Monday, July 29, 2019 08:06PM / ARM Research / Header Image Credit: Guardian
Non-core Lines Support PAT
DANGCEM released Q2 19 results earlier today which showed EPS grew by 44% to N3.46 (in line with our estimate of N3.43) from N2.41 in Q2 18, emanating largely from a material decline in net finance cost (-71% YoY) and tax provision for the period (-51% YoY).
Group revenue dropped 5.3% YoY to N228 billion, reflecting declines in both Nigeria (-6.9% YoY to N158 billion) and Pan-African (-0.4% to N70 billion) businesses. Dangcem continues to face receding market share1 (64% vs 66% last year) in Nigeria with volumes dropping 6.2% YoY to 3.6MT, while prices (-0.8% YoY, +3.3% QoQ to N43,952/ton) are yet to fully reflect the N150/50 kg bag hike (similar to peers) -- mirroring lingering impact of the erosion in prices over H2 18. For Pan-Africa, volume was relatively flat at 2.3MT, while prices dipped 1% on the year to N29,839/ton.
On the positive, COGS declined 6.5% YoY, with gross margin expanding 54bps to 58.8%. The cost savings emanated from improved energy cost (-14% YoY), with related cost per ton declining 3% YoY to N15,763. We believe the improvement is linked to the new gas turbines installed in Tanzania and improved efficiency on coal utilisation.
Meanwhile, Opex rose 15% YoY to N52 billion, due to increased marketing expenses which offset the decline in admin cost (-9% YoY to N12 billion). As a result, EBITDA dropped 12% YoY, while related margin contracted 372bps to 48% – Nigeria (-416 bps to 61%) and Pan-Africa (-99 bps to 17%).
The decline in net finance cost (-71% YoY to N5.6 billion) was spurred by the drop in FX loss (-94% YoY to N956 million) which left PBT nearly flat YoY at N77 billion. In addition, a lower ETR of 23% compared to 47% in Q2 18, supported growth in PAT by 44% on the year to N59 billion. DANGCEM currently trades at a P/E of 11.8x compared to Bloomberg Middle East & Africa peer average of 20.2x.
Our last communicated FVE of N248.14 translates to a BUY rating. Our model is under review.
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2. DANGCEM Declares N60.25bn PAT in Q1'19 Results; Earnings Disappoint, EPS Contracts By 16.5% YoY