May 4, 2026/InvestmentOne Report

In Q1:2026, the Group reported revenue of NGN187.79 billion, representing a 12.22% year-on-year decline from NGN213.93 billion recorded in Q1:2025. The moderation in revenue primarily reflects price normalization from elevated 2025 levels, timing effects on bulk industrial orders, and softer volumes in some regional markets. Despite the softer top line, cost of sales declined significantly to NGN144.69 billion, down from NGN204.67 billion in the prior year. This sharp contraction was driven by lower raw material costs and better cost absorption resulted in a robust recovery in gross profit to NGN43.10 billion, compared to NGN9.26 billion in Q1:2025, representing a 365.6% YoY increase. Accordingly, gross margin expanded meaningfully to 22.95% in Q1:2026, from 4.33% in Q1:2025. 

Going forward, we envisage improved earnings momentum through FY:2026, supported by the rebound in operating profit and a return to net profitability. However, the Group continues to operate with a highly leveraged capital structure, with a gearing ratio of approximately 422% as at March 2026. Although financial liabilities declined during the quarter, absolute debt levels remain elevated, and interest expense continues to absorb a significant portion of operating gains. We expect gradual improvement as balance sheet adjustments and the recent rights issue begin to ease liquidity pressures and support deleveraging.

Nonetheless, the quality of equity remains a concern, as a significant portion of shareholders funds is driven by revaluation surplus rather than retained earnings, which remain negative. While near-term earnings momentum is encouraging, a sustained re-rating will require consistent profitability, lower finance costs, and a transition to an earnings-backed equity base. Following this, we revise our rating to STRONG BUY, while monitoring operating cash flows and debt reduction as key triggers.

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