NASCON Allied Industries Plc (NASCON) published its unaudited Q2-22 financials recently, in which the company reported a standalone EPS of NGN0.87 (Q2-21: NGN0.55), bringing H1-22 EPS to NGN1.16 (H1-21: NGN1.09). The EPS increase was driven by the sturdy growth in sales (55.6% y/y) recorded in the reporting period.
Revenue for the period grew by 55.6% y/y (H1-22: 43.0% y/y), driven by price increases instituted across NASCON’s salt products. Across its business regions, revenue from the North (68.5% of revenue) continued to be the largest contributor to total sales outturn, growing by 76.5% y/y. In the same vein, revenue from the Western (+22.3% y/y | 26.4% of revenue) and Eastern (+31.7% y/y | 5.1% of revenue) regions maintained the momentum witnessed in Q1-22.
Quarterly analysis of the number highlights the stellar performance achieved in Q2-22, as revenue grew by 33.5%, following a broad-based increase across most regions – North (36.5% q/q) and West (36.4% q/q) – save for the Eastern (-4.8% q/q) region.
Gross margin increased by 83bps to 39.0%, as the faster revenue growth muted the impact of the surge in cost of sales (53.5% y/y). On the higher costs, the breakdown provided in the financials revealed that the bulk of the increase emanated from higher raw materials costs (+62.6% y/y), highlighting the effects of higher commodity prices amid sustained FX illiquidity, and elevated inflationary pressures in the domestic economy. On an HY basis, gross margin (-618bps) compressed to 33.3%, reflecting the overwhelming pressures inherent in Q1-22.
Although EBIT margin (+77bps) increased to 12.3% (Q2-21: 11.6%), EBITDA margin (-189bps) declined to 16.6% (Q2-21: 18.5%) reflecting the 67.6% y/y increase in operating expenses. The increase in OPEX was influenced primarily by the 93.8% y/y increase in distribution costs.
Further down, the company recorded a net finance cost of NGN67.91 million in Q2-22 (vs net finance income of NGN0.97 million in Q2-21), underpinned by an increase in finance cost to NGN145.74 million (Q2-21: NGN11.86 million). We attribute the increase in finance cost to higher interest on lease liabilities which constituted the entirety of the finance cost line.
Overall, profit before tax grew sharply by 59.5% y/y to NGN1.71 billion (Q2-21: NGN1.07 billion). Following a tax expense of NGN556.87 million, profit after tax printed NGN1.15 billion (Q2-21: NGN727.33 million), translating to a growth of 58.0% y/y.
Comment: NASCON’s Q2-22 result outperformed our expectations as we initially believed the company’s ballooning costs would constrain margins and hamper earnings growth. Notwithstanding, we are still cautious on our expectations going into H2-22, given that the strong headwinds we identified (Click here for our Consumer Goods sector update) as growth inhibiting factors still exist. Our estimates are under review.
