Nigeria’s Cement Market Battles: CCNN in Focus

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Wednesday, May 08, 2019   /   06:0oPM  /  By TheAnalyst for Proshare Research

 

Nigeria’s cement market battle is a three way competitive war. Analysts of the building and construction sector note that a three firm analysis of the industry shows that Dangote Cement, Lafarge Africa and BUA (parent company of CCNN)  account for over 90% of local traded retail volume and about 95% of local traded market value. Dangote is the largest producer and seller of cement in the domestic market followed by Lafarge Africa and then CCNN; but market dynamics are fast changing with CCNN (and by extension BUA) aspiring to play a bigger role in the domestic building block ecosystem.

 

Introduction

Cement Company of Northern Nigeria (CCNN) is one of the 3 listed companies that are into the production and sale of Cement in Nigeria. Based in the far North of the country, and with a market capitalisation of N184.01bln as at 30th April 2019, CCNN is the 13th most capitalised company on the Nigerian Stock Exchange (NSE).

On December 24th 2018, the Sokoto Cement maker formally merged with Kalambiana Cement Company Limited (Makers of BUA Cement). This has therefore increased the combined capacity of CCNN  to 2 million metric tonne per year (from 500,000 metric tonne before the merger) and alternative sources of energy such as coal, heavy oils and gas which is expected to  help the new company solve its power problem with limited downtime and further opportunities for growth and expansion. The result of this was reflected in the unaudited Q1 2019 financial result of the company which shows revenue grew impressively by 213.1% from N5.394bln in Q1 2018 to N16.89bln as at Q1 2019. PAT therefore increased by 235.6% to N3.64bln.


Financials

The earning profile of CCNN Q-o-Q 2018 to Q1 2019 reveals an impressive 61.9% upward growth in revenue Y-o-Y from N5.39bln in Q1 2018 to N16.89bln in Q1 2019. The performance was impressive as revenue increased in each of the quarters of 2018. Going further, PAT also followed a similar trend increasing above average in each of the quarters of 2018

 

Table 1- Change in CCNN Revenue and PAT from Q1 2018 to Q1 2019

Quarter

Revenue N'm

% chg in Revenue

PAT N'm

% chg in PAT

Q1 2018

5,394

24.0%

1,084

 110.9%

Q2 2018

12,085

42.0%

2,603

153.0%

Q3 2018

19,572

43.6%

4,010

97.0%

Q4 2018

31,722

61.9%

5,731

77.8%

Q1 2019

16,887

213.1%

3,637

235.6%

Source: CCNN Annual Reports and Accounts


Chart 1- Growth in CCNN Revenue from Q1 2018 to Q1 2019

 

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In Q1 2018, CCNN recorded revenue of N5.39bln which represents sales from mainly the sale of cement less discount. During this period, the company sold cement worth N5.98bln and provided discount of N590.03mln, thereby leaving it with revenue of N5.39bln during the first quarter of 2018. In the second quarter of 2018, the company recorded animpressive revenue of N12.09bln which represents a sharp growth of 42.0%. In Q3 2018, revenue also increased but not in proportionate to the increase it recorded in Q2 2018 as revenue growth rate YoY was 43.60% from N12.09bln in Q2 2018 to N19.57bln in Q3 2018. However, this was still impressive as the company’s revenue still increased by more than 50% as revenue growth rate was 61.90% YoY in Q4 2018.


Chart 2- CCNN Revenue from Q1 2018 to Q1 2019

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The recent financial result of CCNN shows that the company recorded revenue of N16.89bln in Q1 2019, an impressive increase of 213.10% from N5.39bln it recorded during the same period in 2018.

 

Chart 3- Growth in CCNN PAT from Q1 2018 to Q1 2019 

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In the latest financial report of CCNN, it recorded an impressive PAT growth of 235.60% from N1.08bln in Q1 2018 to N3.64bln in Q1 2019. This stems from an increase in revenue while other costs moved at the expected pace. There was an impressive increase in the growth rate of the PAT in Q2 2018 as PAT grew at 153%. Furthermore, PAT grew by 97% and 77.80%% in Q3 and Q4 of 2018 respectively.

