NAHCo AVIANCE 5-Year Review - June 2010 by Proshare

ISSN 1597 - 8842 Vol. 1 No.
39
5 Year Review up to Q1 2010 Results

Issued on June 14, 2010
Contents
NAHCo Aviance - Fast Facts 03
Recent Developments in the Company 05
The Operating Environment/ Firm’s Response 06

o Background
o Market Structure
o Recent Trends
o Market SWOT
o Market Realities
o Market Outlook
o Managing Change – The Value Paradigm
Fundamental Analysis 18
Technical Analysis 28
The Analyst’s Insight/Opinion 31
Appendix 34
ISSN 1597 - 8842 Vol. 1 No. 39
© 2010 www.proshareng.com June 2010 2

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1. NAHCo Aviance - Fast Facts
NAHCo was incorporated as a Private Limited Liability Investment Summary Highlights
As at 11, June, 2010
Company on December 6th, 1979 under the then
Nahco Price 11.20
Nigerian Enterprises Promotions Decree, with Nigerian Price Traget/Fair Value N14.36 - N15.49
and foreign equity ownerships in the proportion of Ratings analyst@proshareng.com
60% and 40% respectively. The Federal Airports YTD Performance 55.99%
Authority of Nigeria (FAAN) represented the Nigerian Recommendation analyst@proshareng.com
ownership of 60% while four foreign airlines (Air

Stock Data
France, British Airways, Lufthansa and Sabena - in
5- years EPS CAGR 18.06%
liquidation) owned the remaining 40%.
Dividend Yield 4.02%
PEG Ratio 0.47
The corporate vision of the firm is to be the Outstanding Shares 1,230,468,750
preferred aviation handling company, globally Free Float 80.28%
competitive, adopting world class practises. 52-week high N14.85
52-week low N6.12
Lifetime High 70.05
NAHCo commenced operations in 1979 simultaneously
Market Cap(N) 13,781,250,000.00
with the opening of the Murtala Muhammed Market Cap(US$) 92,059,118.24
International Airport. The firm’s main activities at the Year End December
start revolved around the following four main Shares held by Directors
activities: as at Feb 2010 242,605,556
1. Aircraft handling operations % share of total shares 20%
2. Passenger handling activities Investment Grade B
Source: Company Financials/Proshare Research
3. Ramp (baggage) handling
4. Cargo handling services through its customs bonded warehouses and mail handling
through the postal authorities.
The company’s privatisation took effect in August 2005 in response to the

privatisation policy of the Federal Government of Nigeria. 60% of the Company's
shares which were held by the Federal Airports Authority of Nigeria (FAAN) on behalf
of the Federal Government were accordingly offered for sale to the public by the
Bureau for Public Enterprises (BPE) at N5.50 per share through an Initial Public
Offering. The 180 million ordinary shares were fully bought up.
The shares were officially listed on November 27th, 2006 on the Nigerian Stock
Exchange (NSE) and have remained an actively traded stock till date; with over
83,500 individual shareholders, three foreign airlines and Rosehill Group Nigeria
Limited. The current share ownership structure of the company is as follows:
Nigerian Public : 68%

British Airways: 10.7%
Rosehill Group Nigeria Ltd: 9.5%
Lufthansa: 6.0%; and
Air France: 5.8%
Since its privatization, NAHCo has developed processes and strategies to enable it
compete locally and internationally; including forging global alliances through its
membership of AVIANCE and The International Air Cargo Association (TIACA).
Nigerian Aviation Handling Company (NAHCo Aviance) renders the following main
services to twenty-nine (29) out of the thirty-five (35) leading domestic and
international airlines operating in Nigeria:
Passenger and baggage handling;

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Cargo handling through its customs bonded warehouse and mail handling through
postal authorities; and,
Ramp and other ground handling services through the provision of ground support
equipment.
NAHCo Aviance has over 1,550 employees stationed in its outstations in Abuja, Kano,
Lagos, Jos, Kaduna and Port Harcourt.
NAHCo has won many local and international awards – the most recent being the
International Star Award for Quality in Geneva, Switzerland and the West African
Direct Marketing Award by the institute of Direct Marketing of Nigeria.
The company has equally been exploring regional opportunities (through the planned
merger with Aviance Ghana – to service operations in Accra, Monrovia, Banjul and
Abidjan) and is awaiting a board approval for its take off.
NAHCo is reputed to be the market leader (70%) in aviation ground handling services
in Nigeria in terms of flights handled and revenue/balance sheet size. Specifically,
Independent findings indicate that NAHCo’s operation advantage is as below:
International Operations - 90% share of market size

Regional Operations - 40% share of market size
Local Operations - 50% share of market size
The above data is further addressed in section three of the report under the operating
environment.
The company’s board of directors comprising eleven members has Senator (Dr) Ike
Omar Sanda Nwachukwu (CFR) - a 2008 nominee of Rosehill Limited - as the
chairman. On May 27, 2010, he succeeded Ambassador Patrick Dele Cole who
voluntarily resigned as Chairman and was subsequently not re-elected by shareholders
as a Director of the company.
The Management team comprising seven members is ably led by its Managing
Director, Mr. Bates Sarki Sule (MD/CEO) who has been in charge and responsible for
the transformation of the company since the privatisation exercise.
Proshare examined the volumes of data, information, analysis and records available
directly and indirectly on the quoted firm to access the performance and investment
implication in the company.
This report therefore represents our factual examination of data available to evaluate
an investment decision in the company; and is presented in three sections – the fast
facts and review, the analysis and the insight/opinion.
We encourage your feedback on the report for necessary review and update.
Thank you.

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2. Recent Developments in the Company
Change in Directorate: NAHCo Aviance Plc recently effected a change in the
company’s board composition with Senator (Dr) Ike Omar Sanda Nwachukwu as
the new chairman of the company’s board to take over from Ambassador (Dr)
Patrick Dele Cole who retired from the board with effect from May 27, 2010.
Financials and Corporate Action: NAHCo Aviance Plc released its FY’09 and
Q1’10 results recently. Its FY’09 Turnover of N6.07bn led to a PAT of N1.25bn
(YoY growth of 55%). However, its performance moderated in Q1 2010, for which
it posted a Turnover of N1.52bn (+5% YoY) and PAT of N395.99 million (-6%
YoY). Following the release of the Company’s FY’09 results, NAHCo declared a final
cash dividend of N0.45. In Q2 2009, it had paid an interim dividend of N0.25 and a
scrip dividend of 1 for 4. The final dividend payment therefore brings its total cash
payment to N0.70 (representing a 64% payout ratio).
New Clients: NAHCo Aviance Plc continued to expand the range of its contracts to
some airline operators, while also taking on some new clients in the 2009 financial
year. Specifically, it secured long term handling rights for Ethiopian Airlines,
exclusive rights for Aero Contractors and Dana Air in all their stations and
additional handling contracts with Delta Airlines and Egypt Air. More recently, the
company was selected by the China Southern Airlines to provide a broad range of
ground handling services and passenger/security profiling.
N5bn Corporate Bond: The shareholders approved the issuance of the N5bn
corporate bond or other capital instruments for the purposes of business
development and expansion. The company's MD/CEO, Mr. Bates Sule said that “the
new funds would be invested in boosting the company's business through
acquisition of more brand new equipment, expansion and modernization of the
cargo import shed in Lagos, expansion of the business into selected airports in
Nigeria and some West African countries, as well as diversification.
Increase in Authorised Share Capital: NAHCo Aviance Plc has proposed an

increase in its authorised share capital from N500m to N750m through the
creation of additional 500 million ordinary shares of 50 kobo each.
Corporate Re-branding: NAHCo Plc changed its brand name to reflect its global
focus and membership of Aviation Alliance, the first global alliance of airport
service providers in the world which was formed in 1999. The company still retains
its registered name of Nigerian Aviation Handling Company Plc. The re-branding
programme also resulted in a change of the company’s corporate identity.
Proposed Share Reconstruction: NAHCo Aviance Plc is considering a possible

capital reconstruction of its shares which achieved a positive 9.33 YTD change
(140610) and 3.97 (150610).
Appointment of Executive Director and COO: The board of NAHCo Aviance Plc
has announced the appointment of Mr. Kayode Ojo (February 15, 2010) as it’s
Executive Director, Finance and Strategic Planning. Mr. Norbert Bielderman (May
17, 2010) as Chief Operating Officer with overall responsibility for the company’s
aircraft and cargo handling operations. Ojo and Bielderman’s appointments are
some of the strategic initiatives of the Board of the company to strengthen
Management and re-position the company for the next stage of its growth and
ascension. The former Chief Financial Officer, Mr. Tunde Balogun voluntarily left the
services of the firm in January 2010.

