Nascon Allied Industries rebounded strongly in FY 2022, after three years of a challenging operating environment. Although the 2022 fiscal year was characterised by significant headwinds, the Company managed to perform above expectations. Revenue grew by 77% year-on-year to a record N59.79bn.

We attribute the significant revenue jump to higher product prices implemented by the Company during the period.

We also believe that the Company had increased access to market in the absence of smugglers, amid foreign exchange scarcity. Notably, periods of FX illiquidity tend to limit the business activities of smugglers because it no longer becomes attractive.

Profit Margins Expand Despite Cost Pressures

Operating expenses grew by 60% year-on-year to N15.19bn, driven by higher distribution costs. Due to higher volumes, distribution activities also increased thus resulting in the usage of more diesel. Meanwhile, diesel prices rose astronomically as a consequence of energy disruptions from the faceoff between Russia and Ukraine.

Nonetheless, operating profit grew by 274% year-on-year to N9.45bn and operating margin doubled to 16% (FY 2021: 8%). The increased revenue generated adequately covered for the operating costs increases.

By extension, profit after tax grew by 84% year-on-year to N5.45bn. Accordingly, the Company declared N1.00 dividend for FY 2022 (FY 2021: 40 kobo). The qualification date for dividend is on the 28th of April 2023 while the payment date is on the 26th of May 2023.

RoE Steadily Rises to Historical Levels

The Company’s return on equity stood at 32% in FY 2022, a significant rise from 22% in FY 2021. Using the DuPont analysis to identify the source of return, we discovered that the source was organic, reflected in asset turnover and net margin improvements. Asset turnover improved to 1.22x in FY 2022 (FY 2021: 0.78x) while net margin improved by 38 basis points to 9% in FY 2022.

Working Capital Pressures Weigh Heavily on Cash Generation

On the back of higher inventory levels (+93% YoY) and receivables (+19% YoY), operating cash flows declined by 30% YoY to N3.50bn in FY 2022 (FY 2021: N4.99bn). However, overall cash balance grew by 85% YoY to N13.01bn in FY 2022 due to increased borrowings.

Therefore, the Company’s gearing ratio increased to 0.46x in FY 2022 (FY 2021: 0.25x). We still consider the leverage ratio in FY 2022 as low relative to peers.


We project a 14% revenue growth for FY 2023, underpinned by our expectations of full impact of higher prices in H1 2023. We also expect to see sustained volume growth. While we note the potential inflationary impacts on operating costs, we maintain that higher prices will continue to offset the increases.

We upgraded our fair value for the stock to N18.01 (previous: N12.85). The implied justified price-to-earnings (P/E multiple) of 6.80x is a discount to the stock’s 10.34x historical average. At the current share price, we estimate a total return +57% total return (inclusive of a 10% dividend yield). Hence, we recommend a BUY.

Please follow the link “Nascon Allied Industries FY 2022 – Rebounding From the Difficult Years” to view the whole report.

Thank you.

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