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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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Covid-19: African Union in talks with China and Russia over vaccine

The AU and Africa CDC have revealed that they have reached out to both China and Russia over the possibility of vaccine partnerships.



Covid-19: African Union in talks with China and Russia over vaccine

The Africa Centres for Disease Control and Prevention and the African Union announced they have been in talks with China and Russia over the possibility of vaccine partnerships to ensure that Africa is not left behind when vaccines become available.

This was disclosed by John Nkengasong, Africa CDC Chief, at the Bloomberg Invest Africa online conference.

Mr. Nkengasong said that Africa would not limit itself to only one vaccine partner and that Africa was willing to work with as many partners as possible to provide a vaccine for its 1.2 billion people.

“We are not limiting ourselves to any particular partner. As a continent of 1.2 billion people, we are willing to work with any partner who adheres to our strategic plan for vaccine development and access in Africa.

“The continent is taking the access and development of vaccine very, very seriously. We really need to see clinical trials being done on the continent, so they address issues like background infections from other diseases.”
He disclosed that the Africa CDC resumed talks last week with China, to discuss partnerships with Chinese Drug Manufacturers and also clinical trials in Africa. He added that Russia has been approached with a similar plan.

He said that the WHO Covax programme only covers 20% of the population, but Africa will need 60% of its population vaccinated to achieve herd immunity.

There are multiple avenues being explored now to make sure Africa has the appropriate doses of vaccines and also that we have that in a timely fashion, not in a delayed manner,” Nkengasong said.

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He revealed that the AFREXIM Bank agreed to finance vaccine procurement with $5 billion and is waiting to see how much it will receive from World Bank’s $12 billion vaccine procurement fund for developing nations.

What you should know 

Nairametrics reported earlier this month that Pfizer Inc. disclosed that its experimental vaccine, which is jointly developed with BioNTech, was more than 90% effective in preventing COVID-19, based on initial data from a large study in the ongoing phase 3 trials.

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(READ MORE: COVID-19: AstraZeneca vaccine could be 90% effective against the virus)

Last week, a pharmaceutical company, Moderna Inc., stated that its COVID-19 vaccine was 94.5% effective in treating coronavirus, after preliminary analysis of a large late-stage clinical trial.

The G-20 nations also announced a pledge to pay for vaccine distribution to developing nations that could not afford it. The leaders also unveiled a debt extension programme to developing nations during the weekend’s G-20 summit.

The Federal Government of Nigeria also announced through the Ministry of Health, that it would inaugurate an 18-man Covid-19 Vaccine Task Team, in a bid to ensure vaccine security In Nigeria.

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Covid-19: EU considers skipping vaccine patents to boost vaccine access

The EU has disclosed plans to increase its access to Covid-19 vaccines by offering financial incentives to vaccine production companies.



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The European Union says its planning emergency measures to increase its access to Covid-19 vaccines including sidestepping patent rights and offering financial incentives to vaccine production companies to move production to Europe.

This was revealed in an EU document on Wednesday and reported by Reuters. The Document says the EU may create an emergency coordination mechanism to be issued at short notice when the EU needs a vaccine license, which is different from fully patent waivers, discussed in the WTO last week.

The EU says the new move will ensure faster procedures during a pandemic, which will enable generic production in the EU without the consent of patent holders.

The Commission sees the need to ensure that effective systems for issuing compulsory licenses are in place, to be used as a means of last resort and a safety net, when all other efforts to make IP (intellectual property) available have failed,” the EU’s document said.

The EU’s actions may be triggered by its inability to access the antiviral drug, remdesivir, during the pandemic, as the United States ordered most of the stock.

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The EU also disclosed that it will begin a consultation process with pharmaceutical companies next year to address issues in its pharmaceutical value chains. They added that measures could be imposed to encourage manufacturers to move pharmaceutical production to Europe from China and India.

“The Commission calls on member states to ensure that the tools they have are as effective as possible; for instance, by putting in place fast-track procedures for issuing compulsory licenses in emergency situations,” the EU said.

They added that it is urgent “to assess whether manufacturing capacity for certain critical medicines may be required in the EU.”

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“We need to be able to rely on ourselves, not on others,” the Commission’s Vice President, Margaritis Schinas said. He disclosed that the EU is working on more compliance with drug supply need and increased stock levels by 2022.

What you should know

This comes as surprise considering the EU rejected a World Trade Organization (WTO) proposal last week to waive the intellectual property rights needed for the manufacturing of Covid-19 vaccines. The waiver would have made the vaccine access cheaper for developing nations.

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#EndSARS Sanctions: Nigeria has reached out to the UK Government – Foreign Minister

Onyeama has stated that the FG has reached out to the UK Government over the parliamentary debate on the #EndSARS protests.



Chinese Visa Restriction: Ministry of Foreign Affairs issues clarification, London evacuation flight rescheduled to July 14

The Minister of Foreign Affairs, Mr Geoffrey Onyeama, said that the Nigerian Government has reached out to the UK Government over the parliamentary debate on the #EndSARS protests.

The Minister disclosed this to Newsmen at the Federal Executive Council (FEC) meeting on Thursday, which was recorded by Channels TV.

He added that the UK Parliament did not speak for the UK government, and that the UK had heard the Nigerian government’s side regarding the incident at Lekki.

“On the issue of the UK parliament, yes, we have reached out to the UK government on this question. The meeting that took place was of Parliamentarians, they don’t speak for the UK government and the UK government which acts for the United Kingdom has also heard the side of the (Nigerian) government regarding everything that happened.

“So we are in touch with them and engaging with them. But, of course, as in any democracy, the Members of Parliament are able to also air their views, but what is important is that a balanced picture is made available to them all before they take any decision,” Onyeama said.

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What you should know 

Nairametrics reported earlier this week that the British Parliament had announced it would consider a petition by some groups and individuals, asking it to apply sanctions against the Nigerian government and officials for alleged human rights violations during the #EndSARS protest and Lekki shooting incident.

Also, the presidency earlier disclosed that the Vice President, Yemi Osinbajo, had a meeting with the UK Special Envoy for Humanitarian Affairs, Nick Dyer, accompanied by the UK High Commissioner to Nigeria.

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