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Sticky cost structure mars Nascon Allied Industries’ profit margins

NASCON’s Q1:2019 financial result showed some marginal improvement as its revenue grew by 0.77% to N6.82 billion relative to N6.78bn in Q1:2018.



NASCON’s Q1:2019 financial result

Flattish Growth amidst Mixed Sales Performance: NASCON’s Q1:2019 financial result showed some marginal improvement as its revenue grew by 0.77% to N6.82 billion relative to N6.78bn in Q1:2018. The company recorded impressive growth in its Western and Eastern markets’ sales, which rose by 47.26% and 12.74% respectively.

The recorded growth was driven by its diversification to corporate clients rather than retail customers. However, sales from its Northern market, which currently accounts for 58.90% (vs 69.90% in Q1:2018) of revenue, declined by 15.90% (N4.01 billion vs N4. 73 billion).

The company has resumed vegetable oil production at its Ota Plant with locally-sourced crude palm oil. It is planning to resume tomato paste production by the end of Q2:2019. In the near term, we expect these collective factors coupled with the location of its new 250,000mt salt factory at Apapa, which gives it access to industrial salt users in the region, to steer topline growth, as such we maintain our revenue forecast of NGN27.05bn in 2019FY, a growth of 5.00% over 2018FY.

Steady Increase in Cost of Sales Stifles Profitability: Profits margins remain strained, largely due to the mounting cost of sales which rose by 8.38% (N5.09 billion vs N4.69 billion in Q1:2018). The minimal increase in revenue did not impact the cost to sales as it weakened to 74.46% (vs 69.42% in Q1:2018).

We note that the cost of raw materials rose by 4.69% due to the company’s exposure to foreign exchange rate and other associated costs. Operating expenses also maintained its upward trend, rising by 9.57% while the OPEX to Sales settled at 10.70%. Accordingly, gross profit and net profit dropped by 16.49% and 34.59%, settling at N1.73 billion and N0.69 million, respectively.

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Drop in Net Margin Dampens ROE: Return on Equity settled lower at 32.19% in Q1:2019 (vs 44.86% in Q1:2018). Although asset turnover and financial leverage declined to 0.84 and 2.46 (vs 0.87 and 2.49 in Q1:2018) respectively, much of the pressure came from the weak net margin, which dipped to 15.69% from 20.64% a year ago. In line with our expectations of higher revenues, we forecast a marginal increase of 2.41% in the company’s 2019FY net profit to N4.02 billion from N3.93 billion in FY 2018.

Recommendation: The company’s performance is in line with our projections, as such, our expected EPS and target PE are unchanged at NGN1.52 and 11.75x respectively, which leaves our target price for Dec 2019 at NGN17.86. This gives an upside potential of 5.06% to its closing price of NGN17.00 on May 23, 2019. We, therefore, recommend a HOLD.

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Economy & Politics

Buhari to finally send Petroleum Industry Bill to National Assembly next week

Sources in the Presidency have disclosed that the President may be presenting the bill to the National Assembly.



Four dangerous circumstances forces FG to close Enugu Airport until further notice, aviation sector. FG’s conditional cash transfer progarmme gets more beneficiaries despite criticism

President Muhammadu Buhari is expected to present the long-awaited Petroleum Industry Bill (PIB) to the Senate as early as next week.

According to Reuters, who were quoting 4 sources familiar with the development, the presentation of the bill to the National Assembly, follows its official approval by the president late last week. This is as the National Assembly has already formed teams of members that will work most closely on the individual portions of the bill.

Both chambers of the National Assembly must have to pass the bill after deliberating on it before it can then be passed on to the president for his final signature.

The PIB which is an oil reform bill has been in the works for about 20 years, is key to the repositioning of Nigeria’s Oil and Gas Industry under its post-COVID-19 agenda as the main laws governing oil and gas exploration have not been fully updated since the 1960s due to some contentious issues like taxes, payments to local communities, terms and revenue sharing within Nigeria.

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), had disclosed that the delay and non-passage of the bill has made international investors to start losing confidence in the country’s oil and gas industry.

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While revealing last month that the PIB will be presented to the National Assembly in the next few weeks, the Minister of State for Petroleum Resources, Timipre Sylva, also said that the executive arm will be requesting the lawmakers to specially reconvene to receive and start deliberations on the bill.

These oil reforms and regulatory certainty became more pressing this year as low oil prices and a shift towards renewable energy made competition for investment from oil majors tougher.

