ASHAKACEM: Upgrading to Outperform on strong Q2

Proshare

Wednesday, August 19, 2015 09:15AM / FBN Capital Research   


29% avg. increase to our 2015-17E EPS, upgrading to Outperform:

Following Ashaka Cement’s (Ashaka) Q2 2015 results which came in ahead of our estimates on almost every criterion, we have increased our EPS forecasts by 29% on average over the 2015-17E period and upgraded our recommendation from Neutral to Outperform.

Our new price target of N29.6 is 32% higher than our previous target and implies a potential upside of 29% from current levels. Although the shares have outperformed the index ytd (5.0% vs -13.1% NSE ASI),

we still find them attractive on a relative basis (2015E P/E of 7.6x for 13.1% EPS growth in 2016E vs. a sector average P/E multiple of 10.2x P/E for 12.0% EPS growth).

PBT up 91% driven by 1,018bp expansion in gross margin:

Ashaka’s Q2 2015 results showed that sales grew by 6% y/y to N6.2bn, while PBT and PAT expanded by 91% y/y and 67% y/y to N3.0bn and N2.7bn respectively.

 A combination of factors including a strong gross margin expansion of 1,018bps to 44.2%, a positive result of N479m on the other income line (vs nil income in Q2 2014) and a 2.2x increase in net interest income were the major drivers behind the stellar growth in pre-tax earnings.

Further down the P&L, the growth on the PAT line narrowed to 67% y/y due to a higher tax rate of 11.8% vs.1.1% in Q2 2014. Sequentially, sales grew by 36% q/q.

Although opex increased by 52% q/q, a gross margin expansion of 842bps q/q and positive surprises on the income and net interest income lines completely offset the rise in opex and resulted in PBT and PAT advancing by 160% q/q and 199% q/q respectively.

Outlook:
Beyond Q2, we expect Ashaka’s sales to benefit from the improving security situation in north-east Nigeria.

We expect gross margins to expand by an average of 550bps to 45.5% in H1 2015 driven mainly by the increased substitution of coal for low-pour-fuel (LPFO) which is now north of 80%.

Consequently, we forecast 2015 sales and EPS growth of 8% y/y and 48% y/y to N22.8bn and N3.01 respectively.


 

Related News
1.       Analyst Rates ASHAKACEM NEUTRAL Positive Reaction Expected From the Market

2.  ASHAKACEM Records 12.9 Decline in Revenue in Q2 15 Result SP N21.01k

READ MORE:
Related News
SCROLL TO TOP