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3. The Operating Environment/Firm’s Response
BACKGROUND
3.1 Industry Definition
Cargo airlines (or airfreight carriers, and derivatives of these names) are
airlines dedicated to the transport of cargo in its widest definition. The industry
also consists of Clearing Agents who act as intermediaries between the air-
freighters and customers and handlers who provide aviation logistics and
necessary infrastructure.
3.2 Industry History

The rise of international trade has fuelled continued growth for the global air
cargo market. At the same time, the increasing emphasis on just-in-time
delivery has added to the importance of managing this growth and improving
service and delivery times.
3.3 Economic Relevance

The air cargo industry is a US$50bn business that transports 35% of the value
of goods traded internationally. It is a critical part of an airline’s value chain
that supports 32 million jobs and US$3.5 trillion of economic activity. It is an
important industry that is critical to global business.
With time-definite international transactions, production flexibility and speed

characterizing much of the new economy, it is nearly certain that air cargo
industry will continue to play an increasingly vital role in the global economy.
No other means of transportation is better equipped to meet the economic
realities of the new era where global sourcing and selling, and just-in-time
logistics, require that producers receive and ship smaller quantities
more frequently, quickly and reliably over long distances.
According to FDC research estimates, Global exports (by volume and value)
have outpaced production volume which has, in turn, outpaced economic
growth indicating a substantial restructuring of production and distribution
mechanics. Air cargo has outpaced all, increasing by approximately 80 percent,
over the last decade despite recessions and other setbacks to air transport.
Scheduled air cargo service providing an estimated 4,396,353 tons of weekly
air cargo capacity is available at over 3,400 airports in 220 countries. Charter
and integrated express companies provide additional capacity.
3.4 MARKET STRUCTURE
The Nigerian air cargo industry can be categorized into three broad categories:
Freighters, Agents (clearing and forwarding) and Handlers.
3.4.1. Air Cargo Freighters: These are companies dedicated to the transport of
cargo. Air cargo can be categorized into three namely:
• Express/time definite: small packages (less than 100 lb.);
• Heavyweight freight shipments (greater than 100 lb.); and
• Mail transport.
Players in this industry are mainly foreign companies and are usually classified
into two:
a) All-Cargo Airlines

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Integrated Express Carriers (express/small packages; door to door
service)
Non-integrated Freight Carriers (heavyweight freight shipments; work
with freight forwarders, etc.)
Examples include Al Dawood and Allied Air
b) Passenger (Combination) Airlines:

Can carry air freight, express packages and mail in passenger aircraft
belly or on “combo” aircraft
Also can have dedicated freight aircraft
The market is currently dominated by passenger airlines offering cargo services
See the list of major players in the appendix 1 below.
3.4.2. Agents: Clearing and Forwarding agents” means any person who is engaged in
providing any service, either directly or indirectly, concerned with the clearing
and forwarding operations in any manner to any other person and includes a
consignment agent. A clearing and forwarding agent normally undertakes the
following activities:
Receiving the goods from the factories or premises of the principal or his
agents;
Warehousing these goods;
Receiving dispatch orders from the principal;
Arranging dispatch of goods as per the directions of the principal by
engaging transport on his own or through the authorized transporters of the
principal;
Maintaining records of the receipt and dispatch of goods and the stock
available at the warehouse; Service Tax is payable on above services.
Freight forwarding is a service used by companies that deal in international or

multi-national import and export. While the freight forwarder doesn't actually
move the freight itself, it acts as an intermediary between the client and
various transportation services.
An understanding of this sub-sector is vague at the moment as there

are many undocumented aliens operating in the industry. Dedicated
commissioned agents to the various air-freighters in Nigeria could be seen in
the appendix 1 below.
3.4.3. Air Cargo Handlers: According to ICAO Doc. 9569c, air cargo handling
operations can be described as the provision of logistics in facilitating the
carriage of cargo by air. Export cargo by air forms an integral part of the
cargo system. It is the process of acceptance, packaging documentation and
shipment by air after due process of compliance with international statutory
and safety requirements.
The air cargo handling industry in Nigeria is a duopoly with only two companies
dominating the market viz: Nigerian Aviation Handling Co. Plc. (NAHCo
Aviance) and Skyway Handling Co. Ltd. (SAHCOL) owned by the SIFAX Group
– concessionaires to the country’s sea ports and major players in the haulage
business. Other fringe players include Precision Aviation Handling Co Ltd
(PAHCOL), formed in 1999, now granted Government license to carry out
ground handling services for flights in the Country starting from Lagos – to
expand into Abuja, Kano, Port Harcourt, Kaduna, Owerri, and Calabar. NAHCo
Aviance controls over 75% (as at December 2009) of the aviation ground
handling market in Nigeria, offering ground support services covering aircraft

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handling, passenger/baggage handling, cargo handling and mail handling to a
about 30 airlines.
3.5 RECENT TRENDS
Changes Imminent in the Business Model for Nigerian Ground Handling

Business Operations:
In this era when airlines all over the world are concerned with cutting down
on operating cost, it makes more economic sense to make use of a Ground
power Unit (GPU) on ground than have the aircraft run its Air Power Unit
(APU) which consumes four times more fuel and encourage them to use
larger aircrafts based on proper ground handling facilities at airports;
The airlines are groaning under the yoke of high tariff regimes -
landing/parking fees, airport taxes, handling charges, aeronautical charges
etc.;
There have been various discussions on the subject of reducing handling
charges and tariffs in the overall interest of aviation development in the
country including suggestions that a reduction in handling tariff for
Domestic flight by at least 20 - 25% is feasible to retain volume and market
sustainability. This is disputable based on the following realities:
o The size of the Aircraft basically determines handling charge.
o There is a price differential of about 400% in favour of domestic airlines;
o Handling charge is a negligible part of airlines cost. For instance, the
cost of full handling of a B737 aircraft is the cost of only one
business class ticket.
o Cost drivers for the airlines include: Aviation fuel, Payments to regulatory
authorities, Engine parts, service and maintenance, Low load factors, and
Dwindling consumer purchasing power due to inflation and unemployment.
Rapid Growth in Demand for Air Cargo:
Intra-Asia is the largest true air freight market;

Even during Asian economic crisis air freight traffic grew; and forecasts for
continued traffic growth at 6% per year according to industry sources.
Falling Real Yields (revenue per ton-mile):
Average 2.5% decline in yields (CPI adjusted);

Growth in international trade has increased trip length, associated with
lower tariffs per mile;
Wide-body aircraft have unused belly capacity, viewed by passenger airlines
as virtually “costless”;
Passenger airlines have become price leaders in air freight;
Regulatory liberalization has spurred price competition; and
Lower tariffs further stimulate demand, but also cause airlines to focus on
lowering unit costs
Integrator Expansion:
Integrated express carriers own air and ground assets to handle entire
shipment journey;
FedEx and UPS, facing competition and decreasing yields in express
documents, have now expanded to international markets;

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With limited international small package growth, carry standard air freight
(airport to airport) as “filler”; and
Trying to develop products for higher-yield industrial traffic
Consolidation of Freight Forwarders:
Non-integrated carriers receive majority of traffic from freight forwarders –

FFs handle retail marketing and pick-up/delivery; and
Number of mid-sized freight forwarders has been shrinking, leaving largest
operators and niche competitors
3.6 MARKET SWOT
CLIENTELE
NAHCo Aviance Plc enjoys the patronage of major international airlines operating in
Nigeria including: British Airways, Air France, KLM, Lufthansa, Virgin Atlantic,
Emirates, Qatar, Turkish Airlines, South African Airways, Royal Air Maroc, Kenyan
Airways, Ethiopian Airways, China southern, Delta Air, Egypt Air, Turkish Airlines and
Iberia.
BUSINESS
Passenger handling: this covers pre-flight check in formalities, passenger care
services, and baggage handling ( loading and un loading)
Cargo handling: import and export cargo facilitation through Nigeria’s biggest
network of custom-bonded warehouses in Lagos, Kano, and Port Harcourt, using
the Hermes Computerization system which ensures safe storage, easy retrieval of
cargoes, and accurate capture of cargoes weight.
Aircraft Handling: Services include aircraft cleaning, baggage loading/unloading
and aircraft pushback.
STRENGTHS
Membership of aviance, the first global alliance of airport service providers in the
world which was formed in 1999; as the only Nigerian member of the Alliance;
Benefits of aviance membership include access to market intelligence, joint
marketing, cross selling, common purchasing, pooling equipment, exchange of best
practice, staff exchange, opportunities for joint venture, leverage to increase
market share and enhanced branding;
Market leadership –NAHCo Aviance controls over 75 percent of the aviation ground
handling market in Nigeria and actively seeking for other possible expansion
outlets;
Easy access to capital. It is the only quoted company among the aviation handlers.
Above norm corporate governance;
Well trained and skilled staff who has benefited from the expansive capacity
development programme embarked upon after the privatization;
Robust cash position;
Stable board of directors; and
Re-invigorated management team.

