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Nigerian Aviation Handling

Nigerian Aviation Handling Company Plc (NAHCO) - H1/Q2 Result

WA
WaneInvestmentHouse
WaneInvestmentHouse
Not Invested
Community Contributor
Published
12 Feb 25
Updated
05 Aug 25
WaneInvestmentHouse's Fair Value
₦131.35
15.5% undervalued intrinsic discount
05 Aug
₦111.00
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1Y
204.5%
7D
-5.1%

Author's Valuation

₦131.4

15.5% undervalued intrinsic discount

WaneInvestmentHouse's Fair Value

Narrative
Updates3

Last Update05 Aug 25

NAHCO Plc: Strong H1 2025 Earnings Signal Sustained Growth and Strategic Diversification

Nigerian Aviation Handling Company (NAHCO) Plc delivered a commanding first-half 2025 performance, with revenue doubling (+102%) and net profit surging by 166.7% YoY to ₦8.88 billion. The company’s remarkable earnings trajectory reflects its successful execution of cost optimisation, digital transformation, and diversification initiatives. With expanded margins, strong returns on equity (51.1%), and a robust five-year strategy targeting over ₦300 billion in revenue by 2030, NAHCO is positioning itself as a dominant player in aviation logistics and adjacent sectors. However, exposure to macroeconomic volatility, regulatory risks, and execution challenges in diversification remain key considerations for investors.

Key Strengths

1. Stellar Revenue and Earnings Growth

  • Revenue: ₦32.33 billion in H1 2025 (+102.06% YoY), driven by higher demand for ground handling and logistics services.
  • Net Profit: ₦8.88 billion (+166.7% YoY), translating to an EPS of ₦4.55 versus ₦1.71 in H1 2024.
  • Pre-tax Profit: ₦11.79 billion (+148.2% YoY), underscoring strong operating leverage.

2. Margin Expansion and Cost Efficiency

  • Gross Margin: Improved from 55% to 59.26%.
  • Operating Margin: 36%, up from ~28% in prior year.
  • Pre-tax Margin: 36.5%, highlighting disciplined cost management despite inflationary pressures.

3. Strong Capital Efficiency and Returns

  • ROA: 20.14% (tripled YoY).
  • ROE: 51.09%, reflecting efficient capital utilisation and strong profitability metrics.

4. Solid Dividend Track Record and Outlook

  • FY 2024 dividend payout stood at ₦11.58 billion (+134% YoY).
  • Improved EPS signals headroom for higher payouts in FY 2025, enhancing income appeal.

5. Strategic Diversification Beyond Core Ground Handling

  • Investments in Oracle ERP, HCM systems, and digitisation initiatives to drive operational efficiency.
  • Expansion into hospitality (hotel development) and commodities export, supported by the launch of Nigeria’s first Export Packaging and Processing Centre.
  • ESG compliance and logistics integration initiatives position NAHCO for long-term sustainability and investor confidence.

Key Weaknesses & Risks

1. Regulatory and Industry Risks

  • Aviation remains highly regulated, with exposure to tariff changes, compliance costs, and international standards that could impact profitability.

2. Macroeconomic Pressures

  • Persistent naira devaluation, high inflation, and rising operating costs could erode margin gains.

3. Execution Risk in Diversification Strategy

  • New ventures in hospitality and commodity exports carry inherent execution and market adoption risks, potentially diluting focus from core operations.

4. Cyclicality of Aviation and Trade Flows

  • Revenue is sensitive to air traffic volumes and global trade dynamics, which could be affected by economic downturns or geopolitical shocks.

Industry Context

Nigeria’s aviation and logistics sector is undergoing a structural transformation driven by increased passenger and cargo volumes, infrastructure upgrades, and the AfCFTA trade framework. NAHCO’s strategic pivot to a diversified logistics group aligns with this trend, enabling it to capture opportunities beyond traditional ground handling.

Outlook and Strategic Roadmap

  • Five-Year Goal: Revenue exceeding ₦300 billion by 2030 through core business growth, export logistics, and hospitality ventures.
  • Continued investment in modern equipment, fleet renewal, and human capital to sustain operational excellence.
  • Digitisation and ESG integration will remain core pillars for competitive differentiation.

