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Nascon Allied Industries Plc (NASCON) has delivered strong earnings growth in 2024, with revenue up 49% to N120.4 billion and profit after tax rising 14% to N15.6 billion.
Shareholders have even more reason to celebrate, as the company has declared a N2.00 dividend for the 2024 financial year.
The dividend, reflecting a massive 100% year-on-year increase, is set to be paid on May 9, 2025.
Over the past five years, NASCON has been consistent in paying dividends, with a 26% compound annual growth rate (CAGR) in dividends. Retained earnings also jumped 61% year-on-year to N41.27 billion, reinforcing the company’s financial base.
Commenting on the 2024 results, the Managing Director Thabo Mabe, stated:
“I am pleased to present our financial results for the year, which highlight our Company’s resilience and strategic effectiveness. Our revenue increased by an impressive 49% to N120.4 billion, which reflects our robust market performance and strategic initiatives.
Despite a challenging economic environment, we achieved a 25% increase in gross profit, totaling N55.5 billion. Our EBITDA saw growth of 19% to N27.4 billion, resulting in a 23% EBITDA margin, which is an encouraging sign of our operational efficiency.
We experienced a 15% increase in profit before tax, amounting to N23.6 billion, and our profit after tax grew by 14% to N15.6 billion. Consequently, earnings per share also rose by 11%, now standing at N5.77. Our total assets increased by 20%, reaching N78.5 billion, providing a strong foundation for volume growth.
Therefore, we are pleased to propose a 100% increment in the dividend to N2.00, as a testament to our commitment to delivering value to our shareholders.”
This is undoubtedly great news for investors. However, a closer look at the financials reveals a cash flow challenge that warrants attention.
The problem
While NASCON has delivered strong profit growth, its ability to turn those profits into real cash has weakened.
Net cash flow from operations dropped by 79% to N4.165 billion in 2024, down from N20 billion in 2023. In simple terms, even though the company is making more money on paper, cash is not flowing in as fast.
The main reasons? More money is stuck in stock and unpaid invoices.
- Inventories shot up to N7.088 billion (from N2.906 billion in 2023), meaning NASCON has more unsold products.
- Customers owe NASCON more, with trade receivables rising by N7.420 billion.
This means less cash is available for the company to use, which is why for every NASCON share, the cash flow from operations is just N1.54, while reported earnings per share stand at N5.77.
Another concern is that NASCON is saving less of its profits for growth, which could slow expansion.
Its sustainable growth rate fell from 40% in 2023 to 24% in 2024, meaning it has less room to grow without external funding.
However, with manageable debt levels, NASCON can still borrow if needed to support future growth.
For investors, big profits and higher dividends are great, but NASCON needs to manage its working capital better to improve cash flow.
Margins are getting thinner
Even though revenue is up, NASCON’s profit margins are under pressure:
- Gross profit margin fell from 55% in 2023 to 46% in 2024.
- Net profit margin dropped from 16.98% to 12.94%.
This could be due to rising production costs, inflation, or increased competition, factors that could continue to squeeze profits if not properly managed.
What does this mean for investors?
From an investment standpoint, NASCON is still an attractive stock, but investors should watch its cash flow and margins carefully.
The company’s P/E ratio of 7.2x suggests it is still reasonably priced, and its low debt-to-equity ratio of 6.64% means it isn’t overburdened by debt.
Buy, Hold, or Sell?
- Buy if you believe NASCON can resolve its cash flow problems and continue its growth trajectory. The strong dividend and retained earnings suggest long-term potential.
- Hold if you already own the stock but are concerned about cash flow and margin pressures. Watch for improvements in working capital management.
- Sell if you are risk-averse and see the cash flow crunch as a red flag, especially if it worsens in the next few quarters.
For now, NASCON remains a strong dividend stock, but it needs to turn more of its profits into cash to stay on solid ground.
Its share price has shown some recovery this year, gaining 36% year-to-date after a steep 41% decline in 2024.
