NASCON Allied Industries Plc ( recorded double-digit growth in revenue of 12% from N18.76 billion in 9 months of financial year 2018 to N21.03 billion a year after.

That technically means increased sales but the same could not be said about profit. In actual fact, the company’s profit thinned down, relatively.

Established as a salt refining establishment under the name National Salt Company (NASCON), the company has since evolved with additional business lines to include Vegetable Oil, Tomato Paste and Seasoning.

With the border closure, NASCON would have lower numbers of intruders to compete with in the market. But customers may be hurt as the company’s manufacturing cost growing up, it may have to shift cost to consumers.

Since competition abates slowly, some level of gang up among local producers may see price growing up.

Obviously, like other fast moving consumers goods (FMCG) operators, there is lack of home advantage. Why? There is probably no comparative advantage enjoyed compare to their foreign competitors.

So, it is more likely to see price increase to cover rising cost and strengthening margin.

By ownership structure, Dangote Industries Limited accounts for 62% of NASCON shares, Stanbic IBTC nominees have 5% and investors in other category 33%.

At Market Cap valued at N39.344 billion, NASCON traded at N14.85 per share on Friday. Though, it had peaked at N21.70 and hit lowest point at N12.50. That means that the share price has lost 17.50% of its opening value.

One thing that is clear is that the environment is tough for business. But then, company has to deliver value for the shareholders.

To that end, sterling performance around revenue generation was driven by an impressive third quarter of financial year 2019 standalone performance. Now, you see the hands are on the wall. Border closed, sales rise.

Then, the result shows a significant decline in operating profit, dropped by 40% on the back of higher manufacturing cost. Simply put, the old pricing model was for perfect competitive environment. Now, there is elimination.

It was observed that profit before tax (PBT), as well as profit after tax (PAT), decreased by 47%.

Analysts at WSTC think minimum pricing amid inflationary environment compresses margins.

In the review, the group’s revenue grew from N18.76 billion to N21.03 billion in 9 months down the financial year, driven by robust growth of 36% in the third quarter of 2019 standalone performance.

Revenue rose from N5.93 billion in Q3 2018 to N8.05 billion in Q3 2019, which translated to the double-digit growth of 12% as at 9 month of the financial 2019 from the muted 2% growth recorded in the first half of same year.

A breakdown of the revenue by location reveals that revenue grew by 36% in the West, 9% in the North, and declined by 20% in the East.

WSTC analysts attribute the robust growth in Q3 2019 standalone performance to the border closure, which has significantly reduced the influx of smuggled goods, thus providing headroom for volume growth by the group.

On the other hand, cost of sales increased at a faster pace by 26% when compared to revenue growth of 12%. Manufacturing cost grew from N12.58 billion to N15.90 billion in on the back of 36% growth in raw materials consumed.

Raw materials consumed grew from N7.34 billion to N10 billion in  on account of minimum pricing in an inflationary environment as the group was constrained by competition to pass cost increases to consumers.

High cost of direct consumables thinned down gross profit. It declined by 17% to N5.13 billion in 9M 2019 as against N6.18 billion in 9M 2018 which left gross profit margin at 24%. In the comparable period in 2018, NASCON had gross margin of 33%.

WSTC Securities said it expects the interim border closure to support topline growth in the fourth quarter of 2019. If sustained, to provide headroom for price increases given the rising manufacturing cost.

“We expect the group to intensify promotion and marketing activities to drive market penetration amid the benign competitive landscape”, analysts stated.

WSTC said it has revised earnings per share of N1.07 and a fair value estimate of N13.76 for NASCON.

“At the market price of N14.85, the stock is trading at 7% premium to our fair value estimate. Thus, we revised our recommendation on the stock to a HOLD”, WSTC stated.

VIAMichael Oluwafemi
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