By Peter Egwuatu
Following the Federal Government’s effort to boost the economy through its various policies reforms to attract both local and international investors, more companies have been admonished to take advantage of these reforms initiatives to list on the Nigerian Stock Exchange in order to boost the depth and liquidity in the Nigerian stock market.
Market operators have continued to lament shallow depth of the Nigerian stock market as the operating environment in the past years has not been favourable to attract listing on the Exchange.
The much awaiting listing of telecommunication firms on the NSE has not materialised as none of them is yet to file their listing applications with the regulators in the capital market.
Notore Industries Plc, has taken the bull by the horn recently to list on the NSE, a development that both regulators and stakeholders have applauded as a step in the right direction to lift the stock market.
Usually investors in equity market search for stocks with good prospects and the potential to deliver significant returns on their investments. One of the ways to identify such stocks is the industry they operate and the capacity and ability of the company to deliver on all the financial parameters that will eventually lead to positive returns.
Operators in the market believed that Notore is in a position to offer investors that value in the long term.
When Notore Chemical was listed on the NSE recently, it lifted the market capitalisation of the Exchange by over N100 billion. It was also the first listing by the Exchange this year.
Explaining the reasons for the listing the Group Managing Director/CEO of Notore, Mr Onajite Okoloko said it would support the Nigerian government’s effort to deepen the capital market, improve liquidity and tradability of the company’s shares, and increase its visibility and credibility in the Nigerian market and beyond.
“The listing will also increase access to capital in order to fund the company’s future growth initiatives and grant Nigerians the opportunity to participate in Notore’s growth history,” he said.
The company formerly known as O-Secul Fertilizer Company Limited, was established in 2005 to acquire the core assets of the National Fertilizer Company of Nigeria (NAFCON).
The company, a vertically integrated agro-allied, chemical and power group, based in Onne, Rivers State, has six subsidiaries including Notore Supply & Trading Mauritius Limited, Notore Power Limited, Notore Seeds Limited, Notore Foods Limited and Notore Industrial City Limited.
The company is a leading producer of fertilizer products traded locally and exported to West Africa, Southern Africa and Europe.
Given the efforts of the Federal Government to diversify the economy with much focus on agriculture, companies operating in the agro-allied space have huge headroom for growth.
Hence, Notore with a good management and business strategy is a company investors looking for significant future returns must not ignore. It is for this reason many investors see Notore as a future stock.
Company’s operations
Speaking on the operations of the company, Okoloko said: “Our core business is the production and sale of fertilizer products, which is traded locally in Nigeria and exported to West Africa, Southern Africa and Europe. Our key strength lies in our huge potential to diversify our revenues due to our favourable location within a prolific gas hub and access to a jetty, which guarantees easy export of any products manufactured in the facility.”
He further said Notore is the only producer in sub-Saharan Africa with control over gas supply, and has a vast distribution network in the local Nigerian market.
According to him, “ Notore sells 75 per cent of its urea fertilizer locally and exports 25 per cent to leading international traders such as Helm Ag, Ameropa and Yara.”
“Notore is a licensed independent power producer, which generates electricity for use in the fertilizer plant and residential estate, with excess capacity available for sale to nearby off-takers. The power plant has a total capacity of 50 megawatts (MW) with own use requirements of between 8-13MW,” he added.
Financial analysis
After the listing on the Exchange, the company has released its unaudited results for the nine months ended June 30, 2018. It recorded revenue of N20.584 billion, down by 20.3 per cent compared with N25.834 billion recorded in the corresponding period of 2017. However, gross profit rose 14.2 per cent to N8.161 billion from N7.114 billion. This was driven by an exceptional item valued at N3.91 billion, which reduced the cost of sales. The exceptional item was in respect of the Export Expansion Grant confirmed receivable from the Federal Government of Nigeria on the cumulative export sales made by Notore between 2011 and 2016.
The company’s cost of sales is well within its control. Natural gas accounts for approximately 80 per cent of the cost of sales of urea fertilizer and Notore benefits from a 20-year fixed Gas Supply and Purchase Agreement priced at US$1.50/mmbtu, which was signed in March 2016.
Notore also reported Earnings Before Interest Taxation, Depreciation and Amortisation (EBITDA) margin of 47.54 per cent, up from 39.04 per cent in 2017. According to the company, its EBITDA of N9.79 billion for the period under review, was 2.96 per cent lower, which was driven by a 34.02 per cent increase in operating expenses as a result of an increase in administrative expenses – partly due to increase in employee benefits during the period, as well as selling and distribution expenses to promote local sales during the off-planting season.
Net financing cost declined marginally by 1.21 per cent to N7.69 billion from N7.78 billion in 2017, while the company ended with a loss before tax of N3.94 billion, relative to loss ofN3.45 billion in the corresponding period in 2017. However, Notore’s free cash flow increased by 15.05 per cent to N7.21 billion.
According to Okoloko, “Notore recorded N20.58 billion in revenue in the nine-month period under review. Though representing a 20.32 per cent decline to prior year revenue, this was largely due to sub-optimal capacity utilisation of the existing plant. We have now secured funding to carry out the required Turn-around Maintenance (TAM) programme of the plant, which is expected to be completed by the third quarter of 2019. This will enable the plant produce urea at its nameplate capacity of 1,500 mtpd, significantly above the 53 per cent average capacity utilisation in the nine-month period to June 2018. We expect that the plant’s capacity utilisation will increase to a minimum of 90 per cent after the TAM, positively impacting revenue on a like-for-like basis.”
He explained that Notore has extensive local and international distribution channels, which guarantee that the company sells all the fertilizer it produces.
Diversification Strategy
“In addition to being the leading player in the fertilizer industry in Nigeria, and leveraging the inherent growth within agriculture, Notore’s key strength lies in its significant potential to significantly expand its operations and diversify its revenues due to its favourable location within a prolific gas hub and access to a jetty, which guarantees easy export of any products manufactured in the facility.
The Brownfield status of the plant and available land mass creates expansion opportunities with reduced construction cost and risk. Our recent listing by introduction on the NSE provides access to an expanded capital pool to drive the company’s strategic growth objectives,” he said.
Okoloko noted that Notore secured approval for a $37 million facility to fund its TAM programme, including the acquisition and installation of back-up power supply and critical plant spares.
