Earnings Update: Nascon Allied Industries Plc Q1 2021 – Cost Pressures Remain a Bottleneck

Event

Nascon’s (‘the Company’) challenges worsened into the new financial year, as reflected in her Q1 2022 financial performance. The Company continued to face rising cost pressures, amid an intense competitive environment. This resulted in significant margin erosion for the Company in Q1 2022. Revenue grew by 29% YoY to N10.76bn. We believe that the revenue growth was driven by higher volume growth and marginal price increase. However, cost of sales grew by a marked 62% YoY to N7.99bn, on the back of higher raw material costs – we link this to the continued impact of the covid-induced global supply chain bottlenecks, as well as the impact of the recent geopolitical conflict in the Eastern Europe. As a result of the higher cost of sales incurred during the period, gross margin shrank to 26% from 41% in Q1 2021, thus leading to a 19% YoY decline in gross profit.

Outlook

We anticipated higher cost pressures in our previous report. Over the subsequent quarters of the year, we expect the pressures to persist. However, we believe that it will get to the point where the Company will effectively raise prices to protect margins. Based on our projection, we expect to see the impact of higher pricing in Q4 2022.

On the heels of the material decline in earnings level in Q1 2022, our revised earnings per share for the Company for FY 2022 is N0.46 (previous: N0.79). That is, we now expect the Company to report significantly lower net profit in FY 2022 due to higher operating costs.

Please follow the link “Nascon Allied Industries Plc Q1 2021 – Cost Pressures Remain a Bottleneck”  to view the whole report.

Thank you.