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WEAKNESSES
Below the average return on asset;
Service issues largely driven by inability to strategically adapt to challenges thrown
up by FAAN, beyond its immediate influence and control;
Declining Return on capital employed;
Restricted market size and a relative slow response to growing diversification
opportunities in the market scope; and
Consistent high dividend payout ratio relative to its required asset replacement
growth funding.
OPPORTUNITIES
Along the value chain of the aviation cargo industry, a number of opportunities exist in
the domestic market. This is as a result of the growing international and domestic
trade and weak aviation infrastructure in the Nigerian airports. A study by McKinsey
estimates that 20% of manufactured goods that are traded internationally have a
potential to rise to 80 % by 2020. Therefore, the air cargo industry is poised for
continuing rapid growth at an expected rate of 5.9% annually for the next 20
years (according to recent estimates by Airbus) and at 6.2% (according to analyses
by Boeing).
Locally, a study by Proshare reveals a re-convergence of the service delivery mantra

with additional opportunities for related, ancillary and synergistic services adjudged by
customers/consumers as value laden.
As with demand for passenger air travel, demand for air cargo shipment is a “derived”
demand. Primary drivers of air cargo demand include:
1) Economic growth and trade (especially imports/exports)

a) Economic recovery should be positively impacted by the massive stimulus
packages passed by global economies – and even with the planned austere
measures, should reveal a growing need to keep commerce alive as a
competitive advantage.
b) Historically, 2 to 2.5% increase in world trade with each 1% increase in total
GDP
c) Air freight trade has been growing even faster, due to regional differences in
economic growth
d) Since 1993, average 7-10% annual growth in world air freight traffic
2) Relative prices of air cargo versus alternatives – ocean, truck, rail
3) Globalization
a) Increasingly integrated and interdependent national economies
b) Liberalized (free) trade and reduced protectionism
4) Lean Inventory Strategies

a) Reduced order-cycle times: “just in time” and “make to order”
b) Less stock on hand to avoid production shutdowns, retail stock outs
c) The inventory overhang has diminished and purchasing managers in industries
around the major economies are saying they will increase orders, further
boosting air freight. However, growth seems narrowly based at the moment.
5) Air freight shortens delivery times to customer
OTHER LOCAL VARIABLES

Increased preference for air freight

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Growth in trade: Nigeria is mainly a trading economy.
Opportunity to merge freight and trucking at a cheaper cost for customers and at a
faster delivery time, with proper insurance cover for necessary peace of mind.
RISKS
1) Economic recession: Reduced production, demand for goods, international trade
2) Trade barriers: Tariffs or protectionism designed to limit free trade
3) Aircraft regulations: Air cargo operators have used older aircraft that are most
affected by new regulations on noise, emissions and safety. For example, noise
hush-kits reduce cargo payloads
4) Modal competition:
Air freight has tremendous speed advantage for long distances, but is highest-
cost option
Trucks very competitive for short haul (1000 miles, overnight)
Development of new “fast ships” for ocean cargo
Other Threats:
NAHCo Aviance’s Board - now altered in composition and dynamics; is now into a
new era that it has no benefit of experience from – a central ownership and
decision making apparatus that would challenge its corporate governance and
general leadership. The change in Board Chairmanship may also witness a change
in the CEO position (after the expiration of the renewable tenure of the current MD)
which would further pull the company away from the 5years culture built to date.
NAHCo Aviance’s leadership position in the market will benefit from being broken
down from aggregates to sectoral distribution (4) to better appreciate where
competition is and will affect its position in the industry. It is not uncommon for
industry watchers to infer a threat to this leadership position with the entrance of
new players particularly from the newly privatized SAHCOL – backed by a market-
led knowledge of the key areas of diversification, strategic leveraging and
energized growth through better relationship and consumer management backed
by a sound asset build-up plan for capacity advantage.
High operating cost will put pressure on margin.
Vulnerable to policy reversal from the Federal Government
Soaring price of aviation fuel and the lack of alternatives or effort by the Govt to
either provide subsidy or reduce cost.
Shortage of quality manpower – competitors will poach already trained &
experienced staff and the time-to-convert employees for NAHCo Aviance will be
elongated as it has very few succession lines within the company.
3.7 MARKET REALITIES
The aviation industry in Nigeria has undergone very significant changes overhaul in
recent times following the unfortunate air disasters of 2005 and 2006 which placed a
burden of necessity on government to institute a closer watch on the industry through
its stricter regulation of airline operators.
As a result of this, all airlines were forced to recapitalize by April 30th, 2007. Five
airlines’ licenses were revoked as a result of their inability to recapitalize. A lot of key
staff in government-owned aviation parastatals were either redeployed or sacked.

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As a result of market opportunities in the country, many foreign airline operators have
made entrance into the Nigerian market: Turkish Airlines, Chinese Southern
Airlines, (North American Airlines left in 2008) and a new domestic airline taking
the industry by storm — Arik Air.
The global financial crisis has posed several challenges to all operators in the industry
leading to dwindling turnover; and consequently, staff rationalisation and other cost
cutting measures in a bid to remain in business.
The expected turnaround for the global aviation sector has been beset with new
challenges thrown up by the global market downturn but this has not severely affected
the Nigerian ground handling business which posted a 114% increase in volume of
activities and an 86% increase in value of earnings.
We believe that a threshold has therefore been set below which, economic activities
may not fall without dire consequences for other sectors and the Nigerian economy at
large. This gives room for optimism for businesses in this industry and unless
something catastrophic occurs, businesses in the sector should be able to define
current operating positions as support levels – bottoms base metric.
The aviation sub-sector has begun the early phase of the changes needed in strategy,
tactical operations and disclosures. These changes can be gleaned from the following
market realities firms in the sub-sector must confront (in addition to those provided
above):
The Airline support service industry, despite being a relative small market, is still
highly competitive, regulated and with restrictive opportunities.
Growth opportunities in the industry are highly influenced by developments in the
airline industry which is facing reduced margins and costs not easily passed to
customers but to outsourced operations.
Competition in the industry will get tougher as global players expand their horizon
to compete in local markets like ours as a size and scope strategy for their survival.
The time has come to move beyond the cut-throat business model to a more
demanding but sustainable model to create a game-changer for the company.
Noteworthy is the example provided by the fallout of the firms management approach
to debts owed it by airlines – leading to a switch in service provider by the airline. A
case in point is the 2007/08 debt of about N280m owed NAHCo by Arik Air which
remains outstanding but led to the movement to SAHCOL after NAHCo refused to
continue servicing the airline. The debt remains unpaid till date and ironically, Arik Air
incurred over a billion naira debt with SAHCOL which the latter, under a new
management has agreed to waived down considerably in reward for more business
from its fast expanding growth in its regional business. Already, SAHCOL is the leader
in the domestic operations segment of the market.
This debt status equally applies to Virgin Airlines as well as other operations in various
degrees. We will take a look at the debtor position of NAHCo Aviance in the
fundamental analysis section/commentary.
3.8 MARKET OUTLOOK
Short-term outlook is mixed, uncertain:

Returns in Q1 2010 indicates a tightening of revenue growth;
The International Air Transport Association (IATA) says that it expects global air
cargo volumes to increase by 7 %to 37.7 million tonnes in 2010;

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Economic slowdown, with less than 20-25% gains in 2009 over much weaker
2008 figures for the Asian markets;
Total tonnage returning to 2000 levels, but yields are much lower; but
continued economic weakness and threat of war globally will delay air cargo
recovery
Longer term fundamentals support growth:

