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Ikeja Hotel Plc – q3 2024 earnings analysis

Last Updated on 27 December 2024 by Naijadazz

Overview

Ikeja Hotel PLC’s financial statements for the nine months and third quarter (Q3) ended September 30, 2024, reflect an overall positive trajectory compared to 2023, with marked growth in key areas like revenue, gross profit, and net profit. This analysis will dissect each major segment of the income statement, comparing performance over the periods and assessing the impact on the company’s financial position.

Revenue Analysis

Nine Months Ended September 30, 2024:
For the nine-month period, Ikeja Hotel PLC recorded a revenue of ₦12.6 billion, a substantial increase from ₦7.7 billion in the same period in 2023. This 63.8% growth suggests that the company has either expanded its operations, improved sales efficiency, or achieved higher occupancy rates, possibly driven by increased tourism or successful marketing strategies.

Third Quarter 2024:
In Q3 alone, revenue amounted to ₦4.4 billion, compared to ₦3.1 billion in Q3 2023, an increase of about 40%. This quarter’s growth, though slightly lower in percentage terms than the nine-month performance, still indicates a strong demand, helping to maintain a healthy upward trend.

Cost of Sales and Gross Profit

Cost of Sales:
For the nine months, the cost of sales rose to ₦7.83 billion from ₦5.0 billion in 2023, a 56.5% increase. Although the increase in cost of sales is substantial, it has not outpaced revenue growth, implying better efficiency. In Q3, the cost of sales was ₦2.86 billion, up from ₦1.95 billion in Q3 2023. Cost management remains crucial, as maintaining a lower increase in costs relative to revenue contributes to better gross profitability.

Gross Profit:
The gross profit for the nine months was ₦4.77 billion, nearly doubling the ₦2.69 billion from 2023. Gross profit margin improvements signify effective control over direct costs relative to sales. For Q3, gross profit reached ₦1.54 billion, also showing a notable improvement from ₦1.18 billion in 2023. This margin increase highlights the hotel’s potential to convert revenue growth into higher profitability efficiently.

Other Income and Operating Expenses

Other Income:
The nine-month period showed an increase in other income, rising to ₦187.8 million from ₦145.8 million in 2023. This increase of 28.8% reflects supplementary income streams such as ancillary services, rentals, or interest, which have positively impacted the company’s earnings. For Q3, other income nearly tripled, from ₦18.2 million in 2023 to ₦130.8 million, indicating favorable gains, likely from diversified or one-off income sources.

Sales and Distribution Expenses:
Sales and distribution expenses increased to ₦483.5 million over the nine months, compared to ₦269 million in 2023. A similar trend was observed in Q3, where expenses rose from ₦102.3 million to ₦166.5 million. Despite the increased spending on distribution, it has been in alignment with revenue growth, potentially driven by new marketing initiatives or customer outreach efforts.

Administrative and General Expenses:
Administrative expenses for the nine-month period amounted to ₦1.27 billion, a 34% rise from the previous year. In Q3, these expenses increased to ₦503.1 million from ₦337.4 million. Although administrative costs have risen, the controlled pace relative to revenue growth suggests efficiency gains, especially in managing overheads against an expanding revenue base.

Operating Profit and Finance Costs

Operating Profit:
Operating profit jumped to ₦3.21 billion for the nine months, compared to ₦1.62 billion in 2023. This impressive 98% increase underscores the company’s success in converting gross profit into operating income. Similarly, Q3’s operating profit surged to ₦996.5 million from ₦756.9 million. These figures demonstrate robust operational efficiency and highlight the effective cost management strategies.

Finance Income and Costs:
Finance income showed an increase, totaling ₦878.8 million for the nine months, compared to ₦338.9 million in 2023. However, finance costs remained high at ₦995 million, reflecting heavy reliance on borrowed funds or financing activities. A significant portion of operating profit is consumed by finance costs, indicating a high-interest expense burden, which could impact future cash flows if not managed.

Net Profit and Earnings Per Share

Profit Before Taxation:
The company reported a pre-tax profit of ₦3.09 billion for the nine months, up from ₦1.07 billion in 2023. For Q3, pre-tax profit stood at ₦1.03 billion, compared to ₦529 million in Q3 2023, showing strong year-on-year growth. These figures indicate that the company has leveraged revenue growth effectively, maintaining profitability despite the rising finance and administrative costs.

Current Tax Expense:
Tax expenses increased significantly, with a nine-month total of ₦1.08 billion, up from ₦483 million in 2023. In Q3, tax expenses were ₦368.1 million, reflecting an increase from ₦339.3 million. Although tax expenses have risen, the overall effective tax rate is still manageable, and the growth in pre-tax profit mitigates the impact on net profit.

Profit Attributable to Equity Holders and Non-Controlling Interest:
For the nine-month period, profit attributable to equity holders of the parent company reached ₦1.97 billion, up from ₦536 million. For Q3, profit was ₦647.3 million compared to ₦173.7 million, highlighting strong earnings growth. Non-controlling interest earnings, though modest, also showed positive returns, indicating profitability across subsidiaries or joint ventures.

Earnings Per Share (EPS):
EPS for the nine months rose to 93 kobo from 28 kobo in 2023, and for Q3, it reached 31 kobo, up from 9 kobo. This rise in EPS signifies better returns for shareholders and could drive higher valuations if sustained.

Conclusion

Ikeja Hotel PLC’s performance for the nine months and Q3 ended September 30, 2024, exhibits robust revenue growth, improved gross and operating profits, and significant increases in earnings attributable to shareholders. The rise in costs, notably finance costs and tax expenses, is a concern but has been offset by the increase in operating efficiency and revenue.

The company’s strategic emphasis on revenue expansion, coupled with effective cost control, has led to substantial year-on-year gains. These results underscore the company’s strong financial footing and potential for sustained growth. Further efforts to reduce finance costs and manage tax liabilities could enhance profitability, providing even greater returns to shareholders in the future.