April 30, 2024/CSL Research

NASCON Allied Industries Plc (NASCON) published its Q1-24 unaudited financials earlier today, in which the company reported a 25.0% y/y decline in EPS to NGN0.47 (Q1-23: NGN0.62), following a net FX loss of NGN3.06 billion.

Revenue rose by 39.7% y/y in Q1-24. We think the topline expansion in the period was supported by higher prices and volumes. Across its regional spread of the customer network, the Northern region (73.7% of revenue) maintained its spot as the company’s major market, with sales increasing by 43.4% y/y. Meanwhile, the Western (20.5% of revenue) and Eastern (5.8% of revenue) regions also recorded growth of 29.0% y/y and 36.2% y/y, respectively.

Gross margin (+611bps) surged to 47.2%, driven by the faster growth in revenue (+39.7% y/y) in comparison to cost of sales (+25.2% y/y). Conversely, EBITDA (-859bps) and EBIT (-757bps) margins declined to 9.9% and 7.5%, due to the dual impact of net FX losses (NGN3.08 billion) due to naira depreciation and higher operating expenses (+43.3% y/y to NGN6.43 billion). We highlight that the OPEX print was undermined by the 61.2% y/y spike in delivery expenses (due to higher fuel prices) and 55.3% y/y rise in employee costs.

Further down, the company recorded a net finance income of NGN60.80 million (vs net finance cost of NGN117.19 million in Q1-23), driven by a 196.0% y/y growth in finance income amid a 38.4% y/y increase in finance cost. We highlight that the higher finance income was underpinned by higher Interest earned on short term fixed deposit (+196.0% y/y to NGN418.74 million) with the company’s cash balance settling at NGN15.70 billion in Q1-24 (Q1-23: NGN15.90 billion).

Overall, profit before tax moderated by 24.5% y/y to NGN1.84 billion (Q1-23: NGN2.43 billion). Following a lower tax expense of NGN606.87 million (-23.3% y/y), profit after tax printed NGN1.23 billion (Q1-23: NGN1.64 billion).

Comment: NASCON’s Q1-24 results reflected the macroeconomic headwinds that emanated from the volatile local currency which impacted the company’s earnings amid higher operating expenses in the period. Our near-term outlook on the company is for revenue growth to remain strong as the company continues to navigate the naira depreciation challenges on its operating profit and subsequently, bottomline. Our estimates are under review.