NASCON: Equity Analysts See Downside Holding Stock
Arthur Stevens Asset Management analysts in a new valuation have advised investors to sell NASCON Allied Industry Plc. stock due to 30% downside risk to holding the ticker in their portfolios.
With a reference price at N14.35 compare with at the time of writing this report, analysts led by Adebimpe Ogundalu estimated a 30% downside which resulted to sell recommendation on the ticker.
By estimate, equity analysts at the investment firm placed a 12-month price target of N10.02 per share on NASCON share, which implies the stock is currently overvalued on the Nigerian Exchange.
According to the company’s earnings scorecard, though profit margin was flattish at 9%, equity analysts recognised that NASCON’s increased effort to boost sales supported all round revenue growth recorded in the first quarter of 2021.
In Q1-2021, NASCON reported a double digit revenue growth of 21% year on year to N8.34 billion in from N6.88 billion in Q1-2020, driven mainly by increased market penetration which supported all-round growth across all the regions.
Notably, revenue from the west grew by 49% year on year to N2.59 billion in Q1-2021 from N1.74 billion in Q1-2020. It was noted that revenue in both the east and north region rose by 12% year on year to N517 million in from N463 million in Q1’20 and N5.23 billion in Q1-2021 to N4.67 billion in Q1-2020 respectively.
“We attribute the all-round growth in all the regions to the increased efforts of the management to boost sales evidently in the 15% year on year increase in trade receivables to N14.85 billion in Q1-2021 as against N12.87 billion recorded in Q1-2020 and 14% increase in the selling expense from N97 billion in Q1’20 to N109 million in Q1-2021”, Arthur Stevens ‘analysts said.
According to the Arthurs Stevens valuation report, it spotted that cost optimization effort supports earnings growth in the period amidst steep headline inflation rate readings.
NASCON’s cost of sales (excluding depreciation) grew by 13% year on year to N4.74 billion from N4.19 billion mainly driven by increase in the cost of raw materials, manufacturing expense and loading cost.
Also, cost of raw materials increased by 12% to N4.12 billion in Q1-2021 from N3.69 billion in Q1-2020, while, manufacturing expense increased by 38% to N314 million in Q1-2021 from N227 million in the comparable period.
Analysts said loading cost rose significantly by 70% to N35 million. However, cost margin lowered by 4% to 57% in Q1-2021 from 61% a year ago. As a result of the cost optimization effort, gross profit rose significantly by 43% to N3.60 billion from N2.69 billion.
In addition, the company’s operating expenses (excluding depreciation) likewise, rose significantly by 35% to N1.91 billion in Q1-2021 from N1.41 billion in the comparable period in 2020.
Notably, by selling and distribution expense (excluding depreciation) saw a meteoric rise of 40% on the back of higher delivery and selling expense which hinged up by 60% and 14% respectively.
Also, admin expense (excluding depreciation) jumped by 25% to N590 million from N471 million in Q1 2020 as a result of higher employee costs, security costs and traveling expenses which increased by 24%, 78% and 1280% respectively.
However, the operating cost margin jumped marginally by 2% to 23% in Q1-2021 from 21% year on year in Q1-2020. Analysts said regardless of the marginal increase in the operating cost margin, operating profit increased by 5% to N1.06 billion from N1.01 billion in Q1-2020.
Despite pressure on cost profile, Arthur Stevens’ analysts stated that reduced borrowings support bottom line growth in the year. In 2020, NASCON repaid a loan worth N3.30 billion.
Consequently, average borrowings lowered remarkably by 49% to N1.73 billion in Q1-2021 from N3.37 billion in Q1-2020.
Owing to the decline in borrowings, finance cost fell by 86% to N13 million in Q1-2021 from N96 million in Q1-2020. On the other hand, investment income grew by 84% to N14 million from N7 million in Q1 2020.
Notably, analysts at Arthur Stevens said Treasury bills jumped 76% to N13 million in Q1-2021 from N7 million in Q1 2020. Therefore, both profit before and after tax returned a positive 15% growth to N1.64 billion and N723 million in Q1 2021, from N923 million and N628 million respectively.
“We expect continued efforts in market penetration to continue to drive revenue growth amid economic recovery. However, insecurity challenges, supply chain bottlenecks, and weakened consumer disposable income may pose a major challenge”, Arthur Stevens’ analysts stated.
Profile:
NASCON Allied Industries Plc (Formerly known as National Salt Company of Nigeria.) was incorporated in Nigeria as a limited liability company on 30 April 1973. It was fully privatized in April, 1992 and became listed on the Nigerian Stock Exchange on 20 October, 1992.
At a general meeting held on 29 September 2006, the shareholders approved the acquisition of the assets, liabilities and business undertakings of Dangote Salt Limited and the issue and allotment of additional NASCON PLC shares as the purchase consideration.
The major shareholder of the Company is Dangote Industries Limited that owns 62.19% of the issued share capital, while the remaining 37.81% is held by the general public. The ultimate controlling party is Dangote Industries Limited, a company incorporated in Nigeria.
The registered address of the Company is located at Salt City, Ijoko Ota, Ogun State. The company’s principal activity is the processing of raw salt into refined, edible and grade salt. The company also produces Seasoning and Vegetable Oil.
NASCON: Equity Analysts See Downside Holding Stock
