Article Summary
- NAHCO’s 97% profit growth in Q1 2023 was driven by revenue growth from passenger/aircraft handling and cargo handling income centers.
- Payroll costs accounted for 52.35% of the company’s total operating costs/administrative expenses, which grew by 46% QoQ to N3.519 billion in Q1 2023.
- With sustained moderation in operating costs, the company’s bottom-line performance in 2023 is expected to surpass the 246% YoY growth in PAT recorded in 2022.
After releasing its impressive FY 2022 results, Nigerian Aviation Handling Company Plc again reported a 97% profit growth for Q1 2023.
The unaudited figures released to the NGX showed that NAHCO recorded an impressive 52% YoY growth in revenue to N4.294 billion.
An analysis of the revenue showed a greater percentage of the revenue came from passenger/aircraft handling and Cargo handling income centres.
Breakdown of Q1 2023
Passenger/aircraft handling accounted for the highest percentage of 68.90% in Q1, just like in FY 2022 (58% of total revenue). Specifically, the company realized N2.959 billion in this segment of its business, up from N1.453 billion in Q1 2022.
On the other hand, Cargo handling remained the second highest with N1.174 or 27.33% of the total revenue in Q1 2023.
Breakdown of operating costs
The company’s total operating costs/administrative expenses grew by 46% QoQ to N3.519 billion in Q1 2023, with payroll costs accounting for 52.35%
of the costs. Here the company needs to moderate costs more. With this, total operating costs/administrative expenses to revenue printed at 81% (down from 85% in Q1 2022). This is still high.
Projecting the company’s full-year 2023 bottom line
With a sustained moderation in operating cost/administrative expenses, especially the payroll costs, the company’s bottom line performance in 2023 may likely surpass the 246% YoY growth in PAT recorded in 2022. Payroll cost to total operating costs/administrative expenses is already down by 9.57% QoQ in Q1 2023.
Overall, profit before tax jumped by 93% to N814 million in Q1 2023, while earnings per share also rose by 100% from 16 kobo to 32 kobo. In the 2022 FY, earnings per share rose by 258% to N1.36.
Investment Perspective
NAHCO is a leading aviation ground-handling company that operates in major airports in Nigeria. Principal services offered by NAHCO include passenger/aircraft handling, cargo handling, equipment rental and maintenance, leasing/disinfectant and other services.
Despite the disruptions to air transportation in the year 2020 as a result of the COVID-19 pandemic, which led to a 29% YoY decline in revenue in 2020, the group still recorded a 5-year Compound Annual Growth Rate (CAGR) of 68% in earnings. This means the group has been able to grow its earnings on average by 68% a year.
Passenger/Aircraft and cargo handling produce over 90% of total revenue. But the contribution to total revenue from other sources (leasing/disinfectant and equipment rental and maintenance has increased. In Q1 2023 for example, contribution to total revenue from leasing/disinfectant and other services increased to 4.69% from 3.13% in Q1 2022.
The share price has continued to rally earnings. This year, the share price has gained 100%, ranking it the 5th on the NGX in terms of year-to-date performance and over the past four weeks has accrued 31%, ranking it the sixth best on NGX.
The company is profitable and compensates investors regularly. With the proposed final dividend of N1.20 per share, the share price currently offers a dividend yield of 9.8%. Return on equity for the last fiscal year printed at 29%. These make the stock appealing to investors.
Outlook for the company
The fluctuations in economic activities affect the aviation industry as a whole. Presently the bulk of NAHCO’s revenue and profit come from aviation passenger and cargo handling services. We believe the 100% increase in cargo tariff, despite the protests from customs agents, importers/exporters, etc., will boost and further strengthen revenue and profit growth in 2023.
Just like in 2021, when an upward review of handling charges by the regulator, the Nigerian Civil Aviation Authority boosted revenue and profit margins as revenue jumped by 48% YoY to N10.233 billion.
Also, NAHCO has been investing in the acquisition of new property, plant and equipment and upgrade of its facilities in a bid to boost its earnings capacity. Consequently, though, the ability of the group to produce positive free cash flow is hampered, we expect an acquisition and a diversification into non-aviation-related business activities to cushion the effect of volatility in the aviation industry.
What you should know
The Aviation Handling Company had recorded impressive growths across key performance indicators in 2022 with profit after tax rising by 246.5% to N2.674 billion in 2022.
On the back of the impressive performance, the group proposed to pay N2.339 billion in dividends to its shareholders.
The aggressive momentum should continue unabated for NAHCO growth. Barring unforeseen phenomena such as Covid 19, the sky is the limit for the anticipated growth of the company. The undue interference from the government agencies should be discouraged in order for the company to grow as projected. Kudos to both the management and staff for their individual and collective efforts for the growth of the company.