WED, JAN 29 2020-theG&BJournal-NASCON has published 2019FY unaudited results, with earnings per share (EPS) down a staggering 56.1% y/y on higher Cost of goods sold (COGS) (+20.4% y/y) and operating (+56.2% y/y) costs, both of which outpaced revenue (+7.0% y/y) growth.
For Q4-19 standalone, the company recorded its first quarterly loss on record following a decline in revenue (-6.6% y/y), and increases in the COGS (+6.5% y/y) and net finance cost (+1,821.5% y/y) lines.
Q4-19 revenue declined by 6.6% y/y (vs. Cordros estimate: +12.5% y/y). On a q/q basis, revenue plunged by 18.7%.
‘’We find this surprising given (1) Q4 is traditionally the company’s strongest quarter, and (2) NASCON expanded its seasoning capacity to 5,678MT in November (from 2,900MT), a move that should have ordinarily supported volume growth in the period,’’ Cordros analysts said.
‘’However, given that Maggi (NESTLE) and Knorr (UNILEVER) still dominate the seasoning market, even in Northern Nigeria (Dan-Q’s strongest market), we suspect its lower pricing strategy must have contributed to the revenue decline in the period. Beyond that, we also believe that the company cut prices in the refined salt segment in order to grow its market share.’’
Gross margin deteriorated to 12.1% (vs. 22.9% in Q4-18) as COGS grew 6.5% y/y in the face of the decline in revenue.
‘’This further cements our view that the company reduced prices across its product portfolio and implies the volume growth is not enough to compensate for the price cuts.’’
NASCON reported its first quarterly operating loss on record in Q4-19, as the slight moderation in OPEX (-2.6% y/y) was not enough to offset the sharp decline in other income (-113.5% y/y) and revenue. Further down, net finance charges expanded by 1,821.5% y/y as the company expanded its debt profile with a new NGN3.00 billion loan. Details on the source and interest rate of the loan had not been disclosed at the time of writing. Overall, the company recorded a loss after tax of NGN118.28 million in the period.
‘’NASCON’s performance in Q4, and indeed its 2019FY, was the worst in the history of the company. We expect a negative reaction from the market. In our opinion, the Q4 numbers should force management to rethink its pricing strategy.’’-Cordros Securities
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