Tuesday, April 24, 2018
Dangote Cement (DANGCEM) released Q1 18
result this afternoon showing a double-digit growth of 29.1% YoY growth in EPS
to N4.23 (missing our estimate of N4.29). Performance stemmed largely from
improved margins, better cost management and a surprise foreign exchange gain
(+305% YoY to N12 billion) which combined neutered a higher effective tax rate
of 33.5% (vs. 27% in Q1 17) reported in the review period.
Going by the breakdown, much of Q1 18 margin expansion
(+197bps YoY to 59.8%) stemmed from relatively higher prices in the Nigerian
business (+8% YoY to N43,816/tonne) and a rebound in volumes (+5.3% YoY to
4.0MMT) both of which pushed Nigerian revenue 14.2% YoY higher to N173.9
billion. For the non-Nigerian business, despite a decline in volumes (-4.4% YoY
to 2.2MMT) – a fallout of the civil unrest in Ethiopia, as well as weaker sales
in Ghana and Tanzania –, revenue from the region rose 16.8% YoY to N68.6
billion underpinned by higher average pricing (+22.1% to N30,620/tonne) in the
region. Consequent on the improvement in volumes in Nigeria as well as
pass-through from still high per tonne prices across markets, group revenue
printed higher 16.3% YoY at N242 billion – missing our estimate by only 5.4%.
Additionally, over the review quarter, the company’s
cost of sales rose slower than revenue (+10.9% YoY to N98.7 billion) a
development management attributed to the pass-through of the naira weakness
relative to same period last year (₦337/$ as at the end of Q1 2018 compared to ₦305/$1
in Q1 2017).
Also, the gains from energy efficiency continued to
materialize with cash cost per tonne (+9.2% YoY to N15,682) and energy cost per
tonne (+9.9% YoY to N5,173) rising single digit. Overall, gross profit was
20.3% higher YoY to N144.7 billion with related margin expanding 200bps YoY
59.8% (forecast: 58.0%) – the highest level in eleven quarters.
Over the quarter, selling and distribution expenses
rose 6.5% YoY to N29.6 billion which drove operating expenses upwards 9.6% YoY
to N41.4 billion (forecast: N38.4 billion) albeit, slower than revenue growth.
As a result, OPEX to sales contracted 360bps YoY to 17.1% which together with
robust gross margin led operating margin higher 769bps YoY to 42.9% - the
highest level in twelve quarters. Elsewhere, the company booked N12.5 billion
net foreign exchange gain resulting from intergroup loans. The gain combined
with a decline in finance cost (9.4% YoY to N10.5 billion) resulted in a net
finance income of N4.6 billion.
A feed through of the overall positives
translated to a 40.2% YoY PBT growth to N108.4 billion (forecast: N89 billion).
However, the impact of the change in tax treatment on the Ibese 3&4 and
Obajana line 4 (hitherto assumed as qualified for a pioneer
status incentive) resulted in a surge in tax provisions to N36.3 billion
(effective tax rate of 33.5% in Q1 18 vs. 27.7% in Q1 17) which significantly
dampened the aforementioned gains, with PAT rising 2.2% YoY to N72.1 billion
(forecast: N73.0 billion).
On balance, for the rest of the year, we remain
broadly positive on DANGCEM and expect the company to sustain earnings growth,
albeit at a much slower pace than 2017. Specifically, we see volume induced
revenue growth – specifically in Nigeria – and lower energy as key drivers of
earnings in FY 18, relative to the price-induced growth story in the prior
DANGCEM trades at a P/E and EV/EBITDA of 21.4x and
11.5x compared to Bloomberg Middle and East Africa Peers at 18.0x and 11.5x
respectively. Our last communicated FVE of N256.85 translates to a NEUTRAL
rating on the stock. Our model is under review.
1. DANGCEM Declares
N72.12bn PAT in Q1 2018 Results,(SP:N248.0k)
2. Dangote Cement
Plc Appoints Cherie Blair and Mick Davies as Independent Non- Executive
3. Dangote Cement
Plc Announces Closed Period
4. Dangote Cement
Plc- Improved Margins But Growth Momentum Cools Off
5. Dangote Cement
Plc Plans to Raise $833m Via Bonds to Fund Expansion
Reports Q4 2017 Results - Sales and PBT Up By 17% YOY and 116% YOY Respectively
7. DANGCEM Declares
N204.25 bn PAT in 2017 Audited Results,Proposes N10.50K per share Dividend
8. Dangote Cement
Plc Announces Closed Period
9. ALERT: Dangote
Cement Plc Trades 73.17% of Total Market Volume Today
10. Dangote Cement
Plc Appoints Mr Viswanathan Shankar as a Non-Executive Director