China’s economy grew 7.8% in first (1st) half 2002, air cargo grew 14%;
“Normal” growth rates of 6-7% worldwide possible by 2010 and Boeing predicts
6.4% annual air cargo growth for next 20 years; and locally
Impact of N5bn bond investment in asset replacement and new growth areas
should more or else guarantee returns relative to overall market size.
Diversification will begin to show yield in 2011 thereon;
3.9 MANAGING CHANGE – THE VALUE PARADIGM
The market is uniquely poised to embrace a player with a leadership mindset focused
on creating new value-linkages for customers at a lower cost of service than hitherto
obtainable. Events in the recent times provide an insight into how to determine such
firms.
Such firms will have to make capital investment and funding decisions in preparation
for years ahead. This is expected to invariably impact on the results and returns
permissible in the accounting year-ends in the future. Some factors worth considering
for the investor in this sector include players’ response to the following:
The completion of the SAHCOL privatisation and the amount of investments being
made by the new company to position it to compete – building of new bonded
warehouses, investments in new capital assets, staff development initiatives
including head hunting, the strategic impact of the synergy in the operations of the
acquiring group – SIFAX; and the service delivery pedigree of its new MD/CEO;
The options taken by Swissport, already with a licence, making its entry into the
market by aligning with one of the majors to reduce its capacity building curve.
Unregulated fringe operators who continue to grow and provide a ‘market’ for the
coping with increasing cost of doing business and would welcome such ‘price
under-cuts’.
Declining activity and margins for ‘core customers’ leading to cost reduction
measures which will be taken off firms providing outsourced services.
Entrance of new players with global alliances, licensing of new players and possible
mergers of existing competitors.
Human resources challenges driven on two fronts by staff poaching and labour
unrests.
Service delivery issues as exemplified by the frequent shut downs in alternate
electricity supply to the main cargo warehouse complex at Ikeja, pilferages and
collusion amongst agents and staff members; non-linkage in delivery service chain
and other administrative limitations.
Equipment replacement and funding issues.
Restricted market space within traditional definitions.
NAHCo Aviance – A strategic engagement overview – The early years to date
NAHCo Aviance’s deep and fundamental restructuring programme launched in April

2007 had four main pillars: simplify and right-size the business as well as re-skill
and incentivise management and staff;

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The first year was largely focussed on tackling inherited unresolved internal issues,
disruptions and culture & capacity challenges arising from privatisation and
business repositioning imperatives in the plan;
The company was able to deliver a good result in 2007 (N0.59bn, 16% of
Turnover). The results were achieved based on a focus on cost reduction and a
growth of revenue (-3.6% from target)/share of market; the company in the
current financial year account under review further grew its turnover by 36.94%
The relentless rise of the oil price affected carriers in the industry in a year where
the focus for the company shifted to improving customer service & operational
efficiency to cope with cost cutting/price cutting in the market;
The company in 2008 achieved some landmark developments in operations that

saw the company deliver a 21% increase in Turnover and 36% increase in PAT
over 2007 results; much more growth has been recorded in the 2009 financial year
with 55.92% and 55.35% growth recorded in Profit before tax and after tax
respectively.
The year 2008 held out its own unique challenges and disruptions that threatened
its going concern. These included sustained industrial disharmony, problems with
government, cargo clearing agents, negative press, sabotage, and unattained
milestones. Noteworthy is the fact that bank since this period has operated a zero-
debt business profile, relying solely on internally generated funds (IGR).
The 2009 operational reality reflects an improvement in the internal conditions

under which NAHCO functions. The disruptions of 2008 revealed the need for a
deepening of the capacity of the company to play successfully at the leadership
level it desires;
Externally, the company has been able to identify the variables it needs to manage
in order to compete actively;
We expect the current board to sustain its focus in the areas of competitive
advantage it has or seeks to play in to continue delivering business results showing
a deliver a sustainable business.
Generally, the last five (5) years represent the glory years of the company
and it is expected that this new initiatives should help it sustain the outlook.
3.10 NAHCO AVIANCE – THE BUSINESS EXPANSION DRIVE
Objective 1: Building and operation of cargo warehouses in Owerri, Asaba, Uyo and
Ilorin. Timeframe: Unknown.
Objective 2: Handling of the proposed mid-west Airlines owned by the Imo State
Government. Timeframe: Unknown.
Objective 3: Regional collaboration through the provision of ground handling services

in Monrovia, Sudan and Angola. Timeframe: Unknown.
Objective 4: Partnership with Aviance Ghana. Timeframe: Unknown.

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People
(Passengers)
Our
Cargo Business Airlines
(Goods) Environment (Partner)
Airport
(Service)
Source: NAHCo Corporate Business Plan 2010 and Beyond
NAHCO AVIANCE BUSINESS DIVERSIFICATION DRIVE
This should see to NAHCo Aviance emerging as a holding company to allow specific
operations set out shop as Strategic Business Units (SBUs) to deliver on the key
objectives in the growth and diversification plan 2010 - 2015.
From the little that has been gleaned from public pronouncements and activities
observed; we believe the following signposts define the diversification thrust of the
company.
Objective 1: Haulage business – creating a seamless engagement with and for the
consumers – agents, end-users and transport firms, all working together to develop a
competitive service with some in an operational state.
Objective 2: Courier and door-to-door business in Lagos and Abuja.
Objective 3: Executive Airport Facilitation Service (EXAFS).
Objective 4: Aviation Security profiling.
Objective 5: Baggage Tracing Services.
Objective 6: Offshore cargo marketing.
Objective 7: Printing and packaging.
Objective 8: Commercialisation of Training School.
Objective 9: Aviation Insurance.

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NAHCo, we understand, will employ a combination of merger/acquisition of existing
companies, outsourcing, and establishment of start-up (to be administered as strategic
business units) in achieving the above objective.
NAHCO AVIANCE STRATEGIC OBJECTIVES/PERFORMANCE GOALS
Grow NAHCo’s portfolio to become one of the top three handling companies in
Africa, by service quality, turnover and client base.
Achieve turnover of N7.04B and N7.7B by the end of 2010 and 2011, respectively.
Transform NAHCo into an employer of choice in the Nigeria aviation sector with
highly professionalized, dedicated and efficient workforce.
Create successful and viable subsidiaries to support NAHCo’s one-stop-shop
aspiration as well as enhance its profit standing
Create autonomous strategic business units (SBUs), who reports to the group CEO
for effective management of subsidiaries
Install an effective client relationship management system to foster cordial
relationship with clients
Put in place a transparent and effective people’s management as well as
performance measurement systems, capable of attracting, retaining, motivating
and rewarding quality staff.
Achieve significant improvement in staff attitude to work in general and service
delivery in particular.
Minimum of 20% average and aggregate increase in all performance fundamental
ratios and indices.
Achieve significant expansion of existing cargo sheds and automate its processes
and procedures with minimal human intervention.
Achieve at least 85% equipment availability for all operations equipment demands
IMPERATIVES OF THE 2010 – 2011 CORPORATE BUSINESS PLAN

The 2010 -2011 CBP will deliver the following three critical goals for NAHCo:
Articulate and oversee the actual implementation of NAHCo’s business expansion

and diversification plans.
Provide definite response to the threat posed by competition as envisaged in the

domestic ground handling market.
Continue to fine-tune procedures and process towards achieving better internal

service delivery, client satisfaction, ‘error free handling’ in NAHCo’s core businesses
and ultimately enhanced stakeholder value
SPECIFIC OBJECTIVES OF THE 2010 – 2011 PLAN
Grow NAHCo Aviance’s portfolio to become one of the top three handling
companies in Africa, by service quality, turnover and client base.
Achieve turnover of N7.04B and N7.7B by the end of 2010 and 2011, respectively.
Transform NAHCo Aviance into an employer of choice in the Nigeria aviation sector
with highly professionalized, dedicated and efficient workforce.
Create successful and viable subsidiaries to support NAHCo Aviance’s one-stop-
shop aspiration as well as enhance its profit standing

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Create autonomous strategic business units (SBUs), who reports to the group CEO
for effective management of subsidiaries
Install an effective client relationship management system to foster cordial
relationship with clients
Put in place a transparent and effective people’s management as well as
performance measurement systems, capable of attracting, retaining, motivating
and rewarding quality staff.
Achieve significant improvement in staff attitude to work in general and service
delivery in particular.
Minimum of 20% average and aggregate increase in all performance fundamental
ratios and indices.
Achieve significant expansion of existing cargo sheds and automate its processes
and procedures with minimal human intervention.
Achieve at least 85% equipment availability for all operations equipment demands
Nigeria Plc

