NASCON Allied Industries Plc – Impressive H1 2020 performance amidst COVID-19 challenges

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Performance highlight

NASCON Allied Industries Plc posted a topline growth of 12% YoY from N12.97bn in H1 2019 to N14.53bn in H1 2020. Gross profit surged double-digit by 65% YoY on the back of the haulage cost reclassification.

NASCON Allied Industries Plc reclassified haulage cost from production cost to distribution expense. Thus, operating profit rose YoY by 14% from N2.12bn in H1 2019 to N2.43bn in H1 2020. The group’s profit before tax grew at a moderate rate YoY by 7% from H1 2019 to N2.13bn to N2.28bn in H1 2020.

Likewise, profit after tax grew by 3% from N1.45bn in H1 2019 to N1.49bn in H1 2020 due to a higher effective tax rate. EPS for the period stood at N0.56k (H1 2019: N0.54k).

NASCON Allied Industries Plc regains market share amid FX scarcity and sustained land border closure

Despite the pandemic, revenue grew by 12% YoY informed by robust growth across the geographical regions. Revenue in the West increased by 36% to N2.72bn in H1 2020. Similarly, revenue in the East by grew 11% to N923mn in H1 2020. Income from the North also rose YoY by 5% to N9.91bn in H1 2020.

We believe that the growth in revenue was due to the sustained border closure and FX scarcity, which prevented the penetration of cheap smuggled goods that competed against the company’s market share.

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On the other hand, the group’s production cost declined YoY by 8% from N9.45bn in H1 2019 to N8.71bn in H1 2020. The drop in production cost was primarily due to the reclassification of haulage cost to distribution expense. Safe for the reclassification, the cost of sales could have increased YoY by 7% to N10.15bn in H1 2020.

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Nevertheless, on the back of the reclassification, gross profit surged YoY by 65% to N5.82bn and gross profit margin strengthened by 129bps to 40% in H1 2020.

NASCON Allied Industries Plc - Impressive H1 2020 performance amidst COVID-19 challenges

Recommendation

NASCON Allied Industries Plc has been on a rebounding revenue growth trend between Q1 2020 and Q2 2020. Revenue in Q2 2020 grew markedly by 24% despite COVID-19 related challenges. However, trade receivables increased by 19% to N11.81bn in H1 2020, which may suggest that the company may have relaxed its credit policy.

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Notably, however, the group’s cash position also improved from a negative place of N310mn in H1 2019 to of N5.71bn in H1 2020. We believe that the sustained border closure, as well as FX scarcity, was supportive of the group. We expect to see the group reclaim more market share given the persistent FX scarcity and the gradual easing of the lockdown.

Overall, we have a revised forward EPS of N1.05k with a fair value estimate of N6.87k on the stock. At the current market price of N10.00k, the stock is trading at 31% premium to our reasonable estimate.

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Hence, we recommend a SELL.

WSTC Securities Limited

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NASCON Allied Industries Plc - Impressive H1 2020 performance amidst COVID-19 challenges - Brand SpurNASCON Allied Industries Plc - Impressive H1 2020 performance amidst COVID-19 challenges - Brand Spur

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NASCON Allied Industries Plc - Impressive H1 2020 performance amidst COVID-19 challenges - Brand SpurNASCON Allied Industries Plc - Impressive H1 2020 performance amidst COVID-19 challenges - Brand Spur

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