Tuesday, February 28, 2017 1:36 PM / NSE
Dangote Cement Q4 2016 results: first reaction - FBNQUEST
This morning Dangote Cement (DangCem) published its Q4 2016 results which showed that PBT and PAT grew markedly, by 51% y/y and 259% y/y to N32.2bn and N49.6bn respectively. Although the stellar growth in PAT was mainly driven by a tax credit of N20.9bn, a positive result of N1.7bn on the minorities interest line also contributed.
Further up the P&L, PBT growth was driven by a combination of factors including a 37% y/y expansion in sales, a 7% y/y reduction in opex and a 16.4x expansion in other income to N6.6bn. Sequentially, although sales and PBT both grew by 15% q/q and 35% q/q respectively, PAT fell by 28% q/q due to a negative result of -N5.2bn on the other comprehensive income (OCI) line compared with a gain of N37.5bn in Q3 2016.
Compared with our forecasts, sales and PBT missed by 19% and 50% respectively. Negative surprises in gross margin and net interest expense contributed to the weaker-than-expected sales. The company reported net interest expense of –N27.9bn compared with an average quarterly net interest income run rate of N8.9bn over the 9M 2016 period. Nonetheless, PAT beat by 21% mainly due to a positive surprise on the tax line.
On a full year basis, sales were up by 25% y/y to N615.1bn. However, PBT declined by 4% y/y to N180.9bn due to a gross margin contraction of 1,160bps to 47.4% and a 39% y/y spike in opex to N119.3bn.
Regardless of the decline in PBT, PAT grew by 78% y/y because of a positive result of N100.7bn on the OCI line, a tax rebate of N5.7bn and a positive result of N7.3bn in minorities interest. Compared with our forecasts, 2016 sales and PBT missed by 6% and 15% respectively.
However, PAT of N294.6bn was in line with our N286.2bn estimate as a result of a positive surprise on the tax line. Compared with consensus, sales were in line but PBT was behind by -5.3%. The firm is proposing a dividend of N8.50, implying a yield of 5.0%. This compares with N8.00 for last year, our N8.25 forecast and consensus’ N8.00.
Unlike in the prior quarters of 2016 when unit volumes grew strongly, DangCem’s unit volumes declined by 10% y/y to about 5.2 million metric tonnes (mmt), largely because of the 40% price increase taken in Nigeria in September 2016.
Consequently, unit volume for Nigeria, DangCem’s largest market, declined by around 22% y/y (6% q/q) to about 3.1mmt during the quarter. In contrast, unit volumes for the non-Nigerian operations grew by around 19% y/y to about 2.1mmt.
Although the firm used a higher proportion of imported coal as feedstock relative to low-pour fuel oil in Q4 2016, the 40% devaluation of the naira and fx shortages still resulted in y/y contractions in gross margin. Going forward, the company’s plan to source coal locally from its mines in Kogi state should result in a reduction in its fuel costs.
Given that DangCem’s 2016 PBT of N180.9bn was in line with consensus 2016 PBT forecast, we do not expect to see material revisions to consensus 2017 earnings forecat. DangCem shares have slightly outperformed the index this year.
They have shed -2.9% ytd compared with the -5.6% return delivered by the ASI. At current levels, on our published estimates, DangCem shares are trading on a 2017E P/E multiple of 10.9x for 21% EPS growth in 2018E.
CLICK HERE TO VIEW MORE
1.Dangote Cement Plc Issues Notice of Closed Trading Period
2.Dangote Cement Q3 2016 Results Review - Maintaining Outperform Rating Despite Cut to PT
3.Dangote Cement Plc - Cost pressures bite harder on earnings
4.Dangote Cement Plc PBT Declines by 38 YoY Due to Gross Margin Contraction and Spike in OPEX
5.DANGCEM Declares N133.52 billion PAT in Q3 2016 Result SP N175.00k