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4. Fundamental Analysis
The Objective: To examine in a snapshot, the NAHCo Aviance's financials and operations, especially
earnings, growth potential, assets, debt, management, products, and competition through financial
ratios arrived at by studying the balance sheet and profit & loss account over a number of years. This
analysis is more effective in fulfilling long – term growth objectives of shares, rather than their short –
term price fluctuations. In the Nigerian Stock Market, this has traditionally been the key focus of most
players and it remains a guiding beacon as to what could possible happen to a stock. Our approach
to fundamental analysis therefore takes into consideration only those variables that are directly
related to the company itself, rather than the overall state of the market or technical analysis data,
the former of which was reviewed in section 2 above and the latter, a subject for review in section 4
below.
BALANCE SHEET FOR THE PERIOD ENDED 31ST DECEMBER, 2009

GROUP 2009 GROUP 2008 Variance
Description
N' million N' million %
Assets Employed
Fixed Assets 3,450 3,143 9.77%
Investments 0 0 0.00%
Total Non-Current Assets 3,450 3,143 9.77%
Current Assets
Stocks 35 53 -33.96%
Debtors and Prepayments 1,083 1,567 -30.89%
Cash at bank and in hand 2,195 1,225 79.18%
Total Current Assets 3,313 2,845 16.45%
TOTAL ASSETS 6,763 5,988 12.94%
Current Liabilities
Bank Overdraft 0 0 #DIV/0!
Creditors and accruals 925 1,057 -12.49%
Taxation 460 215 113.95%
Total Current Liabilities 1,385 1,272 8.88%
Net Current Assets / (Laibilities) 1,928 1,573 22.57%
Total Assets Less Current Liabilites 5,378 4,716 14.04%
Non-Current Liabilities
Deferred retirement benefits 0 0
Deferred tax -701 -499 40.48%
Total Non-Current Liabilities -701 -499 40.48%
Net Assets 4,677 4,217 10.91%
Capital and Reserves
Share capital 615 492 25.00%
Share premium 1,915 1,915 0.00%
Dividend reserve 554 541 2.40%
Revenue reserves 1,593 1,269 25.53%
Shareholders' Fund 4,677 4,217 10.91%
Source: Proshare/Company Financials

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PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 31ST DECEMBER, 2009
Income Statement (N'Million)
Turnover 6,067 4,430 36.95%
Cost of operations -2,920 -2,397 21.82%
Gross profit 3,147 2,033 54.80%
Administrative Expenses -791 -639 23.79%
Trading Profit 2,355 1,395 68.82%
Other income 134 186 -27.96%
EBITDA 2,489 1,581 57.43%
Depreciation -514 -461 11.50%
EBIT 1,975 1,119 76.50%
Interest Payable & Similar Charges -223 -187 19.25%
Interrest receivable & Similar incomes 146 199 -26.63%
Exceptional items 0 85 -100.00%
Profit Before Taxation 1,898 1,217 55.96%
Taxation -650 -414 57.00%
PAT 1,247 803 55.29%
Proposed Dividend -800 -541 47.87%
Retained profit/(loss) for the year 448 262 70.99%
Source: Proshare/Company Financials
GENERAL COMMENTS AND OBSERVATION
Gross Earnings and Profitability: In the period under review, NAHCo Aviance
notwithstanding the challenging operating environment recorded turnover growth of
+36.95% to close at N6.067 billion compared with N4.430 billion recorded in the
preceding comparable period. The company recorded higher profitability growth of
+55.29% to close at N1.247 billion compared with N803 million recorded in the
preceding period.
Close observation of the figures in the last six financial years showed that since the
company recovered from the downturns in both the turnover and profitability of 2006
financial year, the trends in the two indices have been on the increase. There seems to
be an overriding influence of turnover growth on the operating costs of the company
which in way aided its ability to grow profit.
This is evident in the relationship between operating costs and turnover in the period
under review; operating cost to turnover assumed declining trend in the last two
financial years.

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2005
Operating Cost and Operating Profit Trend: In the last five financial years,
Nigerian Aviation Handling Company Plc operating income growth has been at a higher
rate above the operating expense trend, suggesting improved operational efficiency.
The only year when the company recorded slack in operational efficiency was in 2006
when the growth in costs was above that of the income.
Financial Efficiency: The Company’s overall financial efficiency measured by cost to

income ratio showed consistent improvement in the last six financial years as the cost
to income continues to post declines to date. A company that is able to generate
higher returns through reduced costs shows indications of more robust earnings to the
investors. The impact of the company’s financial efficiency is also seen in the growth
recorded in its earnings per shares in the year under review.

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Investment in Assets: There was trend of consistent growth in the company’s assets
in the last five financial years to date. However, close comparison of classes of assets
showed that huge investment in the company’s assets were in the non-fixed (non-
tangible assets). This in our opinion does not support the company’s claims of
expansionary drive which we think should reflect more in huge investment in tangible
assets.
THE FINANCIALS REVIEWED

Turnover Trend
NAHCo Aviance in the last six financial years has consistently maintained turnover
growth improved on its turnover over the past five years. The company recorded a 5-
year compounded annual growth rate (CAGR) of 20.16% in turnover from N2.34 bn in
2004 to N6.067 bn in 2009. The most impressive turnover growth was recorded in the
2009 financial year with 36.94% growth to surpass the previous highest growth of
30.16% recorded in 2005.
NAHCO Cargo Handling segment contributed 78% to revenue growth in the year up
by 55.56% to overall turnover from 47.31% contribution recorded last year. The
company has obviously invested heavily in its cargo business capacity but needs to
start thinking of diversifying the revenue base.

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Profitability Trend
The company’s profitability has recorded positive growth in the last six financial
years. Besides the 326.55% unusual profitability growth recorded in 2005, the
company has maintained consistent moderate profitability growth in the last four
financial years with 2009 financial year recording the highest growth. Higher growth in
profits been commensurate with growth in turnover could be indications of prudent
cost management. . Profit before tax grew faster at 55.92% up from 54.84% in the
previous year.
Profit Margins
The profitability margins which measure the portion of turnover attributable to the
profit has been on a consistent growth in the last six financial years. This applies to
profit before tax and profit after tax margins. This in our own opinion is encouraging
and should be sustained the more by the management as companies with robust profit
margin show indications of making more returns from their sales.

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Return on Equity (RoE) and Return on Assets (RoA)
NAHCo Aviance’s earnings performance, as measured by the returns on average

assets and returns on average equity in the year under review resumed
upbeat in the year under review.
While Return on Assets sustained its upbeat without a break, Return on Equity
recovered from decline to 19.04% to close at 26.67% as at 31st December 2009. This
shows that earnings derived from both the assets and shareholders’ fund were on the
positive note, and indications of profitable usage of both the assets and investors’ fund
in the business. The Management should see the necessity of raising the profile of ROE
in the coming years.
Assets Management and Efficiency
Both fixed assets turnover ratio and current assets turnover ratio recorded decline of
different rate in the year under review when compared with the preceding year’s
figures. Current assets turnover and fixed assets turnover closed at 54.62% and
56.87% of the total sales for the year respectively compared with 64.22% and 70.95%
recorded in the previous year in that order. This trend shows that the assets were
not put to more optimal use to generate sales in the period - a case of assets
under-utilisation. This trend should be reversed to much more positive outlook.

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Operational Efficiency
The OE ratio measures the relationship between operations cost and operation income
- a gauge of efficiency in business operations. In the last two financial years to date,
NAHCo Aviance recorded consistent improvement in its operational efficiency as the
operations costs to operating income in the period maintained southward trend. This
shows that operating costs were generating much more that its commensurate burden.
This trend should be maintained and even improved as such contributes to leverage
for improvement in the company’s profitability.
Also, the evidence of such could be seen in the relationship between operating income
and the aggregate turnover; the trend was on consistent upward trend till 2008
financial year when it declined to 79.37% from 80.19% recorded in 2007. It however
closed on a positive note in the year under review at 80.69%.
Liquidity and Solvency
Liquidity and solvency trend of NAHCo Plc in four financial years to 2007 were below
average as the trend in the period showed that the company might be having
challenges in meeting its short term obligations; the current liabilities in the period
posted higher figures when compared with current assets. However, in the last two
financial years, there were improvements in both current ratio and quick (Acid Test)
ratios. In our opinion, the Management should maintain the trend and improve more
on it - since sufficient liquidity would guaranty sustenance of business operations.

