NASD Gross Earning Rises By 85% In 2018 As Economy Stutters

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Tuesday, July 23, 2019 / 01:10 PM /  Azeez Kuranga & Gloria Okutue, Proshare research / Header Image Credit: WebTV

 

Despite the slow growth of the national economy in 2018 (Q4 2.38%), Nigeria’s over-the-counter (OTC) unlisted securities market, NASD, pushed against broad economic headwinds to grow gross corporate revenue and net profit by over 80%. Major performance highlights appear below:


Highlights

  • NASD Plc gross earnings grew by +85.1% YoY to N225.13m in 2018 from N121.64m in 2017
  • Interest expense dipped by -18.9% while interest income rose by +232.2%
  • Operating expenses slid to N163.10m in 2018 from N200.22m in 2017; -18.5% dip
  • No impairment charge for 2018
  • Profit before tax grew by +178.9% from a loss of -N78.59m in 2017 to N62.02m profit in 2018.
  • Profit after tax grew by +211.4% to N90.33m in 2018 from –N81.12m loss in 2017. The OTC securities exchange had a tax credit of N28.33m in 2018.
  • Total assets grew by +8.7% from N568.21m in 2017 to N617.87m in 2018
  • Total liabilities dipped to N21.96m in 2018 from N62.65mn in 2017; a decrease of -65.0%
  • Shareholder’s fund grew by +17.9% from N505.56mn in 2017 to N595.91m in 2018



Table 1 NASD Plc Income Statement Highlights

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Source: NASD Audited Annual Accounts 2018 

 

Table 2 NASD Plc. Statement of Financial Position Highlights

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Source: NASD Audited Annual Accounts 2018

 

Gross Earnings Flips As Interest Income Buckles

Despite the dip in interest income from N71.24m in 2017 to N57.75m in 2018, NASD Plc. Recorded a +85.1% growth in gross earnings to N225.13m in 2018 from N121.64m in 2017. The large growth in gross earnings can be attributed to the +232.2% increase in the Exchange’s non-interest revenue. Its non-interest revenue rose to N167m in 2018 from N50m in 2017 mainly as a result of the trading commissions earned from transactions in 2018.

 

 The technology deployment in the exchange trading activity increased its trading transaction from N4.36bn in 2017 to N30.77bn in 2018 and earned N134.41m as trading commission in the year as against N23.08m recorded in the preceding year; representing +482.4% growth over 2017 trading commission.

 

The non-interest revenue growth was also complemented by the introduction of an information repository, the NASD Enterprise Portal “NASDeP” during the year which earned N7.50m in its first year. Income from registration fee grew marginally by +1.66% to N24.94m in 2018 from N24.53m in 2017 due to non-renewal of registration by some non-participating institutions and the entry of few new participants into the OTC market. Income from other sources however dipped to N0.53m in 2018 from N2.78mn in 2017.

 

Interest income during the 2018 financial year fell by -18.9% due to the fall in interest for a significant period during the year. This saw treasury bills income sliding by -51.28% to N22.23m in 2018 from N45.63m in 2017 and a -2.1% fall in income from bonds. Money market placement income, however, rose to N15.74m in 2018 from N5.29m in 2017.


 

Variable Revenues As Profits Climb

The over-the-counter (OTC) Exchange’s five years gross earnings growth have been variable with the company’s gross earning posting its highest value in 2015. The local economy fell into a recession between 2016 and 2017 which had a major impact on the NASD’s gross earnings. However, 2018 was a better year for the company as the economy edged out of the downturn. 

 

Chart 1  NASD Five Years Gross Earnings Numbers

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Source: NASD Audited Annual Accounts 2018

 

Digital Transition

With the transition from the trading platform leased from the Nigerian Stock Exchange (NSE), the Nasdaq OMX Platform, to the company’s proprietary Bilateral  Interdealer Trading System (BITS) platform, NASD recorded a significant decline in its trading platform cost from N62.97m incurred the previous year to N1.39m in 2018; representing -97.8% decrease. This assisted the decline in other operating costs by -26.7% to N92.34m as against N125.96m recorded in 2017. Employee benefits and compensation costs dropped marginally by -2.2% from N72.32m in 2017 to N70.76m in 2018.

 

The company’s operating expenses have been declining year-on-year over the last five years but with the re-launch of the BITS platform, it recorded an -18.5% decline to N163.10m in 2018 from N200.22m incurred in the preceding year.

 

 

Chart 2  NASD Operating Expenses 2014-2018

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Source: NASD Audited Annual Accounts 2018

 

 

The decline in Operating Income brought the company’s cost-to-income ratio, CIR, to 72% in 2018 as against 165%, 200%, 76% and 207% in 2017, 2016, 2015 and 2014 respectively. The trading platform transition embarked upon by the company suggests an effective cost-cutting strategy which further complemented the increase in operating income to result in a profit-turnaround. NASD recorded a +178.9% growth in profit before tax from N78.59m loss in 2017 to N62.02m profit in 2018 and a +211.4% growth in profit after tax to N90.33m PAT from N81.12m loss after tax. The OTC exchange had a tax credit of N28.33m in 2018.

 

 

Chart 3  NASD Cost-to-Income Ratio

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Source: NASD Audited Annual Accounts 2018

 

 

Chart 4  NASD Profit Before Tax 2014-2018

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Source: NASD Audited Annual Accounts 2018

 

The company’s total assets grew by +8.74% to N617.87m in 2018 from N568.21m in 2017. However, total liabilities fell by -64.96% to N21.96m in 2018 from N62.65m in 2017 mainly as a result of the decline in ‘other payables’ which fell by -68.5% from N59.64m in 2017 to N18.80m in 2018. The decline, however, appears to be a one-off gain that reflects the fall in cost of digital platform payments to third parties.

 

Chart 4 NASD Total Assets 2014-2018 (N’000)

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Source: NASD Audited Annual Accounts 2018

 

Chart 5  NASD Total Liabilities 2014-2018 (N’000)

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Source: NASD Audited Annual Accounts 2018

 

Corporate Leverage Reverts to Norm

Shareholder’s fund increased to N595.91m in 2018 as against N505.56m and N424.68m recorded in 2017 and 2016 respectively. The company’s leverage dipped to 0.04 supported by a decline in total liabilities. NASD Plc’s total liabilities were 4% of shareholders fund for the 2018 financial year while for 2017; total liabilities were 12% of shareholder’s fund. The low debt-to-equity ratio suggests that the Exchange generates enough cash to meet debt obligations and has a wide opportunity to borrow to expand operations.

Chart 6  NASD Shareholders Fund 2014-2018 (N’000)

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Source: NASD Audited Annual Accounts 2018

 

Chart 7  NASD Debt/Equity Ratio (N’000)

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Source: NASD Audited Annual Accounts 2018

 

With the increase in technology deployment for operations and the growth in trading activity, NASD is expected to see significant growth in its new digital revenue line (NASDeP) and a further increase in gross earnings and profits for the 2019 financial year.



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