TUE 01 MARCH, 2022-theGBJournal- NASCON Allied Industries Plc (NASCON) released its 2021FY audited results Monday, reporting a 38.7% y/y growth in Q4-21 standalone PAT with an EPS of N0.21 (Q4-20: N0.15), bringing the 2021FY EPS to N1.12 (+10.4% y/y; 2020FY: NGN1.02).
The growth in 2021FY EPS was driven mainly by an expansion in the company’s topline (+18.8% y/y) and lower net finance costs (-35.1% y/y). NASCON’s board proposed a dividend of N0.40/s, implying a dividend yield of 2.8% based on the last closing price of N14.40/s.
Revenue grew by 35.8% y/y in Q4-21 (2021FY: +18.8% y/y), as the company’s top line showed the impact of expansion of its refined salt capacity from 82kmt to 250kmt, which supported higher salts volume.
Across NASCON’s regional footprint, the East (+119.5% y/y) and North (+53.4% y/y) sales recorded growth, while the West declined by 34.2% y/y. The full-year numbers revealed that the North (62.8% of total revenue) contributed the bulk of revenue. However, the magnitude of its contribution waned by about 4.35ppts, as the company gained some traction in the West (29.1% of total revenue | 2020FY: 25.7%) and East (8.0% of total revenue | 2020FY: 7.1%). We believe the preceding is evident of management’s strategy to penetrate other regions and reduce the dominance of the Northern region on its revenue. We suspect a lower pricing strategy was adopted across its product portfolio to drive this initiative.
On a q/q basis, revenue increased by 12.9% – recovering from the slump in Q3-21 (-20.1% q/q) – supported by the festive induced demand in Q4-21.
Gross margin declined significantly by 18.88ppts to 23.5% in Q4-21, following a whopping 80.2% y/y increase in the cost of sales relative to revenue (+35.8% y/y). The cost breakdown attributes the bulk of the cost increases to higher charges for depreciation & impairment (+190.9% y/y), raw materials (+96.7% y/y) and employee costs (+22.6% y/y). Full-year numbers showed that the Q4 outturn dragged 2021FY gross margin lower by 534bps to 35.9%.
Given NASCON’s low price strategy to capture a significant portion of the salt and seasonings market, we believe that the company did not pass on the impact of its higher costs to its consumers by raising prices, thus the significant disparity between the revenue and costs growth, and gross margin decline.
Notwithstanding the decline in gross margin, EBITDA (+209bps) and EBIT (+215bps) margins increased, following a substantial decrease in OPEX margin (-690bps to 30.2%), reflecting gains from operational efficiencies.
Net finance costs declined by 35.1% y/y, underpinned by a 24.3% y/y decline in finance costs and a marginal 1.2% y/y increase in finance income. We highlight that lower finance costs on its lease liabilities and the repayment of its loans from Dangote Industries Limited and Zenith Bank Plc influenced the lower finance costs.
Overall, PBT rose by 56.0% y/y to NGN685.56 million in Q4-21 (2021FY: NGN4.24 billion). Following a tax expense of NGN130.27 million, profit after tax (+38.7% y/y) printed NGN555.30 million in Q4-21 (2021FY: NGN2.97 billion).
Cordros Research analysts said NASCON’s 2021FY result aligned with our expectations that the company will see out the year with positive results. However, they maintain their view that revenue growth may be sub-optimal.
‘’For context, we opine that management’s adoption of a low-price strategy undermined revenue growth despite its exciting growth potential, and drove the contraction in gross margin. YTD, NASCON is up 9.1%, compared to the Consumer Goods index (-0.2%) and the broader All-Share index (+11.0%),’’ Cordros said.
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