Legend Internet Plc – Profitability Amid Growth Investments

Executive Summary

Legend Internet Plc reported a pre-tax profit of N173 million in FY 2025, down 39.4% YoY, despite a modest revenue increase (+4.6% YoY). The earnings decline was primarily driven by surging administrative expenses (+52.4% YoY) and higher finance costs, which offset improvements in gross profitability. However, a zero-tax liability lifted post-tax profit by 45% YoY, underscoring resilience at the bottom line. With a growing asset base (+10.3% YoY to N3.34 billion) and strong equity funding (shareholders’ funds 86% of assets), Legend Internet Plc retains financial stability. Nonetheless, its operating margin contraction to 17% raises concerns about cost control and scalability.

Strengths

1. Improved Gross Profit Margin

• Revenue rose +4.6% to N1.19 billion, while cost of sales declined -6.8% YoY to N430 million.
• Gross profit improved +12.4% YoY to N761 million, lifting gross margin to 64% (vs 59.5% in 2024) — evidence of better efficiency in core service delivery.

2. Strong Balance Sheet Structure

• Total assets expanded 10.3% to N3.34 billion, driven by investments in fixed assets.
• Shareholders’ funds stood at N2.87 billion (+6.4% YoY), representing 86% of total assets, a strong equity cushion that underscores financial stability.

3. Bottom-Line Resilience

• Post-tax profit increased 45% YoY to N173 million, aided by zero-tax liability.
• Despite operating margin pressures, the company preserved profitability, signaling operational resilience.

Weaknesses

1. Rising Administrative Expenses

• Admin expenses jumped 52.4% YoY to N560 million, far outpacing revenue growth.
• This eroded operating profit, which declined 35% YoY to N201 million, compressing operating margin to 17%.

2. Profitability Decline

• Pre-tax profit fell 39.4% YoY, reflecting cost inefficiency.
• Finance costs also grew 15% YoY to N29 million, exerting further pressure on bottom-line profitability.

3. Asset Concentration Risk

• Fixed assets represent 78% of total assets, limiting financial flexibility and highlighting limited liquidity buffer for working capital needs.

4. Weak Revenue Growth

• Revenue grew only 4.6% YoY, well below inflation-adjusted expectations in Nigeria.
• This suggests market penetration or pricing power challenges.

Opportunities

• Digital Expansion: As a tech-focused firm, Legend Internet can leverage its platform to expand into higher-margin digital services and IT solutions.
• Cost Optimization: Tightening cost control, especially admin expenses, could significantly improve operating margins.
• NGX Listing Leverage: Access to equity markets could enable fundraising for technology upgrades and working capital efficiency.
• Sector Tailwinds: Increasing demand for IT and internet solutions in Nigeria (digitization, fintech expansion, and e-commerce growth) provides a supportive backdrop.

Risks

• Cost Escalation: Persistent rise in overheads may continue to erode margins.
• Limited Scale: As a small-cap, Legend faces constraints in competing with larger, better-capitalized tech firms.
• Concentration in Fixed Assets: Heavy investment in plant and equipment reduces flexibility and increases operational leverage risk.
• Regulatory & Tax Exposure: Zero-tax liability boosted FY 2025 results, but any future tax charges could significantly affect profitability.

Conclusion

Legend Internet Plc represents an early-stage, high-risk, growth-oriented tech investment. Its strong balance sheet and improved gross margins are positives, but surging administrative costs and weak revenue growth are immediate red flags.