FSDH Initial Reaction: Nascon 1Q24 results 
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May 2, 2024/FSDH Research

Key Performance Highlights:

• Nascon published a mixed set of numbers in 1Q24, as the company reported 39.7% YoY revenue growth, while net profit fell 25.0% YoY in 1Q24. Nascon Allied Industries posted a remarkable 39.7% YoY revenue growth to N23.6 billion in 1Q24, driven by volume growth and strategic pricing actions. Looking at geographies, the North region grew 43.4% YoY, the East region at 36.2% YoY, and the West region at 29.0% YoY. Comparatively, the Cost of Sales increased moderately by 25.2% YoY to N12.5 billion, resulting in a 60.5% YoY surge in Gross Profit to N11.2 billion. Consequently, the gross margins expanded 611 bps YoY to 47.2% in 1Q24 from 41.1% in 1Q23. The increase in the cost of sales was attributable to higher raw material costs and manufacturing expenses.
   
• In 1Q24, Distribution costs increased 43.9% YoY to N5.0 billion owing to higher delivery expenses, and administrative expenses soared 41.1% YoY to N1.4 billion mainly due to increased employee costs. Notably, Nascon suffered a foreign exchange loss of N3.1 billion due to currency devaluation in 1Q24 (1Q23: NIL). Consequently, operating profit declined 30.3% YoY to N1.8 billion compared to N2.6 billion in 1Q23. Operating margin fell 757 bps YoY to 7.5% from 15.1% in 1Q23. Moreover, EBITDA decreased to N2.3 billion in 1Q24 from N3.1 billion in 1Q23, and EBITDA margin shrank to 9.9%, down 859 bps YoY. However, excluding the FX losses, the Company’s EBITDA stood at N5.3 billion (EBITDA margin:22.8%) in 1Q24.
   
• The interest income increased 196.0% YoY to N419 million in 1Q24, partially offset by interest paid on borrowings amounting to N358 million, a 38.4% YoY rise. Moreover, the tax expense declined 23.3% YoY to N607 million compared to N791 million in 1Q23. Ultimately, net profit decreased to N1.2 billion from N1.6 billion in 1Q23, down 25.0% YoY. The company’s EPS fell to N0.47 in 1Q24 compared to N0.62 in 1Q23 (annualized EPS of N1.86 in 1Q24 per share versus N2.48 per share in 1Q23).
   
• Looking at the sequential performance, revenues were up 8.7% YoY to N23.6 billion in 1Q24 (4Q23: N21.7 billion), driven by East and West regions, up 40.9% and 31.9% QoQ, respectively. In comparison, the West region experienced a marginal 1.9% QoQ revenue growth in 1Q24. Cost of Sales increased relatively higher by 28.2% QoQ to N11.2 billion in 1Q24 (4Q23: N9.7 billion), resulting in a 7.0% QoQ fall in Gross Profit to N11.2 billion (4Q23: 12.0 billion). Operating profit decreased 59.5% QoQ to N1.8 billion mainly due to FX losses, and EBITDA fell 54.4% QoQ to N2.3 billion in 1Q24 (4Q23: N5.1 billion). Ultimately, the net profit for 1Q24 declined 54.7% QoQ to N1.2 billion compared to N2.7 billion in 4Q23.
   
• On 18 April 2024, Nascon provided an update regarding the proposed merger of Dangote Sugar Refinery Plc, Nascon, and Dangote Rice Limited. The company announced the suspension of the merger at the time due to the comments and recommendations of the Securities and Exchange Commission (SEC) centered around the current non-operational status of Dangote Rice Limited.

Market Reaction: The investor reaction to the 1Q24 results was subdued as the stock declined 9.99% to N47.30, versus a 0.55% rise for the All-Share Index (2/5).

Nascon Earnings Highlights 1Q24

Source: Company Financials, FSDH