) on January 4, 2022. BUA Foods is a member of BUA Group and is a combination of its five food businesses comprising pasta, edible oil, sugar, rice and flour.

The company, which is the first listing this year, got admitted on the NGX by introduction. Specifically, 18 billion shares of BUA Foods Plc were listed at N40 per share. The listing lifted the market capitalisation of the NGX by N720 billion. As at the close of trading last Friday, the shares had appreciated to N53.20 each, indicating a capital gain of 33 per cent. Also, the appreciation in the shares of BUA Foods further boosted the market capitalisation of the NGX by N957.6 billion.

Preparing for listing

Indications that BUA Foods would be listed emerged early last December when the company announced the consolidation of food businesses. The food businesses that were merged into BUA Foods are: BUA Sugar Refinery Limited; BUA Rice Limited; BUA Oil Mills Limited; IRS Flour and IRS Pasta. According to the group, the consolidation became necessary to maintain its market leadership in the agribusiness and food processing sector as well as take advantage of the growth opportunities in the economy and the export prospect presented by the African Continental Free Trade Area (AfCFTA).

Chairman of BUA Group, who doubles as Chairman of BUA Foods, Alhaji Abdul Samad Rabiu, said: "We have perhaps the largest food business in Nigeria and the West African sub-region. To realise our full potential as a business as we drive the food security needs of the country, we recently consolidated our food businesses under a single entity to be known as BUA Foods."

He explained that the restructuring will enable, "us to be nimbler and more responsive to the food needs of the population as we continue to build a sustainable business."

Rabiu assured stakeholders that BUA Foods is well positioned to take advantage of the AfCFTA considering its investments in the foods sector over the years.

The chairman explained that the group has eight ultra-modern factories across the country where sugar, flour, pasta products, edible oils, and rice are refined and processed. The business has a refining capacity of 1.5 million metric tonnes of sugar yearly from its two automated sugar refineries in Lagos and Port Harcourt. "Our destination refinery in Port Harcourt is mostly export-based and can produce the highest grade of sugar there, that could serve the West African sub-region and the Nigerian markets," he said.

Rabiu had disclosed that Nigerian investors would be given opportunity to invest in the company for continuous growth.

Also speaking, the acting Managing Director/CEO, BUA Foods Plc, Mr. Abioye Ayodele, said: "We have moved from cradle to small and to scale in all our endeavours. As a proudly Nigerian business with international foot prints, we are proud to say that BUA brands are fully entrenched in the various sectors of our national economy and promoting national development."

Market analysts said that just like BUA Cement Plc that was listed in 2020 and has been fetching investors' significant returns on their investments, BUA Foods has the potential to expand the wealth of investors in the market.

According to them, the company is operating in critical areas that are capable delivering good performance and reward investors handsomely.

The Food Businesses

The sugar division currently operates the second-largest sugar refinery in West Africa, with a total refining capacity of 1.5 million MT per annum. The company is a leading producer of fortified and non-fortified sugar in West Africa. It operates across the value chain of the sugar industry, including the production, processing, refining, and distribution of raw sugar and its by-products such as bagasse, molasses and mud cakes. The division operates two ultra modern and automated sugar refineries, one in Apapa, Lagos State, and the other in Port Harcourt, Rivers State. Over the years, the Company also acquired two plantations, in Lafiagi, Kwara State, and in Bassa, Kogi State.

In terms of refining company's sugar refineries in Apapa and Port Harcourt utilise state-of-art equipment to refine high quality products for industrial uses.

The sugar refineries transform raw sugar into white granulated sugar, which is utilised by manufacturers of pharmaceuticals, bakeries and confectionaries, food, beverages, and dairy products.

As a response to Nigeria's backward integration policy in the Sugar Industry, BUA Group invested in large scale estates within the country to deepen local sugar production through the acquisition of the Lafiagi Sugar Company Ltd (LASUCO) in Kwara state in 2008 and also, the establishment of the Bassa Sugar Company in Kogi State. BUA Group has also acquired about 70,000 hectares of land in both locations for the purpose of setting up large-scale sugar plantations. Upon fully coming on stream, these initiatives will add significantly to the development of Nigeria's local sugar industry.

BUA Foods owns a state-of-the-art flourmill equipped with high efficiency specifications for energy saving and waste reduction. This flourmill commenced production in 2019 with a capacity of 500,000 MT per annum. The plant currently has 576,000 tons of flour milling capacity. It has seven wheat storage silos with 32,000tons storage capacity.

The flourmill currently produces 315,000 MT of flour and 105,000 MT of bran, with sales revenue split of 91.3 per cent and 8.7 per cent respectively as at 31 December 2020.

The Pasta Division is involved in the processing, manufacturing and distributing pasta. It operates from BUA Foods' Industrial Complex, Port Harcourt, Rivers State with a capacity to produce 250,000 MT of pasta per annum. To achieve BUA Foods' drive to expand its product portfolio and create capacity ahead of demand and increase its Pasta market share beyond the North and the South-South of Nigeria, the company has invested in the construction of a second pasta processing plant with a capacity of 250,000 MT per annum.