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The company long-term debt seemed to have increased in the year under review as its
total debt–asset ratio spiked marginally to 30.84% in the year under review from
29.58% recorded in the preceding year. In the same vein total–debt-to-equity ratio
rose from 42.01% to 44.60% in 2009.
Trade Debtors
Debtors Analysis 2009 2008

Trade Debtors 632,793,000 748,975,000
Prepayment and Accrued Income 58,836,000 46,464,000
Staff and Other Debtors 118,407,000 159,094,000
Deposit for fixed assets 17,353,000 395,146,000
Withholding Tax recoverable 255,880,000 217,382,000
Total 1,083,269,000 1,567,061,000
Sales 6,066,549,000 4,430,035,000
0.104308562 0.169067513
Average Collection Period 38.07 61.71
The table above shows the NAHCo Aviance debtors’ items as collated from the
company’s financials. In the year under review, trade debtors declined by 15.51% to
close at N632.793 million compared with N748.795 million recorded in the preceding
year comparable period.
The figure represented 10.43% of the total turnover for the financial year compared
16.91% of the same rate recorded in the preceding year.
This may be indications of improvement in the credit management of the company as

shown by decline in the debt average collection period from 61.71 days recorded last
year to as low as 38.07 days.
It may however, for a credit based business, reflect a declining business from the big
debtors who may move to other players to weather the financial challenges.
This aspect of the debtors balance requires further work/break-down to properly

understand the nature, timing and recoverability of these debts.

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FINANCIAL RESULTS FOR Q1 2010 – YTD to MARCH 31ST 2010
FIRST QUARTER REPORT FOR THE PERIOD ENDED MARCH-10
Income Statement GROUP 2010 GROUP 2009 Variance

(N'Million) N' million N' million %
Turnover 1,518 1,449 4.91%
Profit Before Tax 582.35 617.08 -5.63%
Taxation -186.35 -197.47 -5.63%
Profit After Tax 396 419.61 -5.63%
Q1 2010 Balance SHEET
Fixed Assets 3,926 3,449 13.83%
Stocks 58 35 63.62%
Trade Debtors 1,291 1,083 19.21%
Cash and Bank Balances 1,987 2,194 -9.43%
Trade Creditors 842 925 -8.98%
Other Credit Balances 1,347 1,161 16.02%
Working Capital 1,847 1,927 -4.15%
Net Assets 5,072 4,676 8.47%
Source: Company Financials
First Quarter Results
Comparing the Q1 2010 results with the preceding year comparable period - Q1 2009,
Nahco Plc recorded marginal turnover growth of 4.91% to close at N1.518 billion
compared with N1.449 billion. This appears to be below expectation and perhaps an
indicator of a slow start to the year or reflection of business conditions suggesting no
growth in market.
The unimpressive performance of turnover reflected in the Company’s profitability

trend as profit after tax declined marginally by 5.63% to close at N396 million
compared with N419.61 million recorded in the preceding year comparable period. This
consequently led to decline in both the PBT and PAT Margins to 38.36% and 26.09%
respectively in Q1’10 lower than 42.63% and 28.99% in Q1’09 respectively. NAHCo’s
EPS based on its Q1’10 results stands at N0.32, using 1.230 billion unit shares in
issue.

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Estimates 2007A 2008A 2009A 2010E 2011E
Naira
EPS 0.79 0.82 1.01 1.09 1.37
EPS Change (YOY) -45.64% 3.69% 24.28% 7.16% 26.27%
Dividend Payment (DPS) 0.30 0.55 0.70 0.65 0.82
Payout ratio 38.14% 67.43% 64.12% 60.00% 60.00%
Valuation 2007A 2008A 2009A 2010E 2011E

P/E 34.96 14.21 7.08 10.56 8.36
P/Book 12.13 2.71 1.89 2.71 2.40
Dividend Yield 1.09% 4.75% 9.75% 5.68% 7.18%
Source: Company Financials/Vetiva Research
NAHCo Plc - Corporate Actions Profile

Bonus: Dividend:
Declared: 1 for 4 in 2009-08-14 Declared: 0.45 in 2010-05-18
Declared: 0.3 in 2006-11-29
Source: Company Financials/Proshare Research

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5. Technical Analysis
The Objective: To review the stock valuation by relying on the assumption that market
data, such as charts of price, volume, and open interest, can help predict future (usually
short-term) market trends. Unlike fundamental analysis, the intrinsic value of the stock is not
part of the consideration here. More and more investors are beginning to appreciate and
rely on technical analysis in reviewing stocks on the Nigerian Stock Exchange because of
the proven fact that market psychology influences trading in a way that enables
predicting when a stock will rise or fall. For that reason, technical analysis are market timed
based and predicated on the belief that technical analysis can be applied just as easily to
the market as a whole as to an individual stock.
MOST RECENT STOCK PERFORMANCE OF NAHCO AVIANCE SHARES
NAHCo Plc’s share price in the last sixteen months to June 11th, 2010 recorded
marginal growth of +0.45% to close at N11.20 from N11.15 it closed at the end of
January 2nd, 2009 trading session. This performance when juxtaposed with the realities
of the overall market performance shows that the company’s stock is one of the
least performing stocks on the NSE at this time.
The overall market performance measured by the ASI recorded -18.93% in the last
sixteen months from 31.357.24 it closed on 2nd January, 2009 to close at 25,422.79 on
the 11th June, 2010. The performance though in the positive of 0.45% was minute,
when compared with appreciations recorded in some other stocks in the period, yet
above the negative performance of the entire market (ASI). The stock closed far
behind so many other stocks in the market.
In the year 2009 alone, the share price of the company closed with -35.61%
depreciations, compared with -33.80% depreciations recorded in the entire
market in the period. This negative performance indicates an overbearing influence
of bears in the stocks, even beyond the overall negative market performance in the
period.

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A closer observation of the stock price trend showed that between August 14th 2009
when the crisis in the banking sector hit the market; NAHCo Plc’s share price shed a
sizeable -23.62%; yet it was able to record a year to date appreciation of +55.99%
from N7.18 it closed as at 4th January, 2010 to close at N11.20 on 11th June, 2010.
This was above the +31% sector average appreciations for the same period, a
ration impacted by the lower performance recorded by Air Service Plc.
The trend indicates that NAHCo’s price movement places it as one of the top
performing stocks both in the sector and the entire market, a reverse of the 2009 price
trend recorded.
THE ASI AND NAHCO PLC
The All-Share Index and Nahco Plc share price are moving almost in the same
direction. In the year 2009 alone, the share price of the stock closed on -35.61%
depreciation compared with the lower depreciation of -33.80% recorded in the entire
market in the period.
In the year 2010, Nacho Plc share price appreciated by +55.99% to outperform the
market which recorded +22% appreciations for the All-Share Index.
As illustrated from the graph below, the NAHCo Plc share price now trades below its
20 days, 50 days moving averages which closed at N11.94 and N12.58 while it
trades above its 200 day moving average of N9.17 as at 11th June, 2010. The stock
resumed trading above its 200 day moving average on March 3rd, 2010 and has since
maintained the trend to date.

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Technically, with the NAHCo Plc shares trading above its 200 days moving average, a
bullish outlook can be inferred, one that appears sustainable based on the forecast
performance figures in section 4 above.

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6. The Analyst’s Insight
Nigerian Aviation Handling Company (NAHCo) Plc’s performance over the last five
years, since privatisation, has been commendable with year-on-year relative growth
metrics that provided some relief to its numerous shareholders. This is all the more
significant when the performance is juxtaposed against other companies in the market
who continue to be challenged by profitability and real growth issues.
The Bates Sule led management and board of directors have provided a success story
of a privatised firm that must now begin to think about sustainable growth in top line
revenue streams to match its ambitions.
Why is this important? The NAHCo Aviance success so far has been a based on its
ability to read very quickly market trends and opportunities. It will have to respond to
the 2010 and beyond challenges in the same breadth but with an understanding that
the business model has been significantly altered by the restricted market size and
caps on revenue earnings relative to the airline industry’s fortunes/buoyancy.
This is evident in:

the reality of the Q1 2010 performance and the need to sustain forecast;
the realisation that the company will have to deal with the twin impact of an
alternate service quality offering to consumers (or competition not defined by size
and scope but by the critical service offerings available to increasingly discerning
clients in areas including non-traditional airline businesses) and the reduction in
the time it would take for new initiatives to start contributing to turnover metrics;
the ability to manage change at the board and management levels and the relative
settling down to positively impact the performance of the company in 2010 and
beyond;
the realisation that access to cheaper sources of funding i.e. equity market may
not be there to finance the much needed asset replacement needs of the company;
leading to a resort to borrowing – a new learning curve for the company.
We see the management of three key issues as significant in delivering sustainable

profitability for the company – its dividend policy, operating cost control and asset
replacement and investment decisions.
The Dividend Policy