The draft copy of the bill which was prepared by the Petroleum Ministry is a product of series of consultation between the federal government, oil and gas companies and other industry stakeholders.

Excerpts from the bill reported by Reuters include provisions that would streamline and reduce some oil and gas royalties, increase the amount of money companies pay to local communities and for environmental clean-ups alter the dispute resolution process between companies and the government.

It also included measures to push companies to develop gas discoveries and a framework for gas tariffs and delivery. Commercializing gas, particularly for use in local power generation, is a core government priority.

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UK-based group to investment $245 million in 100 Nigerian businesses

A UK based organization is to partner local investment funds to disburse $245 million to 100 Nigerian businesses.



UK based organization partner local investment funds to disburse $245 million to 100 Nigerian businesses

A UK-based development finance institution, CDC Group, has finalized plans to invest US$425 million as an aid to 100 businesses and 38,000 jobs in Nigeria.

This is sequel to its partnership with 40 investment funds such as Afreximbank, African Capital Alliance and Indoram, NAN reports

In a virtual visit to the country by the board of the organization led by Chief Executive, Nick O’Donohoe and Chairman, Graham Wrigley, the UK Government-funded organization stated that all earnings from its investments are ploughed back to improve the lives of millions of people in Africa and South Asia.

CDC Group noted that it paid a virtual visit to the Vice President of Nigeria, Prof. Yemi Osinbajo, and British High Commissioner to Nigeria, Catriona Laing, to discuss and ascertain the impact of CDC’s aid to its investees through the COVID-19 crisis and understand how to stimulate recovery and growth.

The discussions also focused on CDC’s own response to the pandemic through its preserved, strengthen and rebuild programme, the statement said

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(READ MORE: WHO to secure initial COVID-19 vaccine for 20% of Africans)

Commenting on the rationale of the aid, the Chief Executive of the CDC Group, Nick O’Donohe said that, “Nigeria plays a key part in our strategy of partnership and investment for economic growth in West Africa. “Hosting our 2020 board trip– albeit virtually – in both markets is a testament to our commitment.

“Looking forward, we will continue to prioritise the post-COVID-19 recovery as part of the Build Back Better agenda.

“We are committed to supporting a deeper and more strategic bilateral partnership between the UK and Nigeria that is based on enhancing economic development, job creation, inclusion, trade and investment,” O’Donohoe further remarked.

In a glowing tribute and commendation to the group, British High Commissioner to Nigeria, Catriona Laing CBE said CDC has been pivotal to creating jobs and supporting the growth of businesses by investing in the poorest countries across Africa, including Nigeria.

“CDC’s commitment to the country signals to other UK investors that investing in Nigeria is possible and should be prioritized in order to help Nigeria and indeed, Africa, mitigate the impact of COVID-19,” the envoy said.

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Just-in: Nigeria’s manufacturing sector contracts for 5th consecutive month – CBN 

The CBN disclosed in its September PMI report that the manufacturing sector contracted.



To test FX market, CBN pumps $50 million, CBN issues guidelines to Finance Institutions on establishment of Subsidiaries and SPVs, CBN injects $2.63 billion to defend naira in one month, CBN’s COVID-19 N50 billion targeted credit facility, CBN’s heterodox policies buoys credit growth

The Manufacturing Purchasing Managers’ Index (PMI), in September 2020, has witnessed a contraction for the fifth consecutive month, as it stood at 46.9 index points. 

This was disclosed by the Central Bank of Nigeria (CBN), in its September PMI report released on Wednesday. 

The report stated that, out of the 14 subsectors surveyed, 4 subsectors reported expansion (above 50% threshold) in the review month in the following order: 

  • Electrical equipment 
  • Transportation equipment  
  • Cement, and 
  • Nonmetallic mineral products 

The paper product subsector was stable. 


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While the remaining 9 subsectors reported contraction (below 50% threshold) in the review month in the following order: 

  • Petroleum & coal products 
  • Primary metal 
  • Furniture & related products 
  • Printing & related support activities 
  • Food, beverage & tobacco products 
  • Textile, apparel, leather & footwear 
  • Chemical & pharmaceutical products; 
  • Fabricated metal products and  
  • Plastics & rubber products 

The Non-manufacturing sector PMI stood at 41.9 points in September 2020, indicating contraction in nonmanufacturing PMI, for the sixth consecutive month.  

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