Monday, April 29 2019 / 11:30 AM / NSE With Additional Comments from CardinalStone Research
Today, Dangote Cement Plc released its unaudited first quarter results for the period ended March 31, 2019.
Revenue declined by -0.8% to N240.15bln from
N242.11bln in the previous quarter.
PBT declined by 27.2% to N78.96bln
PAT declined by 16.5% to N60.25bln
Net Assets also grew by 6.1% to N1.04trn from N986.61bln as at 31st December, 2018.
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Graph – One Year Share Price Movement
Cement Plc (DANGCEM) Q1'19 results – Earnings
contracted by 16.5% YoY to
N60.3 billion, largely due to elevated
operating expenses (+27.6% YoY) and a net finance cost of N9.4 billion
booked during the period (vs. net finance income of N4.6 billion in
Group revenue was
slightly lower (-0.8% YoY to
N240.2 billion), as weakness in the Nigerian business (-2.3% YoY to N169.9
billion) offset the 2.5% YoY increase in Pan African revenue to N70.3
billion. In Nigeria, top-line contraction was driven by lower average prices
(-2.9% YoY to N42,567/tonne), amidst largely flat volumes (DANGCEM:
+0.6% YoY to 4.0Mt; Nigeria: +7.1% YoY to 6.0Mt). By our estimate, DANGCEM’s
market share declined to 66.5% in Q1’19 (vs. 70.9% in Q1’18). We believe the
loss in market share likely reflects BUA’s growing presence across regions such
as the North West and South South.
In our view, the weakness in Nigeria masked the positive impact of a 4.8% YoY increase in Pan African volumes. The increase in Pan African volumes primarily reflected the over two-fold and 19.2% YoY increases in Tanzanian and Ethiopian volumes to 281Kt and 527Kt respectively. Precisely, management attributed the volume increases in Tanzania and Ethiopia to the impact of Q1’18 low base, that was stoked by excessive cost of fuel in Tanzania and social unrest in Ethiopia. Cumulatively, the Pan African operation accounted for 37.0% of total production.
EBITDA margin declined
to 46.5% in Q1’19 from 52.0% in Q1’18, reflecting higher haulage costs (+32.8% YoY), general increase in the
prices of raw materials, higher labour costs, and weaker cement prices in
Nigeria. These factors, combined with the larger impact of a
billion net finance cost (vs. net finance income of N4.6 billion), led
to a reduction in PAT margin to 25.1% in Q1’19 (vs. 29.8% in Q1’18 and 30.0% in
FY’19E). The Q1’19 net finance cost primarily reflected foreign exchange losses
from Pan African operations.
Cash flow numbers suggest that Free Cash
Flow to Equity (FCFE) deteriorated to negative
N36.1 billion in Q1’19
(vs. N39.6 billion in Q1’18) on higher capex spend (+7.8x YoY to N75.7
billion). The higher capex reflected the increase in operational trucks for
cement deliveries and ongoing works at grinding stations in West Africa.
Although management attributed the weaker Nigerian performance to election related slowdown in cement consumption. Notwithstanding, we expect investors to react negatively to the result.
DANGCEM currently trades at an EV/EBITDA of 7.8x, which is at a significant discount to EMEA peer average of 12.6x.