Event

In Q2 2024, Nascon Allied Industries Plc (“the Group”) reported a 26% revenue growth to N26.81 billion (Q2 2023: N21.26 billion). This growth was fueled by strategic price adjustments in the salt & seasoning segment, necessitated by escalating input cost.

According to management, the escalating input cost was driven by FX revaluation, higher packaging and material costs of seasoning, and higher freight costs of salt, which saw the cost of goods rise by 72% to N15.95 billion (Q2 2023: N9.26 billion). Despite the revenue growth, the Group faced margin compression, as gross profit declined by 10% to N10.87 billion (Q2 2023: N12.01 billion), and gross margin contracted by 1600 basis points to 41% (Q2 2023: 57%), underscoring the challenge of offsetting the intensified cost pressure.

Outlook

Looking ahead, we do not anticipate a deviation from the trend observed in Q2 2024. Revenue is expected to be primarily driven by pricing strategies, while on the cost side, we foresee persistent elevated input and operating costs due to inflationary pressure and high energy price.

We maintain our fair value estimate of N37.23 for the stock, and also retain our HOLD recommendation. At the current price of N34.00, our fair value implies a total potential return of 14%, inclusive of a 5% dividend yield.

Please follow the link “NASCON Q2 2024 – Price Hikes Insufficient to Stem Margin Decline” to view the whole report.

Thank you.