UAP Holdings informally traded stock seen as overpriced

Analysts say UAP Holdings current market multiples are unattractive relative to industry average and have recommended a hold on the counter.

They note though the current financial statements do not incorporate Old Mutual entities and inclusion after the final phase of consolidation will indicate a clearer picture of the value of the company.

“The company trades at a P/E of 30.7x against the sector median P/E of 12.23x. The return on equity (ROE) stands at 6.9 per cent against an industry median of 11.3 per cent which is quite unappealing,” Genghis Capital said in a market note to investors.

UAP shares trade at the informal over the counter (OTC) market which is characterised by low liquidity compared to the main bourse.

But with the intention of listing by introduction in the bourse after the final phase of the merger, the analysts said they expect to see a turnaround in the liquidity levels.

They are positive on a complete turnaround of the company in the medium term as well.

“We highlight the current group’s strategy in merging the UAP and Old Mutual entities which are currently in the last phase,” they said.

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This process entails the acquisition of the Old Mutual subsidiaries and the merger of some of these entities particularly the life and asset management businesses.

Merging the two businesses will give the group a wide portfolio, both in retail and corporate segments.

This is aimed at improving operational efficiencies, delivering economies of scale and building up a strong balance sheet.

Further, the group is keen on expanding its distribution channels through partnerships as part of growing alternative distribution capability enhancing access to more clients through bancassurance.