NAHCO: The Bags Still Have to Move

At a glance

At an airport, the expensive thing is often not the aircraft.

It is time.

A Boeing sitting on the apron is a sophisticated way of burning money. Bags must leave the belly, cargo must go somewhere sensible, passengers must be processed, and the aircraft must be cleaned, provisioned and turned around before somebody in operations begins composing an email containing the phrase service-level failure.

NAHCO lives inside this choreography.

You need airport access, equipment, bonded warehouses, security systems, trained people, airline approvals and a reputation for not sending somebody's Samsonite on an entirely separate spiritual journey.

I should perhaps declare a small conflict of temperament here.

On two separate international arrivals in recent months, I waited more than an hour on one occasion and nearly two hours on another before my bags finally appeared. Different flights. Different months. Enough time, on the second occasion, to become intimately familiar with the architecture surrounding the baggage carousel.

I am setting aside my personal beef with the Nigerian baggage-handling ecosystem for this underwrite. I cannot establish that NAHCO handled those particular flights, so the complaint remains industry-level rather than evidence against this company.

Still, clearly there is space for improvement.

In another operating environment, somewhere around the second hour, three letters might begin hovering ominously over somebody's desk: PIP.

But I digress.

The investment case is considerably better behaved than my luggage.

The answer before the sermon

At ₦138.50, Seven Gates rates NAHCO HOLD.

We would add more deliberately below ₦130, become considerably more interested around ₦105–120, and regard roughly ₦105–110 as the stronger entry zone for an investor measuring wealth in hard currency.

The business is attractive: scarce airport infrastructure, established airline relationships, manageable leverage, substantial historical earnings growth and useful cargo optionality.

The hesitation is equally simple.

H1 revenue rose. Gross profit fell.

That deserves more attention than the PAT headline.

1. The company has changed rather dramatically

NAHCO reported just ₦10.23 billion of revenue and ₦772 million of PAT in 2021.

By 2025, revenue had reached ₦65.82 billion, while PAT was ₦17.50 billion.

Some of this is Nigerian inflation. Some is currency translation. But inflation did not single-handedly turn ₦772 million into ₦17.5 billion.

The business also repriced, expanded and improved its economics.

The important qualification is capital intensity.

Ground handling eventually encounters a loader, tug or ground-power unit that wants replacing. The equipment moat therefore costs money to maintain.

2. Revenue rose. The cost base rose considerably faster.

H1 2026 looked excellent from a polite distance.

Revenue increased 9.4% to ₦35.36 billion.

Operating profit rose 25.4%.

PAT increased 22.2% to ₦10.85 billion.

Then one moves closer to the accounts.

Operating costs increased from ₦13.17 billion to ₦16.51 billion, roughly 25%.

Gross profit consequently fell from ₦19.16 billion to ₦18.85 billion.

Gross margin moved from approximately 59.3% to 53.3%.

The rescue arrived in administration.

Administrative expenses fell from ₦7.78 billion to ₦4.41 billion.

That is useful management.

But cost reductions possess an irritating property. Eventually you run out of the same costs to reduce.

The next leg of earnings growth needs to come increasingly from operating economics rather than another administrative disappearing act.

3. Profit is ahead of cash

FY2025 cash generation was strong.

NAHCO produced ₦22.03 billion of operating cash flow against ₦17.50 billion of PAT. Deducting cash purchases of PPE and intangible assets gives our free-cash-flow proxy of approximately ₦15.6 billion.

At today's market capitalisation, that is only about a 5% FCF yield.

The P/E photograph is more flattering.

H1 2026 was weaker.

PAT reached ₦10.85 billion, but operating cash flow was only ₦7.63 billion.

Receivables absorbed ₦3.54 billion.

Prepayments absorbed another ₦1.99 billion.

One half-year does not establish a trend, but it establishes something worth watching.

The company can report profit before the customer has finished locating his cheque book.

The shareholder eventually requires both.

4. Twenty-eight percent money concentrates the mind

NAHCO's conventional financial leverage remains modest.

Cash and interest-bearing debt are broadly similar, leaving the company close to flat conventional net debt before lease obligations.

No balance-sheet crisis lives here.

The cost of some borrowing is more memorable.

The company has carried overdraft funding at approximately 28% interest, while other bank borrowing has also been priced in the mid-to-high twenties.

That is not extraordinary in contemporary Nigeria.

This does not make it pleasant.

A 28% overdraft converts working-capital discipline from an accounting virtue into an operational necessity.

Receivables stop being lines on a spreadsheet and begin charging rent.

I would therefore watch receivable days and the growing FAAN rental/service-charge accrual just as closely as PAT.

5. Ten customers can make a very large dinner table

NAHCO's ten largest customers contributed approximately 55% of H1 revenue.

