Dangote Cement FY2020 Results: A Revenue Trot and Bottom-line Gallop


Monday, March 29, 2021 / o1:05 PM / by Adaeze Nwachukwu Proshare Research / Header Image Credit: Dangote Cement

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Dangote cement had a heady year in 2020 with activities ranging from rebates, discounts, bond issuances and share buybacks. The FY2020 audited result of the clinker manufacturer showed a sturdy performance despite COVID-19-induced slowdowns. Although there was a marginal decline in earnings of the group in Q2 2020, earnings rebounded by FY2020. The earnings of the group saw a bounce across continental markets, Nigeria inclusive.


Key Takeaways

  • Revenue rose by +15.98% year-on-year (Y-o-Y) from N891.67bn in 2019 to N1.03trn in 2020.
  • Profit before tax grew significantly by +49.04% Y-o-Y from N250.48bn in 2019 to N373.31bn in 2020
  • Gross profit up Y-o-Y by +16.52%, from N511.68bn in 2019 to N596.23bn in 2020.
  • Cement volume up by +8.61% in 2020 from 23.68m tons in 2019 to 25.72m
  •  Cost of sales increased by +15.26% from N379.99bn in 2019 to N437.97bn in 2020
  • Finance income increased significantly in 2020 by +291.77%, from N7.61bn in 2019 to N29.81bn in 2020
  • Finance cost down Y-o-Y by -23.73% in 2020, from N57.67bn in 2019 to N43.99bn.
  • Selling and distribution expenses dipped by -4.42% Y-o-Y from N160.84bn in 2019 to N153.72bn in 2020.
  • Earnings per share up significantly by +36.90% Y-o-Y from N11.79 in 2019 to N16.14 in 2020
  • Total debt increased significantly by +37.47% in 2020 from N351.43bn in 2019 to N483.11bn.
  • Total assets grew Y-o-Y by +16.07% from N1.74trn in 2019 to N2.02trn in 2020.

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Share Price Movement-Running with the Bulls

The share price movement of the limestone crusher was bullish with a flag trend that titled upwards suggesting an optimistic investor outlook to take advantage of possible hidden-value opportunities. In 2020, the company's share price responded to volatility associated with most businesses in the year. In March 2020, the peak of the COVID-19-related lockdowns in Nigeria, the share price fell to its bottom for the year. However, towards the end of the year the stock saw a noticeable price rebound as COVID-19 fears became tempered.  Indeed by December 2020 Dangote Cement's share price had risen above its pre-COVID-19 value. By the year ended December 2020, the company's share price rose by +72.46%. However in 2021 the company has not fared so brilliantly with its year-to-date (YTD) price movement, falling off by -8.13% as of 26 March 2021.


The company's share volume traded gave a counter story, it closed the year 2020 down by a -48.73%. The lowest traded volume of Dangote Cement shares since July 2020, as against its highest traded share volume in December 2020. The decline in the volume of shares traded continued into 2021, with its YTD traded volume slumping by -97.78% as of 26 March 2021 (see chart 1).


Chart 1: Dangote Cement's Share Price and Volume Traded

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Source: NSE, Proshare Research

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The Profit gallop and Earnings Trot

The FY2020 result of Dangote cement showed that revenue hit the N1trn mark despite macroeconomic challenges. Revenue grew Y-o-Y by +15.98%, from N891.67bn in 2019 to N1.03trn in 2020.


Nevertheless the growth pales against its 2017 earnings growth when it saw earnings between 2016 and 2017 rise by +30.97%, 2019, on the other hand, recorded the highest percentage decline in revenue of -1.06% over the last five years.


Analysts note that in US dollar terms, Dangcem's revenue responded predictably to the impact of the devaluation of the Naira, the company's revenue declined Y-o-Y by -6.56%, from US$2.90bn in 2019 to US$2.71bn in 2020 (see chart 2).



Chart 2: Dangote Cement's Revenue 2016 - 2020 (N'bn)

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Source: Dangote Cement Financials, Proshare Research


Profit before tax (PBT) rose by +49.04% from N250.48bn in 2019 to N373.31bn in 2020. This was largely driven by a +291.77% significant rise in finance income while finance cost declined Y-o-Y by -23.73%. Also, gross grew Y-o-Y by +16.52% despite the +15.26% rise in the cost of sales in 2020.


The group also saw its highest percentage growth in PBT over the last five years in 2017 with a growth of +60.06% while 2019 witnessed the largest percentage decline of -16.73%.


In US dollar terms, PBT witnessed a lower percentage growth as against the growth in Naira numbers. PBT grew Y-o-Y by +20.07% from US$816.03m in 2019 to US$979.82m in 2020 (see chart 3).


