National Salt Company (NASCON) is engaged in the refining and marketing of salt of different grades; kitchen, table as well as importation of tomato paste. The company was acquired by Dangote Industries Ltd in 2006. The company is currently quoted at a price of N11.25 and a P.E ratio of 11x. The graphical representation of their share price for the last 1 year is like this;
Assumptions
Revenues
Nascon Plc has in the last five years increased its revenues and growing at a CAGR of 11%. About 90% of the company’s revenues currently comes from sale of Edible salts. They are currently the leading Salt manufacturers in Nigeria and I expect them to remain in that position. The company also are diversifying into seasoning business, Vegetable Oil Refinery and Tomato packing operations as they envision becoming a frontline foods business in Nigeria. Considering that revenue have been growing at a CAFR of 11% I find this mild shift a little troubling considering the harsh competition in the food industry. Be that as it may, I still maintain a CAGR projection of 11% in the next five years.
Profit Margin
NASCON has remarkably posted a consistent profit margin of 20% over the last 5 years. The company is also debt free and is yet to indicate any need for interest tagged debts. Based on this I would expect EPS to continue to grow at a CAGR of 16% annually over the next five years.
Margin of Error
I replaced dividend payouts with a margin of error provision when I was reviewed by Valuation for Dangote Cement. The margin of error basically accounts for any error in my EPS projections. I apportion 3% here due to the historical consistent earnings growth of the company.
Other Assumptions
- Valuation is done based on DCF of future adjusted earnings per share. This is added to the terminal value and the current Book Value per share.
- Buyer of the share is only a minor shareholder with no influence that can be liken to any form of control
- Expected yield is 15%
- Inflation rate is projected at 9% average for the next 5 years
- Shares bought will be held for a minimum of 5years
Valuation
Based on the above, I have valued the company’s share price at N11.38. Typically, a range between N10-N12 maybe and ideal proposition in my view. The company is currently valued at N11.25 and has a P.E ratio of 11x. Basically, I am suggesting the current share price is about right considering their EPS history.
Share Price on Other Expected Returns
As highlighted this valuation is based on my personal assumptions which includes my Expected returns. Below is what the share price will look like at the following expected returns.
| Returns | Price |
| 20% | 10.86 |
| 15% | 12.52 |
| 12% | 14.13 |
| 10% | 15.71 |
No one has the monopoly of prediction when it comes to determining the future value of stocks. Follow your instincts. Check Out my Updated Valuations using different assumptions. It was significantly different