Companies associated with Aliko Dangote have taken a beaten of late as the stock market continues to display volatility. One such companies is NASCON, the major salt maker. The stock has lost a whopping 51.5% of its value in the last one year and currently trades at about N6.16. As a shareholder this stock is a major reason for some of the red lines in our portfolio. Nevertheless, at this price one wonders if it makes sense to buy. Is it a trap or is it a bargain? Lets examine the odds
Bargain
- Share price is currently shows a P.E ratio of about 6.8x
- It dropped to N5.8 its lowest in one year before rebounding to above N6
- This suggest about 5 to 10% upside in price in the short term
- It’s a liquid stock and displays a lot of volatility
- It’s intrinsic value (by our estimates) is between N5 and N7
- They pay between 80% to 88% of profits as dividends in the last 3 years
- If they pay the same dividend as they did last year, dividend yield at this price should be about 14.8%
Trap
- The company is set to declare at least 20 to 25% drop in earnings when it reports in 2014 results
- Price to book ratio of 2.3x suggest there is more room for downward trend
- Margins are expected to be lower for companies in the consumer sector, Nascon inclusive.
- Cash flow looks very thin and it is unlikely that they will match last year’s dividend of N2.3 billion.
- A dividend of N1billion will be at most what they could pay
- We won’t be surprised if they decline to pay dividends
- The company is undergoing some restructuring which might take time to materialize. They plan to diversify away from relying solely on salt.
- The bears might take a larger portion of the volatility
Finally,
It appears things will get worse for Nascon before it gets better suggesting a Trap if you are an investor with a short term outlook. However, if you are patient enough and in for the long haul, Nascon looks ripe for the taking at a price below N6. One key thing to consider is their upcoming results. That should determine how dire things really are for the company and we suggest any long term buyer waits till then. If the results come out worse than we expect then buying it is a confirmed trap!!
Hi Ugo,
Very welldone job with your stock analysis.
This is my third message to you.Please, is it possible for you to connect me with someone who can take me on a short course in financial modelling?
Regards
Lol…Dare I will
Dear Ugo
You are the best financial analysis I have come to respect,a day goes by with out I don’t read your post.
Nascon is one company I have study for many years now and I have decided to take position for long run because they have great future.
They are debt free unlike other company, their share capital is not too large, they have diversified into other product and their dividend pay out have been wonderful.
I am going to stake my hard earned money on this company because they have greater room to develop.
Peace to you all.
Happy investing.
Mr Uyi