Friday, April 28, 2017/6:32 PM/Cordros Capital
DANGCEM just released Q1-17 result, growing revenue (48.1% y/y and 20.3% q/q), EBITDA (42.3% y/y and 31.6% q/q), and PAT (33.7% y/y and 32.9% q/q). Revenue and PAT were both ahead of our +20.6% y/y and -8% y/y estimates respectively. Consensus estimates were +24% y/y and -0.2% y/y revenue and net profit respectively.
The revenue growth was underpinned by higher average prices (58% y/y estimate), which more than compensated for the decline in volume (6.6% y/y vs. Cordros' -5% y/y estimate). Expectedly, the Group volume was dragged by the Nigerian operation, wherein shipment fell by 16.5% y/y (though higher by 17.35 q/q) in response to higher prices (70% y/y estimate).
The non-Nigerian volume grew by 16.4% y/y and 12.9% q/q, notwithstanding higher (43% y/y estimate) average realized price. Compared to Q4-16, average price in the non-Nigerian operation was down 5% by our estimate, and in addition to the maiden contribution from Sierra Leone, supported the q/q volume growth.
Gross margin (GM) recovered well-ahead of Q4-16's (46.7%), reaching 57.8% (+209 bps y/y) and ahead of our 50.4% estimate. Again, Group GM benefited from the surprise in the Nigerian operation, wherein GM hit 72% (the first since Q2-15).
Pending further details from management on other underlying drivers, we note that the local GM benefited from both continued price recovery and productivity savings, through increased substitution of cheaper and efficient energy. The Pan-African GM (19.9%), on the other hand, was below Q1-16's, but recovered from the record trough of 12.6% achieved in Q4-16.
Group opex rose by 68.6% y/y, and 38.2% above Q4-16's. In Nigeria, opex was 103.4% higher y/y while the non-Nigeria opex grew by 96.2% y/y. In both markets, haulage expenses (147% y/y Nigeria and 133% y/y Pan-Africa) contributed to the significant increase in opex. Hence while EBITDA grew, EBITDA margin fell 204 bps y/y, with Nigerian realized 62.7% margin (though higher y/y) coming below the Q4-16's 64.4% margin which management said it is targeting.
A net finance cost of N5.9 billion was reported, comprising pan-African net cost of N15 billion and Nigerian net income of N9.1 billion. The Nigerian operation reported forex gain of N5.9 billion during the period.
Overall, DANGCEM's result is impressive, with EBITDA consistent with management optimistic outlook. We look for positive investor reaction. Our estimates are under review. Management will be hosting a conference call for investors and analysts today to discuss the Q1-2017 performance. The dial-in details are as follows: