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NASCON published its Q1-22 unaudited financials this morning, reporting a 46.8% y/y decline in EPS to NGN0.58 (Q1-21: NGN1.09), following elevated cost pressures evidenced by the surge in cost of sales (+ 62.3% y/y). Notably, analyst highlight that computation of NASCON’s EPS printed NGN0.15 in Q1-22 (Q1-21: NGN0.27).

Revenue grew by 29.1% y/y in Q1-22. Although we are yet to get details on what drove revenue growth, we believe the higher sales recorded in the period were supported by price increases instituted in the company’s salt products. Across its regional footprint, the Northern region (67.0% of revenue) remained the company’s dominant region, with sales growing by 37.8% y/y. In addition, the Eastern (7.0% of revenue) and Western (25.9% of revenue) regions also recorded growth of 48.3% y/y and 7.6% y/y, respectively.

Gross margin (-15.23 ppts) compressed to 25.7%, driven by the surge in cost of sales (+62.3% y/y) relative to revenue (29.1% y/y). The cost breakdown revealed that the bulk of the increase in cost of sales emanated from higher raw materials (+73.6% y/y), which we believe reflects the effects of higher commodity imports amid existential issues like FX illiquidity and elevated inflationary pressures in the domestic economy.

Consequently, EBITDA and EBIT margins declined steeply by 918bps and 729bps to 10.8% and 5.5% (Q1-21: 20.0% and 12.8%) following the gross margin decline and a 10.4% y/y expansion in operating expenses. The increase in OPEX was influenced by increases in the general & admin (+6.1% y/y) and selling & distribution (+12.2% y/y) expense lines.

Further down, the company recorded a net finance cost of NGN18.67 million in Q1-22 (vs net finance income of NGN0.39 million in Q1-21), underpinned by a 472.7% increase in finance cost to NGN57.73 billion. We attribute the increase in finance cost to higher interest on lease liabilities (Q1-22: NGN76.40 billion | Q1-21: NGN11.63 billion).

Overall, profit before tax fell sharply by 46.5% y/y to NGN568.73 million (Q1-21: NGN1.06 billion). Following a tax expense of NGN182.36 million, profit after tax printed at NGN386.37 million (Q1-21: NGN723.20 million).

Comment: NASCON’s frail Q1-22 result aligned with our expectations (Click here for our 2021FY Update) of constrained margins due to ballooning costs. Given that the challenges that hampered the company’s profitability still exist, we expect earnings to remain pressured in the near term. Our estimates are under review.

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