February 27, 2020 / 02:27 PM / By CardinalStone Research / Header Image Credit: Dangote Cement
Cement Plc (DANGCEM: TP N201.29) reported a 48.4% YoY
decline in profit after tax to N200.5 billion in its FY'19 audited report
released after close of market yesterday. The performance was weighed by
pressures on finance expense, higher selling & distribution cost, and a
surprise effective tax rate of 19.9% (vs. tax credit in the previous
- DANGCEM grew
Pan-African volumes by 1.9% YoY despite aggressive competition. Traction on
this front was supported by the Tanzanian (+94.0% YoY) and Sierra Leonian
(+116.0% YoY) operations which offset weaknesses in some other Pan-African
markets. In our view, the commissioning of the 1.5MTPA Ivory Coast plant
(slated for Q4'20) is likely to provide support to non-Nigerian volume growth
in coming quarters.
- Even though
cash & bank balances contracted by 29.5% YoY, the cement giant declared a
N16 dividend per share that translated to a dividend yield of 9.5% (vs.
one-year T-Bill yield of 5.2%) on yesterday's prices.
- In addition,
the company revealed that it is seeking regulatory approval for its planned
share buyback programme. Management also disclosed that it is open to part
financing the share buyback programme with a debt raise although other options
are still on the table. To our minds, expected improvement in future cash flows
and the tax deductibility of interest could provide some support for the debt
option even though other risks abound.
that the firm is aiming to buy back up to 10% of its total issued shares, the
proposed 12-month buy back exercise could require N289.7 billion (using last
market closing price) in funding. If the program is approved, the company is
likely to deploy the balance of cash (post provision for dividend) and funds
from other sources (i.e. debt) to the transaction. We believe the buy back
programme highlights management's confidence about the prospects of the business.
volumes (14.1MT) remained flat at the end of FY'19, despite heavy investments
in the bag of goodies promotion in 2019. Nigerian volumes have been negatively
impacted by rising competition in the domestic market and knock-on effect of
border closure on exports (-41.0% YoY). That said, management has revealed
plans to commission the Apapa and Onne export terminals by end of Q2'20. This
will enable the business export cement via waterways and reduce the impact of
land border restriction on volumes.
- Operating margin printed
at 32.3% in Q4'19 (vs 33.3% in Q4'18%). Surge in advertising, promotional, and
haulage expenses were the key pressure points in the review quarter.
- Net finance
expense rose by 16.6% YoY In Q4'19, following increased commercial paper
(CP) issuance. Despite moderation in interest rate, possibility of more CP
issuances could drive volume-induced pressure on finance expense.
Income tax came in
at N49.9 billion in FY'19 (vs the N89.5
billion tax credit in FY'18), despite the N58.4 billion tax credit
associated with pioneer tax status on some lines. Management linked
pressures on taxation to the N20.6 billion charged on lines with expired
pioneer tax status.