Chart 3: Dangote Cement's Profit Before Tax 2016 - 2020 (N'bn)

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Source: Dangote Cement Financials, Proshare Research

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Liquidity- the Dash for Cash

The cement makers liquidity ratio improved in 2020, from 13.88% in 2019 to 17.64%. Meaning that 17.64% of the group's total asset was liquid. Total assets grew Y-o-Y by +16.07% while liquid assets grew by +47.54%. Growth in liquid assets was largely attributable to a +95.65% rise in prepayment while inventories dipped by -5.69%.


There was a significant spike in the company's liquidity ratio in 2018, this was on the back of a +184.35% growth in liquid assets against a +1.72% marginal growth in total assets. The growth in liquid assets is largely attributed to a +423.82% rise in inventories in 2018 (see chart 4).


Chart 4: Dangote Cement's Liquidity Ratio 2016 - 2020

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Source: Dangote Cement Financials, Proshare Research


Current Ratio-Low but Steady

There was a marginal uptick in the current ratio of the clinker crusher, current ratio increased from 0.65 in 2019 to 0.66 in 2020 (see chart 5). A current ratio of 2 would be ideal for a manufacturing company, the less than 1 current ratio shows that the company ould be facing a tight squeeze in meeting its short-term operational obligations.


The company's working capital equally saw some pressure in 2020. The Group's working capital has been negative for the past five years, from -N224.06bn in 2019 to -N279.68bn in 2020.


Chart 5: Dangote Cement's Current Ratio 2016 - 2020

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Source: Dangote Cement Financials, Proshare Research


Quick Ratio-Gaining A Sense of Tightness

A quick ratio (acid-test ratio) of less than 1.5 for a manufacturing company suggests that the company may be having a liquidity squeeze and may also have challenges meeting its short-term obligations while accumulating inventories of finished and semi-finished goods. Although, Dangote Cement FY2020 audited result showed a +14.83% rise in its acid-test ratio, it was still below the preferred quick ratio of 1.5 (see chart 6).  


Chart 6: Dangote Cement's Quick Ratio 2016 - 2020

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Source: Dangote Cement Financials, Proshare Research


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Leverage Ratio-For the Love of Debt

Corporate debts are not necessarily a bad thing but it has to fit into an organisations strategic growth plans and avoid jeopardizing corporate sustainability. Dangcem's debt-to-equity ratio (leverage ratio) grew from 39.14% in 2019 to 54.22% in 2020 which was the highest leverage ratio recorded by the group in five years. The company appears to be taking on larger debt amounts in a slow growth construction market hit by COVID-19-inspired work slowdowns.


The total debt of the company grew Y-o-Y by +37.47% while total equity dipped marginally by -0.78% in 2020 (see chart 7).


Chart 7: Dangote Cement's Leverage Ratio 2016 - 2020

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Source: Dangote Cement Financials, Proshare Research

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Back of the Envelope Chat

Dangcem is undoubtedly a strong company but its rising debt and narrow liquidity raise questions about future earnings stability. The company has been able to retain market share but rivals such as BUA Cement have part of that share in their gunsights. Even Lafarge that until recently was a laggard has started to show up as a credible contender for more market space.


With COVID-19 effects still noticeable the dogfight for cement market earnings could see a depression in prices which would be good news for consumers but not-so-friendly information for investors. With the economy's growth at +0.11% in Q4 2020 most analysts have revised Nigeria's 2021 growth rate to about 2.5% for the full year, but even this growth rate does not hold prospects of impressive increases in construction industry demand. To kick a dent in unemployment rate which stood at 33.33% in Q4 2020, Nigeria needs to grow the economy by at least 8% per annum over the next five years.


In Naira terms, the group saw strong earnings in 2020, however, in US dollar terms earnings were not exempt from the adverse impact of the COVID-19 pandemic which led to the devaluation of the domestic currency as international oil prices tanked in Q2 and Q3 2020.


Dangote Cement successfully issued its Series 1 bond of N100bn under its N300bn bond programme in 2020, this was the largest bond Issue in the cement industry. The group successfully repurchased 0.24% of its shares at an average price of N243 per share during the year. The combination of bond issue and share buyback tweaked the company's debt-to-equity ration and increased its returns on shareholders funds. Despite this, investor are keen on seeing what the company does with its fresh funds and how its actions would improve shareholder return sustainably.


Dangcem has been a good buy for mos tshareholders  over the last half decade but the new question is whether the company would prove better for stakeholders. The answer depends on variables that are still majorly uncertain.

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