That concentration is simultaneously part of the moat and part of the risk.

There simply are not thousands of major airlines operating in Nigeria.

Relationships with large carriers are valuable because safety approvals, operating routines, equipment requirements and institutional trust create switching friction.

Unfortunately, concentration works in both directions.

Losing one large airline contract matters.

The correct description of the moat is therefore not invulnerability.

It is expensive inconvenience for the customer who wants to replace you.

That is a perfectly respectable moat.

6. Air France-KLM: interesting option, zero heroics

On 28 August, Air France-KLM appointed NAHCO, through NAHCO Travel & Hospitality, as its Nigerian ticketing General Sales Agent for five years.

The new agreement expands the relationship from airport ticket-office activity into city ticketing and broader retail ticket distribution.

Strategically, I like it.

NAHCO already owns airline relationships. Extending them into adjacent commercial services is a sensible way to monetise institutional access.

Financially, however, no revenue, margin or commission economics were disclosed.

So our model assigns the contract strategic optionality and zero explicit value today.

There will be plenty of time to admire it after cash arrives.

7. ₦300 billion by 2029 requires a different gear

Management's broader 2029 ambitions are substantial.

Moving from FY2025 revenue of roughly ₦65.8 billion to ₦300 billion requires revenue to compound at approximately 46% annually over four years.

That is not impossible.

It is simply ambitious enough that the spreadsheet should remove its shoes before entering.

Pricing alone will not do it.

The company would likely need some combination of substantial contract wins, cargo expansion, higher-value services, acquisitions and very favourable industry growth.

The target should therefore be treated as an aspiration until operating evidence catches up.

8. At ₦138.50, admiration and ownership begin to separate

Using the enlarged 2.2275 billion-share base, trailing EPS is approximately ₦8.76.

At ₦138.50, that implies a trailing P/E of roughly 15.8×.

That valuation is reasonable.

It is not cheap enough to ignore:

• weaker gross margin;
• softer H1 cash conversion;
• working-capital absorption;
• customer concentration;
• high domestic interest rates;
• FX erosion;
• another eventual equipment-replacement cycle.

The current price already assumes that several of these matters improve.

9. Three roads from here

These are Seven Gates estimates, not company guidance.

The base case is respectable.

The problem appears when the returns are translated into hard currency.

A Nigerian equity can rise very nicely in naira while one's external purchasing power sits elsewhere looking unimpressed.

That is why we demand a larger margin of safety than the domestic P/E alone suggests.

10. The price does the work

The difference between ₦138.50 and ₦110 is not a judgement on the company.

It is the price of uncertainty.

What could make us wrong

The strongest argument against our caution is that H1 administrative savings are substantially structural.

If gross margin recovers, the refreshed equipment base improves productivity, cash conversion normalises and new commercial contracts deliver attractive incremental returns, current earnings may prove too conservative a starting point.

We would become more constructive if gross margin recovers towards the high-50s, operating cash flow again consistently matches earnings, receivables stop outgrowing revenue, the FAAN accrual stabilises, new contracts generate attractive margins without excessive working capital, and another large capex cycle does not immediately consume the cash.

We become materially more cautious if gross margin falls below 50%, customer losses emerge, receivables continue outrunning revenue, or debt rises while cash conversion weakens.

Verdict

NAHCO owns a valuable position inside Nigerian aviation.

Its equipment, airport infrastructure, institutional access and airline relationships are difficult to recreate. Earnings power has changed dramatically over five years. Financial leverage remains manageable. Cargo offers growth. The Air France-KLM agreement is sensible optionality.

There is also clearly room to make the actual passenger experience more efficient.

I have personally donated something approaching three cumulative hours of my life to two Nigerian baggage carousels in recent months. I am prepared to forgive much in the pursuit of investment returns, but management should not mistake shareholder patience for passenger patience.

Fortunately for NAHCO, luggage still has to be handled.

Unfortunately for NAHCO, investors also know that it can be handled better.

At ₦138.50, the shares are fair enough to hold.

Below ₦130, the arithmetic improves.

Around ₦105–110, we begin getting paid properly for Nigeria, FX, execution risk and the possibility that one day the bags arrive before my phone battery reaches 12%.

The aircraft will land again tomorrow. The bags will still have to move. We can wait for our price.

Research notes and sources

Primary sources used in this underwrite:

• NAHCO Q2 2026 Financial Statements
• NAHCO 2025 Annual Report & Accounts
• NAHCO / Air France-KLM GSA announcement

TTM EPS and free cash flow are Seven Gates reconstructions from the published financial statements. Scenario values are analyst estimates, not company guidance. The reference price is a dated research snapshot as at 3 September 2026.