In 2023, NASCON Allied Industries’ share price witnessed an impressive 384% year-to-date gain, marking its strongest surge in the past five years and closing the year at N53.75.
Since then, the share price has continued its upward trajectory, reaching N57 per share, reflecting a year-to-date gain of 6.15%.
Consequently, the stock is currently priced at a price-to-earnings ratio of 11%, which, although lower than the consumer goods food sub-sector average ratio of 14.8x, may be considered relatively high.
Additionally, NASCON boasts a price-to-book ratio of 5.5x and a price-to-sales ratio of 1.87x.
While these metrics offer valuable insights into NASCON’s valuation and financial performance, deciding on whether to buy, hold, or sell the stock requires a deeper examination of the company’s growth prospects, financial health, industry/company events, and market sentiment.
These additional factors play a crucial role in evaluating the stock’s attractiveness and its potential for future returns
NASCON Allied Industries Plc is involved in the production and sale of refined, edible, and graded salt in Nigeria.
It also produces vegetable oils, tomato paste, and seasonings; and provides freight services. The company sells its products under the Dangote and Dan-Q brand names.
Last year, Dangote Sugar Refinery Plc announced its intention to merge with NASCON and Dangote Rice Limited (DRL).
Under the merger scheme, each NASCON shareholder will receive eleven fully paid-up ordinary shares, valued at 50 kobo each, in Dangote Sugar Refinery for every twelve NASCON shares of the same value.
For instance, a NASCON shareholder holding 200 shares will receive approximately 183 shares in Dangote Sugar Refinery.
The fluctuations in share prices, especially those of Dangote Sugar Refinery, will indeed have a significant impact on NASCON’s valuation post-merger.
Essentially, if Dangote Sugar Refinery’s shares continue to trade above NASCON’s, especially after the merger, it could potentially maintain or even increase the valuation for NASCON shareholders.
Aside from the anticipated post-merger effects on valuation, NASCON has exhibited commendable financial performance.
Over the past five years, the company has consistently achieved growth in both revenue and earnings. With a compound annual growth rate of 17% for revenue and 4.4% for earnings, NASCON has demonstrated resilience and adaptability in navigating market dynamics, indicating its ability to maintain sustained growth.
In 2023, the company reported a notable revenue growth of 38% YoY, surpassing its 5-year CAGR. Similarly, earnings also saw robust growth in 2023, with a YoY increase of 152%, significantly outpacing its 5-year CAGR.
NASCON’s strong revenue and earnings growth in 2023 compared to its historical performance indicates positive momentum and potential for further expansion and illustrates NASCON’s ability to capitalize on market opportunities and effectively execute its business strategies.
This bodes well for the company’s growth prospects, as it signals a strong demand for its products and services, potentially driving future revenue and earnings growth.
The company’s revenue is predominantly derived from the salt segment, which accounts for about 94% of its total revenue. This revenue source has been consistent over time and market demand is robust, providing a stable foundation for NASCON’s financial performance.
Additionally, insights indicate that the executive management has formulated strategies aimed at expanding the company’s market share. These strategies are set to be gradually implemented in the upcoming months.
That said, a cursory review of the company’s financial statement shows that NASCON has been able to maintain double-digit profit margins across various stages of the income statement.
This suggests that NASCON is operating efficiently and profitably. These margins not only indicate the company’s ability to generate profits but also serve as indicators of its financial health and long-term sustainability.
In terms of financial health, NASCON’s financial health appears good, as evidenced by various indicators reflecting its leverage, liquidity, and overall balance sheet strength.
The company maintains a healthy debt-to-equity ratio of 34%, indicating a moderate level of debt relative to its equity.
While the company’s financial leverage is somewhat elevated at 3x, its operating profit of N21.1 billion adequately covers its interest obligations, as reflected in its interest coverage ratio of 20x.
The ability of NASCON to efficiently cover its interest obligations with its operating profit is reassuring for shareholders and investors.
It signifies the company’s strong operational performance and its capability to manage its debt burden effectively, which ultimately contributed to the impressive return on equity of 49.97% in 2023.
While NASCON presents a compelling investment opportunity considering its strong financial performance, growth prospects, and potential synergies from the proposed merger, investors should carefully assess the impact of the merger and consider all relevant factors before deciding whether to buy, hold, or sell NASCON shares.