Investment View

NAHCO’s H1 2025 results underscore strong fundamentals, superior capital efficiency, and a well-defined growth strategy, making it an attractive investment for long-term growth and dividend income. While regulatory risks and diversification execution warrant monitoring, the company’s dominant market position, rising margins, and high ROE provide a compelling case for upside potential.

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Nigerian Aviation Handling Company Plc delivered a stellar H1 2025 result, reflecting strong earnings momentum, healthy operational leverage, and potential long-term growth driven by Nigeria’s expanding air travel and logistics industry. With gross profit margin nearly doubling year-on-year and a clean balance sheet, NAHCO is positioned to deliver robust shareholder value. Despite near-term risks from regulatory changes or airline industry volatility, current valuation offers a compelling entry point for long-term investors.

Strengths

  1. Explosive Revenue Growth
    • H1 2025 revenue grew 102% YoY to ₦32.3 billion (vs ₦16.0 billion in H1 2024), driven by increased flight activities, expanded service offerings, and improved pricing power.
  2. Operating Leverage & Profitability
    • Gross profit margin improved from 55% to nearly 59% YoY.
    • Operating profit more than doubled to ₦11.64 billion in H1 2025 (vs ₦5.13 billion in H1 2024).
    • Net profit surged to ₦8.88 billion (vs ₦3.33 billion), with EPS rising to 455 kobo from 171 kobo.
  3. Efficient Cost Control
    • Despite revenue doubling, admin expenses grew by less than 100% (from ₦4.03bn to ₦7.78bn), showing strong discipline.
  4. Strong Financial Position
    • Low debt-to-equity ratio and ₦17.4 billion equity base offer balance sheet flexibility.
    • Finance income (₦1.27bn) comfortably covered finance costs (₦1.11bn), showing prudent liquidity management.
  5. Industry Tailwinds
    • Nigeria’s aviation industry is witnessing a post-COVID rebound, supported by population growth, economic recovery, and government investment in airport infrastructure.

Weaknesses

  1. Declining Cash Position
    • Cash dropped significantly to ₦3.03 billion (vs ₦6.16 billion in FY 2024), indicating higher working capital requirements or pending collections.
  2. Receivables Build-Up
    • Trade and other receivables stood at ₦10.97 billion (vs ₦14.03 billion in Dec 2024), suggesting challenges in timely collections from airline clients.
  3. CapEx Intensity
    • High investment in PPE (₦21.6 billion) requires sustained revenue growth to maintain ROA/ROE.

Catalysts

  • Industry Expansion: Rising domestic and regional flight activities post-COVID could sustain service demand.
  • Service Diversification: NAHCO’s growing footprint in cargo handling and logistics adds high-margin growth potential.
  • Public Sector/Private Airline Partnerships: Government infrastructure upgrades and private airline expansion offer tailwinds.
  • Currency Stability: Relative FX stability reduces imported equipment and lease cost pressures.

Assumptions

  • Revenue Projection: Assuming a 15–20% CAGR, revenue could reach ₦65–70 billion in 5 years, driven by volume growth, pricing strength, and logistics expansion.
  • Earnings Projection: Net income may hit ₦20 billion in 5 years, assuming stable margins (~28%) and disciplined cost structure.

Risks

  • Macroeconomic Risks: FX volatility and inflation could increase lease, maintenance, and financing costs.
  • Regulatory Oversight: Aviation sector policy shifts or stricter compliance requirements could affect margins.
  • Client Concentration: Heavy dependence on a few large airline clients may create credit or revenue volatility.
  • Execution Risk: Failure to collect receivables or delay in expansion projects may hurt cash flow.

Valuation Outlook

  • 3-Year Outlook: Continued earnings momentum and possible dividend growth could drive re-rating.
  • 5-Year Outlook: Business could trade at a forward P/E of 7–8x (vs current ~4.5x trailing), assuming consistent double-digit earnings growth.
  • 10-Year Outlook: If logistics and cargo segments scale, NAHCO may emerge as a regional aviation services leader with a sustainable 15–20% net margin.

Recommendation: BUY With its strong H1 performance, rising industry demand, and a robust financial base, NAHCO offers a compelling investment opportunity at current levels. Medium-term risks are present but manageable, while long-term growth potential appears undervalued.

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Disclaimer

The user WaneInvestmentHouse holds no position in NGSE:NAHCO. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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