Financial Analysis: Setting Up for a Bullish Rally After a 60% Correction
NASCON Allied Industries (NASCON), a leading player in Nigeria’s food manufacturing and processing sector, has built a strong reputation through its production of salt, seasonings, and vegetable oil. As a subsidiary of Dangote Industries, NASCON benefits from a well-established brand and extensive distribution network across Nigeria. The company plays a crucial role in the country’s fast-moving consumer goods (FMCG) sector, providing essential products to both households and industries.
In 2023, NASCON reported solid revenue growth of ₦45 billion, driven by higher demand for its core products and improved operational efficiencies. Despite rising input costs and supply chain disruptions, the company managed to sustain profitability, recording a net income of ₦7.3 billion. However, NASCON’s stock price has experienced a significant correction, falling nearly 60% from its highs earlier in the year, largely due to macroeconomic concerns, inflationary pressures, and investor profit-taking.
While this steep correction has raised concerns, market sentiment is now signaling the potential for a bullish reversal. Following the sharp sell-off, technical analysis points to signs that NASCON may be setting up for a rally. After the 60% decline, the stock appears to have found support at key levels, and with oversold conditions in place, investors may see this as an opportunity to capitalize on a recovery.
Currently, NASCON is trading at a price-to-earnings (P/E) ratio of 5.8, which is below the sector average. This indicates that the stock may be undervalued, especially given its strong fundamentals and steady cash flow generation. Analysts using Elliott Wave Theory suggest that NASCON’s stock could be on the verge of entering a new bullish wave, with the potential for a rally as the stock rebounds from its lows. This view is supported by improving market conditions and NASCON’s strategic efforts to manage costs and expand its product lines.
The company’s long-term outlook remains positive, with strong demand for its staple food products and ongoing investment in production capacity. NASCON’s focus on scaling its operations, coupled with a recovering Nigerian economy, positions it well for future growth. The company also benefits from its parent company’s vast distribution network, which enhances its market reach and supports revenue growth.
For investors, the recent 60% correction in NASCON’s stock may offer a compelling entry point. The stock’s current undervaluation, coupled with signs of a bullish reversal, suggests there could be significant upside potential in the coming months. Investors looking for growth in Nigeria’s FMCG sector may find NASCON’s stock appealing as it sets up for a recovery.
The Elliot Wave chart above shows that the Nascon’s selloff from the wave (III) high at ₦75 unfolded as a zigzag in the A wave of a wave 4 corrective pattern. Wave A is yet to bottom out, and the current move from 29.5 to 36.95 can be seen as a wave 4 of unfolding Wave A.
As Wave A continues to unfold, there is a strong probability that the low of 29.50 will be violated before the bottom can be in and the rally continues for Wave B of the corrective Wave 4.
If this count is correct, then we should see further weakness to below 29.50 completing wave A.
An Alternative presents itself where 29.50 is the end of the Wave A correction, and the move from 36.95 represents the correction of a wave 1, however the time taken for the correction puts that assertion in contention.