The 45k final dividend with 25k interim dividends to make an aggregate of 70k
dividend per share is commendable. This we believe will raise the profile of the
company in the market. Moreover, the fact that the company still maintain its 2.230
billion shares in issue is a welcome development, a form of leverages for higher
returns in the coming years, all things being equal.
The path of caution adopted by the company in resisting the urge to tow the generic
line by indulging in the issuance of float-bloating scrip issue to investors/shareholders
is in our opinion a positive attribute.
Yet, one must acknowledge that with the planned bond issue of N5bn by the company,
the board and management who has built up a long dividend history would apparently
view dividend reduction or omissions as particularly unattractive, perhaps because it
would signpost them as the managers under whose tenure and policies generated
insufficient cash to pay dividends. If we follow this assumption, it will be wise to
assume that NAHCo may opt for a retention of its high dividend payout policy which, it
appears, will hurt it as it deals with debt covenants – a step in itself that could have
been reduced by years of prudence in managing the fine line between dividend

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payouts and profit retention for asset replacement purposes – a major driver and
outlay for the bond sourced.
Some form of dividend reductions may seem imminent and strategic in the light of this
reality – unless of course, the firm is able to step up its revenue generation capacity
based on current levels of operations. This is the first test for the new board of
directors.
Beyond Repairs & Maintenance: Assets Replacement and Investment Funding

The impression of more investment in fixed assets as a means of business expansions
has been created above, and rightly so, as management has touted this as the
strategic imperative of 2010 and beyond. To deliver on this, a significant investment
needs to be made and funded – quite unlike what has been done in the five (5) years
past. We are of the view that investments in this regards seem to be below
expectations. In the company’s value added allocations in the period under review,
only 11% of the total value added were expended on business development
and expansions.
Though with an equipment breakdown rate now few and occasional in the past two (2)
years, NAHCo Aviance needs to focus its mind on addressing the need for a higher
level of efficient and effective service delivery devoid of disruptions as a competitive
service advantage; and it is thus expected the planned bond offer offers an
opportunity to leverage the potential of the firm based on identifiable investments in
equipments, replacement of aged machinery and assets for new business ventures.
Prudent Cost Management

The management of the company will do well to maintain the present prudent cost
management stance which has resulted in improving efficiency ratio both at the
operations level and the overall cost levels. Improved cost efficiency serves as a relief
of sort and leverage for improved profitability. This in our opinion will contribute to
sustaining the profit-cost metric of the company.
OTHER INVESTMENT RISKS
The business model’s dependency on strict aviation sector buoyancy: The

aviation ground handling business is easily impacted by vagaries in the world economy
just as it is heavily slowed down by lack of access to local funding support. This always
presents a low load factor on flights with subsequent drop in frequencies. As the
airlines go so does the ground handling business. NAHCo Plc must therefore contain
this risk by accelerating its diversification plan into non-airline related ventures like
haulage, mail handling, Diaspora cargo services, consultancy services, Aviance Ghana,
executive passenger services, courier services and loyalty programmes it has planned.
Economic and Service Factors: The likelihood of accidents, disruptions to operations

owing to power outages and failed generating power to the Lagos shed, stretching the
man hours per day, new equipments breakdown due to overuse, air crashes, load
factors, airport closures due to strikes or political upheaval, increase in crude oil prices
and acts of god; will surely have an impact on the company’s earnings forecast.
Regulatory oversight and Political Factors: The NCAA is prone to knee-jerk

reactions and may put in place a rule that will impact negatively airlines and/or ground
handling companies like NAHCo. The NCAA is largely dependent on the government for
financing and direction; the government may instil policies that work against the

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ground handling companies such as allowing conditions that make it easy for airlines
and other players to challenge key business interests of NAHCo.
Overdependence on Lagos Airport: NAHCo Aviance’s operations (passenger traffic,

flights, mail handling and cargo) are over 85% based on activity at the Lagos Airport.
The vulnerability of its prime revenue contributor – cargo handling – in a Lagos airport
beset with poor and near abysmal service quality, airport closures due to repairs,
aviation fuel issues and other unforeseen events expected from an airport way past
due for a major overhaul. These events will likely reduce NAHCo’s earnings
significantly if it causes reduction in flights or outright closure of the airport. This is a
reality that will happen one day and NAHCo Aviance needs to factor this into its
business projections. In response to this over-dependence (driven by the reality of air
traffic and cargo transportation destinations which skews the usage of airports to few
airports in the country); NAHCo Aviance has take steps to expand to other domestic
airports. This can only be a worthwhile move if the expansion goals also include new
businesses.
VALUATION
Discounted Cash Flow (DCF) method of valuation is one of the valuation methods
employed in arriving at NAHCo Aviance’s intrinsic value. Using a five-year scenario
analysis with forecast free cash flows, we arrived at intrinsic value of N11.81 with
Discount rate of 17% and terminal growth rate of 8%. Using the dividend discount
valuation model, with projected dividend per share of 76k, we arrived at
intrinsic value of N14.36.
PE ratio multiples valuation model generated an intrinsic value of N14.53 with our
forward EPS and PE ratio of N1.12 and 13 respectively. In using this valuation method,
our projected profit after tax of N1.375 billion arrived at was based on the view that
the company will grow its returns in the remaining period in the year; otherwise our
projected PAT would have been N1.17 billion due to the fact that the profitability trend
recorded in the first quarter (2010) showed a downside.
Using EPS growth rate valuation method, we arrived at five year compounded annual
EPS growth rate of 23% with projected EPS of N2.85 in five years time; this gives fair
value of N21.26.
Therefore, combining the four valuation models gives average of N15.49. We are of
the opinion that the share price of NAHCo Aviance under normal market condition
should trade between N14.36 and N15.49. The use of multiple approaches to
generate our fair value estimate helps us to avoid model bias and maintenance
research which becomes more likely when one valuation approach is used to determine
fair value of a firm.

Page
Appendix 1: Aviation Cargo Freighters and Agents in Nigeria
ABSA Cargo Airline (M3/TUS/549)
Website: www.absacargo.com.br/en/Charter.asp
General Sales Agents:Cavok Aviation Services Ltd
AeroVis (VIZ)
Cargo Handling Agents:Interair Flight Support Services Ltd
General Sales Agents:Interair Flight Support Services Ltd
Africa West (FK/WTA/858)

Cargo Handling Agents:3Q Aviation Nigeria Ltd
General Sales Agents: Base
Air France (AF/AFR/057) Website: www.airfrance.com/cargo

General Sales Agents: SAY
Al Dawood (LIE)
Lagos, 41/43 Bombay Crescent, Apapa, Lagos
Tel: +234 (0)1 473 1236, +234 (0)1 545 2356, +234 (0)1 775 4567
email: air@aldawoodgroup.com
Website: www.aldawoodgroup.com
Freighter Fleet: 1x DC-8-63F
Allied Air (AJK)

Lagos, 2nd Floor, Murtala Mohammed Airport, Ikeja, Lagos
Tel: +234 (0)1 493 2430, +234 (0)1 493 0852, +234 (0)1 470 3001
Fax: +234 (0)1 493 2431
email: info@alliedaircargo.com
Freighter Fleet: 3x B727-200, 1x DC-10-30
Hubs: Lagos
Network: Accra, Kotoka; Entebbe; Freetown; Malabo; Monrovia, Roberts; Ostend
Branch Offices -
Kano, Mallam Aminu Kano International Airport, Kano
Tel: +234 (0)64 636 564
Fax: +234 (0)803 328 5911
email: dasairkano@yahoo.com
Port Harcourt, Port Harcourt International Airport, Port Harcourt, Rivers State
Tel: +234 (0)8 423 1922
Aviacon Zitotrans Website: www.aviacon.ru

Cargo Handling Agents:Cavok Aviation Services Ltd
Avient Aviation (Z3/SMJ/757)

Cargo Handling Agents: Base
General Sales Agents: Base, Mercy Express Freight Nigeria Ltd
Azal Avia Cargo (J2/AHC)

Bellview Airlines (B3/BLV/208)

Lagos, Bellview Plaza, 66B Opebi Road, PMB 21766, Ikeja, Lagos
Tel: +234 (0)1 270 2700/1, +234 (0)1 493 1731/5
Fax: +234 (0)1 270 7936

