July 30, 2024/Cordros Report
NASCON Allied Industries Plc (NASCON) published its unaudited Q2-24 financials after close of business yesterday (29 July), reporting a standalone EPS of NGN1.36 (Q2-23: NGN1.57), resulting in H1-24 EPS of NGN1.83 (H1-23: NGN2.20). The decline in EPS is attributed to the increase in cost of sales (+72.3% y/y) recorded in the reporting period.
Revenue for the period grew by 48.0% y/y (H1-23: 51.9% y/y), driven by price increases instituted on NASCON’s salt products amid higher volumes. Our channel checks showed price increased by c.14.8% in the quarter. Across its business regions, revenue from the North (72.0% of revenue) continued to be the largest contributor to total sales outturn, growing by 26.3% y/y. In the same vein, revenue from the Western (+15.5% y/y | 20.0% of revenue) and Eastern (+59.9% y/y | 8.0% of revenue) regions maintained the momentum witnessed in Q1-24.
Quarterly analysis of the numbers highlights the strong performance achieved in Q2-24, as revenue grew by 23.2%, following a broad-based increase across all regions – North (+11.0% q/q), West (+10.7% q/q) and East (+56.0% q/q).
Gross margin fell by 15.96 ppts y/y to 40.5%, driven by a substantial increase in the cost of sales (72.3% y/y) due to inflationary pressures on raw material costs. A breakdown of the cost lines revealed that the larger share was from expenses incurred on raw materials (+71.7% y/y | 86.7% of COGS) and manufacturing (+125.1% y/y | 9.0% of COGS), due to the sticky inflationary pressures. On an HY basis, gross margin (-601bps y/y) declined to 43.7%.
Consequently, EBITDA (-982bps y/y) and EBIT (-906bps y/y) margins contracted to 22.1% and 20.2%, respectively, amid a 12.8% y/y growth in operating expenses.
Elsewhere, net finance costs declined by 53.0% y/y, underpinned by the faster growth in finance income (+43.1% y/y) relative to finance costs (+17.8% y/y). The higher finance income resulted from increased interest income on short-term fixed deposits (+43.0% y/y).
Overall, profit before tax declined by 12.5% y/y to NGN5.39 billion (Q2-23: NGN6.16 billion). Following a tax expense of NGN1.78 billion, profit after tax printed NGN3.61 billion (Q2-23: NGN4.15 billion), translating to a decline of 13.0% y/y.
Comment: Despite robust revenue growth, the results highlight challenges from macroeconomic headwinds that have outweighed efficient cost management strategies. Over the rest of 2024E, we maintain our view that NASCON will sustain strong revenue performance due to increased selling prices and volume growth from enhanced market penetration initiatives. However, heightened cost pressures stemming from the highly inflationary environment remains a potential headwind to earnings growth. Our estimates are under review.
