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

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.