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email: reservation@flybellviewair.com
Website: www.flybellviewair.com
President/CEO Kayode Odukoya
Finance Director/Manager Mr Sobande
Operations Director/Manager Capt Chimara Imediegwa
Commercial Director/Manager Gabriel Olowolajuogbon
Marketing Director/Manager Dido Olufemi
Cargo Director/Manager Mr Ezeagu
Charter Director/Manager Gabriel Olowolajuogbon
Chief Route Planner Samson Fatokun
Executive Director: Gabriel O Olowolajuogbon
Branch Offices -
Abuja, Abuja International Airport, Abuja
Tel: +234 (0)9 810 0089
Fax: +234 (0)9 810 0088
email: b3abuja.manager@flybellviewair.com
Bright Aviation Services (BRW) Website: www.brightaviation.om

Cargo Handling Agents:Easthern Aviation Service Nigeria Ltd
General Sales Agents:Easthern Aviation Services Nig Ltd
British Airways (BA/BAW/125) Website: www.baworldcargo.com

Cargo Air (11/VEA)

Cargo Handling Agents:Cavok Aviation Services Ltd, TS International Services Ltd
Cargo Plus Aviation (8L/CGP)

Cargo Sales Agents:CFS Aviation Logistics Services Ltd
Chanchangi Airlines (3U/NCH)

Kaduna, Plot A 5/6 Kachia Road, Kaduna South, 8200001
Tel: +234 (0)703 533 1135
email: info@chanchangi.com
Website: www.chanchangi.com
Emirates SkyCargo (EK/UAE/176)

Lagos, Room 116, NAHCO Complex Building, M/M Int´l Airport, Ikeja, Lagos
Tel: +234 (0)1 774 9641
Mobile: +234 (0)805 501 7000
Website: www.skycargo.com
Cargo Controller: Donald Enitan Adekunle
Ethiopian Airlines (ET/ETH/071)

Lagos, PO Box 1602, Lagos
Lagos, 3, Idowu Taylor Street VI, Lagos
Tel: +234 (0)1 263 7655, +234 (0)1 263 2690
Fax: +234 (0)1 263 4550
email: losam@ethiopianairlines.com
Website: www.flyethiopian.com or www.ethiopianairlines.com
SITA: LOSSSET
Area Manager: Mr Esayas W Hailu
Branch Offices -
Lagos Airport, PO Box 4563, Murtala Mohammed Airport, Lagos

Page
Tel: +234 (0)1 774 4710
email: losap@ethiopianairlines.com
SITA: LOSKKER
Kenya Airways (KQ/KQA/706)

KLM Cargo (KL/KLM/074) Website: www.klmcargo.com

Cargo Handling Agents: Airfreight
LAN Cargo (UC/LCO/145)

Cargo Handling Agents:Cavok Aviation Services Ltd
Lufthansa Cargo (LH/GEC/020) Website: www.lufthansa-cargo.com

Orex Airlines (ORX/720) email: kani@orexaircargo.com
Phoenix Airlines (PHN)

Russian Sky Airlines (P7/ESL/215)

Cargo Sales Agents:Easthern Aviation Services Nig Ltd
Safair (FA/SFR/640) Website: www.safair.co.za

South African Airways Cargo (SA/SAA/083)

General Sales Agents:CFS Aviation Logistics Services Ltd, Jl Focus Aviation Services
Ltd, SAY Mighty Nigeria Ltd
Turkish Airlines (TK/THY/235) Website: www.turkishairlines.com or

www.thy.com
United Arabian Airlines (UAB)

Cargo Sales Agents:CFS Aviation Logistics Services Ltd
Virgin Atlantic Cargo (VS/VIR/932)

Lagos, C/O ACP Nigeria, Etiebets Place, 21 Mobolaji Bank, Anthony Way, Ikeja,
Lagos
Tel: +234 (0)8 033 462 179
Fax: +234 (0)1 271 7712
email: sylvester.henry@virginnigeria.com
Website: www.virgin.com/cargo
Head of Cargo: Sylvester Henry
General Sales Agents:ACP Worldwide
Virgin Nigeria Airways (VK/VGN/786)

Lagos Airport, Etiebets Place, 21 Mobolaji Bank Anthony Way, Ikeja, Lagos
Tel: +234 (0)1 271 111
Fax: +234 (0)703 494 7786
email: cargo@virginnigeria.com
Website: www.virginnigeria.com

Page
Cargo Director/Manager Sylvester Henry
Commercial Manager: Sale M Pashi
Volare (F7/VRE) Website: www.volare.kiev.ua

Cargo Sales Agents:Interair Flight Support Services Ltd
Volga-Dnepr Airlines (VI/VDA/412) Website: www.vda.ru

Cargo Sales Agents:Interair Flight Support Services Ltd
Appendix 2: Aviation Handlers and Their Clientele in Nigeria
Appendix 3: REFERENCES/ACKNOWLEDGMENTS
Financial analysis and data assembled and dissected by Reshu BAGGA and
Gbemiga ADEYEMO – Proshare Analyst Services
Vetiva Research Analysis for Q1 2010
Corporate Research work on airline industries by FDC Limited commissioned by
Proshare
Other information from CSL Securities, NAHCo public presentations and
financials, NSE data, FSDH reviews and Daily market monitoring analysis by
proshare NI
Authored by Olufemi AWOYEMI, FCA – CEO of Proshare.

Page
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ISSN 1597 - 8842 Vol. 1 No.

5 Year Review up to Q1 2010 Results

NAHCo Aviance - Fast Facts 03

Recent Developments in the Company 05

The Operating Environment/ Firm’s Response 06

The Analyst’s Insight/Opinion 31

ISSN 1597 - 8842 Vol. 1 No. 39

© 2010 www.proshareng.com June 2010 2

ownership of 60% while four foreign airlines (Air

The company’s privatisation took effect in August 2005 in response to the

Nigerian Public : 68%

Passenger and baggage handling;

© 2010 www.proshareng.com June 2010 3

International Operations - 90% share of market size

© 2010 www.proshareng.com June 2010 4

Increase in Authorised Share Capital: NAHCo Aviance Plc has proposed an

Proposed Share Reconstruction: NAHCo Aviance Plc is considering a possible

© 2010 www.proshareng.com June 2010 5

3.2 Industry History

3.3 Economic Relevance

With time-definite international transactions, production flexibility and speed

3.4 MARKET STRUCTURE

© 2010 www.proshareng.com June 2010 6

b) Passenger (Combination) Airlines:

Freight forwarding is a service used by companies that deal in international or

An understanding of this sub-sector is vague at the moment as there

© 2010 www.proshareng.com June 2010 7

3.5 RECENT TRENDS

Changes Imminent in the Business Model for Nigerian Ground Handling

Rapid Growth in Demand for Air Cargo:

Intra-Asia is the largest true air freight market;

Falling Real Yields (revenue per ton-mile):

Average 2.5% decline in yields (CPI adjusted);

© 2010 www.proshareng.com June 2010 8

Consolidation of Freight Forwarders:

Non-integrated carriers receive majority of traffic from freight forwarders –

3.6 MARKET SWOT

© 2010 www.proshareng.com June 2010 9

Locally, a study by Proshare reveals a re-convergence of the service delivery mantra

1) Economic growth and trade (especially imports/exports)

2) Relative prices of air cargo versus alternatives – ocean, truck, rail

4) Lean Inventory Strategies

5) Air freight shortens delivery times to customer

OTHER LOCAL VARIABLES

© 2010 www.proshareng.com June 2010 10

3.7 MARKET REALITIES

© 2010 www.proshareng.com June 2010 11

3.8 MARKET OUTLOOK

Short-term outlook is mixed, uncertain:

© 2010 www.proshareng.com June 2010 12

Longer term fundamentals support growth:

3.9 MANAGING CHANGE – THE VALUE PARADIGM

NAHCo Aviance – A strategic engagement overview – The early years to date

NAHCo Aviance’s deep and fundamental restructuring programme launched in April

© 2010 www.proshareng.com June 2010 13

The company in 2008 achieved some landmark developments in operations that

The 2009 operational reality reflects an improvement in the internal conditions

3.10 NAHCO AVIANCE – THE BUSINESS EXPANSION DRIVE

Objective 3: Regional collaboration through the provision of ground handling services

Objective 4: Partnership with Aviance Ghana. Timeframe: Unknown.

© 2010 www.proshareng.com June 2010 14

NAHCO AVIANCE BUSINESS DIVERSIFICATION DRIVE

Objective 2: Courier and door-to-door business in Lagos and Abuja.

Objective 3: Executive Airport Facilitation Service (EXAFS).