October 27, 2022/Cordros Report
NASCON Allied Industries Plc (NASCON) published its unaudited Q3-22 financials this afternoon, in which the company reported a standalone EPS of NGN0.51 (Q3-21: NGN0.36), bringing 9M-22 EPS to NGN1.09 (9M-21: NGN0.91), 3.0% short of the 2022FY print (NGN1.12). The EPS increase was driven by the sturdy growth in sales (109.8% y/y) recorded in the reporting period.
Q3-22 revenue grew by 109.8% y/y (9M-22: +62.8% y/y), driven by the price increases instituted across NASCON’s salt products. Across its business regions, revenue from the North (71.2% of revenue) remained the largest contributor to the total sales outturn, growing by 196.0% y/y; while revenue from the Western (+14.6% y/y | 22.1% of revenue) and Eastern (+54.2% y/y | 6.7% of revenue) regions maintained the momentum witnessed so far in 2022.
A quarterly breakdown of the result reveals a broad-based increase across most regions – East (+42.2% q/q) and North (+12.0% q/q) – save for the Western region (-10.0% q/q).
Gross margin for the quarter increased by 431bps to 45.8%, marking the highest quarterly print in at least thirty-two quarters. We note that the faster revenue growth (+109.8% y/y) buoyed by the price increases instituted by the company, amid slower growth in the cost of sales (+94.3% y/y), supported the impressive margin expansion. However, the 9M-22 numbers reveal a 201bps decline in gross margin to 38.1% compared to 9M-21 (40.1%), reflecting the overwhelming pressures in H1-22.
Notwithstanding, EBITDA (-11.95ppts y/y) and EBIT (-6.34ppts y/y) margins declined to 17.7% and 13.7%, respectively, as a 77.2% y/y increase in operating expenses muted the impact of the higher gross margin. The rise in OPEX was influenced primarily by the 120.9% y/y increase in distribution costs.
Further down, NASCON’s net finance cost grew by 111.6% y/y, underpinned by a 246.6% y/y increase in finance cost amid the expansion in finance income (+1079.4% y/y). We attribute the increase in finance cost to interest on borrowings (Q3-22: NGN105.78 million vs Q3-21: Nil) and lease liabilities (Q3-22: NGN143.21 million vs Q3-21: NGN13.15 million).
Overall, profit before tax grew by 40.6% y/y to NGN2.00 billion (Q3-21: NGN1.42 billion). Following an effective tax rate of 32.5%, profit after tax printed NGN1.35 billion (Q3-21: NGN965.16 million), translating to a growth of 39.5% y/y.
Comment: NASCON’s Q3-22 result highlights the company’s resilience since the turn of the year despite the weak operating environment and intense competition from Royal Salt in the retail segment. We like that the food producer maintained margins at still high levels despite the strong headwinds in the year. Considering the resilience witnessed so far in 2022, we expect the company to see out the year positively, maintaining robust expansions in its top and bottom lines. Our estimates are under review.