The Rice Division has a rice milling facility with a capacity of 200,000 MT per annum. The company expects that the rice mill will be operational in 2022 and expects it to be the biggest single-line rice mill in Nigeria. BUA Foods also expects that the rice mill will produce quality parboiled rice, with a very strong brand identity that will be identifiable to target customers.

It will leverage the existing strong brand name and consumer loyalty with which BUA brand is already renowned.

The company currently has one rice mill and plans to expand its rice milling business to a combined capacity of one million MT per annum, by installing new rice mill facilities in Gujungu, Jigawa State and establishing a rice mill and plantation in Agaie, Niger State. The company's other assets are largely the parboiling plant, which has two boilers (weighing eight MT each) and milling machines. Other assets include storage tanks, soaking tanks, driers, elevators and conveyors, paddy de-stoners and cleaners.

Under its oil milling business, BUA Group acquired Nigeria Oil Mills in Kano in 2001.This is in addition to its BUA Oil Mills in Lagos, which was established in 2008, are the two major companies from which the group produces edible oil ranging from groundnut to cotton seeds oil. The company also produces animal feeds and soap. BUA Oil Mills specialises in the conversion of crude oil palm into high-quality oil products including palm olein, stearine, distilled fatty acid, amongst others, for both direct and industrial uses such as soap manufacturing. The company's mills, located in Kano and Lagos, have a total capacity of 250,000 tonnes per annum.

Competitive strengths

Although the foods industry in Nigeria is highly competitive, BUA Foods believe in its distinctive strengths that would lead to better results going forward. According to the company, it is associated with high quality, accessible, competitively priced and innovative food products.

Apart from establishing itself as a successful food manufacturing and processing company in Nigeria over the years, BUA Foods owns the second largest sugar refinery in West Africa, with total sugar refining capacity of 1.5 million MT per annum, which is able to meet 93 per cent of Nigeria's estimated sugar consumption rate in 2020 of 1.6 million MT per annum, as estimated by Fitch Solution in 2020.

Its sugar refining capacity has earned the company a market share of 35 per cent in Q3 2021, representing a nine per cent increase from its 2020 position of 26 per cent market share.

BUA Foods has developed a distinct reputation for making high-quality products across its business divisions, evidenced by the company estimates of its 35 per cent share of the Nigerian sugar market, 20 per cent share of the Nigerian flour market and 20 per cent share of the Nigerian pasta market.

In 2021, the company was granted a Halal certification for its Sugar Division by the Halal Certification Authority. The Halal certification states that its certified products are permissible for the followers of Islam and no haram products or procedures are used for its production, packaging, storage and transport. This offers competitive edge in the company's strategy for expanding to other markets within and outside Africa.

Financial performance/efficiency

As a newly listed company, investors have high hopes of receiving dividends in the years ahead. And going by the financial results of the company, showing high efficiency as reflected in its profit margin, shareholders should rest assured of regular returns.

BUA Foods posted revenue of N303.876billion in its 11 months ended November 30, 2021. It ended the period with profit after tax of N78.809 billion, translating to a profit margin of 25.93 per cent. Some of the companies operating in the same industry like BUA Foods posted lower profit margins. For instance, Four Mills of Nigeria Plc posted a revenue of N522.821 billion for the six months ended September 30, 2021 and PAT of 10.528 billion, leading a profit margin of 2.01 per cent. Similarly, Dangote Sugar Refinery Plc recorded revenue of N195.499 billion for the nine months ended September 30, 2021 and PAT of N15.513 billion. The sugar refining company ended with profit margin of 7.94 per cent.

Nestle Nigeria Plc recorded a revenue of N261.591 billion for nine months ended September 30, 2021 and PAT of N33.584 billion, translating to a margin of 12.84 per cent.

According to analysts at CSL Stockbrokers, BUA Foods has an excellent and well diversified product portfolio to compete with peer rivals in the Fast Moving Consumer Goods (FMCG) Industry, which makes its share price attractive because of expected sales and profit growth.

"It has a 1.5million MTPA combined sugar production capacity, eight ultramodern factories for producing rice, sugar, pasta, flour and 20,000 hectares of arable land located in Lafiagi, Kwara State. The new consumer goods firm has two ultra-modern and automated sugar refineries (BUA Sugar Refinery, Lagos and Eastern Sugar Refinery, Port Harcourt) with a combined installed refining capacity of 1,500,000 metric tonnes.

"BUA is the only sugar refiner to have refining capabilities outside Lagos, Nigeria. In response to Nigeria's backward integration policy in the Sugar Industry, BUA Group acquired the LASUCO in Kwara State in 2008 and established the Bassa Sugar Company in Kogi State," the analysts said.

They explained that BUA Foods is poised to create a more competitive arena as it has established a state-of-the art plant in Port Harcourt, to cater to the growing needs of fast-growing young population who crave for consumption.

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