ASHAKACEM Records 75% Fall in PBT; Driven by 21% YoY Decline in Sales


Wednesday, May 4, 2016 11:57AM/ FBNQuest Research

Event: Ashaka Cement (Ashaka) reports Q1 2016 results

Implications: Marked downward revisions to consensus 2016 PBT forecasts likely

Positives: No obvious positives

Negatives: PBT fell by 75% y/y driven by a 21% y/y decline in sales

This morning, the NSE published Ashaka Cement’s (Ashaka) Q1 2016 results which showed that PAT declined by 75% y/y to N221m. Similar to the two prior quarters, the results came in weak across the P&L. Sales were down by 21% y/y to N3.6bn. On the back of the weakness on the topline, gross margin contracted by -2,592bps to 11.9%, resulting in PBT & PAT both declining by 75% y/y. Sequentially, sales grew by 26% q/q.

However, PBT and PAT improved markedly over the pre-tax and after- tax losses of -N1.2bn and -N935m that the company reported in the prior quarter. In addition to sales growing q/q, earnings improved q/q thanks to a gross margin expansion of 577bps to 11.9%. Compared with our forecasts, sales missed by 20%. However, PBT and PAT missed by 69% and 70% respectively because of the negative surprises in sales and gross margins.

Ashaka Cement Q1 2016 results: actual vs. FBNQuest Research estimates (N millions)

The company’s unit volumes grew by 12% y/y, implying unit volumes of around 0.16mmt. As such, the weak topline was driven by lower pricing y/y, largely on the back of the pricing actions of market leader Dangote Cement. We estimate that average prices declined by 7% q/q to around N22,606 (US$113) per tonne. That said, we would be looking to get more clarity from management as to the drivers behind  the severe gross margin contraction, beyond the impact of the sales decline.

When annualised and adjusted for seasonality, Ashaka Cement’s Q1 2016 PBT is tracking behind consensus 2016 PBT forecast of N4.0bn. As such, we expect to see marked downward revisions to consensus. However, given the read-across already provided by Lafarge Africa’s Q1 2016 results which were published last week, we expect to a muted reaction from the market to these results. Ashaka shares have underperformed the index this year.

They have shed -22.4% ytd vs. the -9.7% return delivered by the ASI. At current levels, on our published estimates, the shares are trading on a 2016E P/E multiple of 13.0x for 21% EPS growth in 2016E. These compare with the 12.6x multiple for 11% EPS growth that Lafarge Africa is trading on.

Our estimates are under review. We rate the shares Neutral.

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