Tuesday, November 17, 2020 / 11:45 AM / FBNQuest Research / Header
Image Credit: Ripples Nigeria
Increasing our EPS forecasts over the
2020-22E period by 26%
Dangote Cement (DangCem) delivered very strong Q3 2020
results. Group sales, up 34% y/y to N284.6bn, were boosted by strong cement
demand across Nigeria and major Pan African markets. For Nigeria, cement sales
were up 40% y/y to 4.5 million tonnes.
The recovery in demand from a subdued Q2 was driven
1) re-starting of construction projects post the
2) resumption of clinker exports to neighboring
3) growth in new real estate projects due to a
relatively lower interest rate environment; and more significantly,
4) reduced rains.
We believe management's clinker export strategy
provides significant upsides for the business such as higher capacity
utilisation for local plants as well as stronger fixed cost absorption. DangCem
shipped 6 more deliveries of clinker in Q3 since the first batch in Q2. For Pan
Africa, demand across Ethiopia, Cameroon and Senegal - important to the group's
strategy outside Nigeria - remain robust; they accounted for c.50% of volume
sales in Q3. Of the three, in our view, the most notable near-term risk to the
business is growing political tensions in Ethiopia. Given a strong growth
outlook, we have raised our cement volumes forecast by 12% to 26.0 million
tonnes for 2020E. We do not expect any price increases in Q4.
Given the relatively stronger Q3 performance vs our
estimates and a more optimistic near-to-medium term outlook, we have raised our
earnings forecasts for the 2020-22E period by around 26% on average. Our
2021E-based price target of N236.6 is up 29.5%. At current levels, our new PT
implies a potential upside of 18.3%. We retain our Neutral recommendation on
the stock. DangCem shares gained 41% year-to-date which compares with the NSE
ASI's +30% performance.
Q3 PBT and PAT up +159% y/y and +188% y/y
Q3 sales of N284.6bn were up 34% y/y and 25% q/q
respectively. Compared with our forecast, sales beat by around 25%. Unit
volumes for the group were up by around 24% y/y to 7.1 million tonnes.
For Nigeria, sales grew by 46% y/y to N203.1bn while
EBITDA margin expanded by around +591bps y/y to 60%. Pan African sales grew 20%
y/y to N87.6bn while EBITDA margin for the region expanded by +458bps y/y to
just under 24%. Below the sales line, PBT and PAT advanced by 159% y/y and 188%
y/y to N109.1bn and N77.0bn respectively.
Profitability during the period was driven by a gross
margin expansion of +522bps y/y to 59.5% and a y/y decline in net finance
charges to N5.3bn. Compared with our forecasts, PAT beat by around 28%.
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