NASCON Allied Industries Plc – Rising cost dampens profitability


The Coronavirus pandemic has continued to ravage the global economy with the number of confirmed cases & deaths steadily rising.

In our last note, the number of confirmed cases globally stood at 252,055 cases with 10,405 deaths recorded. However, as at mid-day on 26th April, according to world meters, confirmed cases have climbed to 2,943,582 cases while 203,917 deaths have been recorded. The rate of contagion has led to extreme measures such as total lockdowns, closure of airspace and grounding of non-essential activities being deployed by countries across the world as they fight the spread of Covid-19.

In Nigeria, figures from the Nigerian Centre for Disease Control (NCDC) puts the number of confirmed cases at 1,273 cases with 40 deaths recorded as at 26th April. This is a significant increase in deaths, from 12 cases as at our last communication. Consequently, the lockdown has been effected in other areas beyond FCT and the states of Lagos and Ogun as signs of community transmission are detected.

Economic activity has slowed down as businesses are closed and trade is restricted across various sectors. Nevertheless, we see some sectors with huge potential to record growth during this crisis. Three such sectors have our attention for now, which include; Telecommunications, Healthcare & Pharmaceuticals, and Food & Agriculture.

Telecommunications; Lockdown measures positions sector as the biggest beneficiary

Lockdown measures put in place to curb the spread of the Coronavirus puts the telecoms sector as the biggest beneficiary of the pandemic. Most formal businesses have now moved to work from home, which requires increased data consumption on the part of employees. Also, we note that with individuals sitting at home all day, social media activities have received a significant boost while visits to streaming platforms have become a norm in a bid to provide some sort of entertainment.

Over the past 2 years, the telecoms sector grew 11.3% and 11.4% in real GDP terms in 2018 and 2019, driven by increased smartphone penetration and internet adoption. We expect the sector to record sustained accelerated growth in 2020 on the back of increased internet usage. In this sector, we have 2 stocks listed on the Nigerian Stock Exchange (NSE); MTN Nigeria and Airtel Africa.

Healthcare & Pharmaceuticals; Fiscal & Monetary interventions to provide significant growth support

The healthcare & pharmaceutical industry in Nigeria is expected to be a major beneficiary of the spillover of interventions in the short and long term. The fast-spreading pandemic has led to increased demand for healthcare products such as immune system boosters, protective gloves, face masks, hand sanitizers and other preventive healthcare products. We expect this to support the revenue of healthcare companies in the near term. The big impact is the expected attention the healthcare sector is expected to receive over the next few years, as government and other stakeholders ramp up investments in the sector.

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The CBN has laid down the first marker in its series of supportive interventions, amidst several efforts to curb the impact of the COVID-19 outbreak on the Nigerian economy. In its communique on 25th March, the CBN announced the setting up of an N100bn credit support fund targeted at the healthcare sector. The fund would provide working capital loans as well as term loans to healthcare players to support expansion activities, research and similar activities. The loans would come at interest rates of 5% p.a. till 28th February 2021 and climb to 9% p.a. for the rest of the loan duration. We expect these funding measures to provide significant support for the private-led sector like the pharmaceutical industry. Some of the listed healthcare names such as May & Baker, FIDSON, NEIMETH, Union Diagnostics etc. are expected to be at the forefront of these growth initiatives.

Food & Agriculture: Lockdown induced stockpiling to support growth in the near term

Finally, our last pick is the Food and Agriculture sector, which we expect to continue to do well in the face of the challenges posed by the pandemic. The product offerings of this sector are very inelastic and would always feature at the top of the average consumer’s budget. We note that since the announcement of the lockdown measures, we have seen increased stockpiling by consumers ahead of what is expected to remain a lengthy lockdown period, as the Nigerian curve remains far from its peak. Thus, we expect sustained buying by consumers would support retails food sales in the near term. In the longer term, we see some risks as income levels decline and consumers lose their jobs. However, we expect the inelastic and essential nature of these products to sustain growth.

In the agriculture space, policies have been put in place by governments (Federal & Subnational) to aid continued activities of the sector, while ensuring the food supply chain is not disrupted. For example, while inter-state travel across Nigeria has been banned, the government has ensured transportation of agricultural inputs & produce to & from farms are not affected after granting special permits. Furthermore, significant investments are being made in agriculture as efforts continue to be put in place to ensure food sufficiency even as the pandemic continues to ravage on.

FSDH Top Picks: Dangote Cement out, UACN In

Below, we highlight some of our top picks across Agriculture, Telecoms and Banking. It is an update to our prior list which has seen us remove Dangote Cement from the list, given the construction sector would be under significant pressure, which implicitly feeds into the cement sector. We introduce United Africa Company of Nigeria (UACN) as the company has been undergoing significant rebranding and restructuring, which is positioning it for a significant upsurge in value.

NASCON Allied Industries Plc - Rising cost dampens profitability - Brand Spur NASCON Allied Industries Plc - Rising cost dampens profitability - Brand Spur