 

Chart 4- CCNN PAT from Q1 2018 to Q1 2019

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Table 2– CCNN Unaudited 1st Quarter Result.

 

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Share Price Movement

In 2018FY, CCNN emerged the top gainer of the 32 gainers with a share price growth of 104.21%. It opened the year with a share price of N9.5 and closed the year with a share price of N19.4. The increase can partly be attributed to the effect of an announcement of a proposed merger with Kalambiana Cement Company limited at half year 2018 which shareholders believe will help increase growth of the company in terms of expansion and the use of alternative energy source.

In an interview granted to Vanguard Newspaper after the announcement of the approval of the merger, the National Chairman, Constance Shareholders Association of Nigeria, Mr. Shehu Mallam Mikail, noted that the merger serves as continuation of value delivery to the shareholders of CCNN. He further noted that growth has been hampered over the years due to limited expansion as well as lack of alternative energy sources, but with the merger, shareholders will have bigger dividend because the company will make more profit from increased expansion and alternative energy sources. However, as at 30th April 2019, CCNN closed the trading day with a share price of N14. This represents a 27.84% YTD share price decline as at 30th April 2019.

 

 

Visit Cement Company of Northern Nigeria Plc IR Page in Proshare MARKETS

 

Graph – Year to Date Share Price Movement

 

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Table 3: ASI vs. Share Price Performance of CCNN on Quarterly Basis

 

QUARTER

CCNN

ASI

OBSERVATION

Q1 2018

98.77%

8.47%

In 2018, CCNN outperformed the stock market. During this period, the stock market shed 17.86% while CCNN gained 104.21% increase in the company’s share price. This share price clearly indicates strong trading fundamentals of CCNN. However, on in Q1 2019, CCNN lost 2.06% in value as it opened the quarter with a price of N19.4 and closed the quarter trading at N19.0.

Q2 2018

30.95%

-6.31%

Q3 2018

-4.17%

-13.65%

Q4 2018

-21.15%

-3.92%

Q1 2019

-2.06%

-0.09%

 

Peer Review – Share Price, Financials

CCNN Share Performance Compared with Peers

The stock performance is the measurement of the stock’s ability to increase or decrease the wealth of the shareholders and the stock performance can be measured by its price fluctuation.

As noted earlier, CCNN was the best performer in 2018 has it more than doubled shareholders wealth that year. However, the 5 quarters peer analysis below indicates that the share price has fallen below the N19.4 it opened the year with as it has a year to date share price decline of 24.74%. This indicates profit taking by investors due to their sell pressure. However, this should serve as an opportunity for long term investors to key into the company as the company is now currently enjoying the benefits of an enlarged capacity following the merger with Kalambiana Cement. Going further, the company’s financials tend to remain strong as its sales volume continue to grow with improved and strong top line growth.

 

Table 4: Peer Analysis on Share Price Performance 

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CCNN was above the peer average in 3 of the 5 quarters reviewed while only below the peer average in Q4 2018 and Q1 2019. It can also be observed that the market outperformed CCNN YTD as indicated by the NSE-ASI YTD performance of -7.19% compared to the decline of 24.74% experienced by CCNN.


Chart 5- YTD Share Price Performance of CCNN Compared with Peers

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Going further, the 5 quarters peer analysis revealed that none of the listed cement companies has positive price growth YTD even as only DANGCEM was able to record a positive price growth in Q1 2019.

 

CCNN Financials Compared with Peers

Table 5: Peer Analysis on Financials

 

-Indicators

QoQ Performance Score

Leaders

CCNN

DANGCEM

WAPCO

Asset Growth

1223%

1%

-3%

CCNN

Liability Growth

85%

-19%

2%

CCNN

Net Asset Growth

2076%

21%

-15%

CCNN

Revenue

213%

-1%

-11%

CCNN

PAT Growth

235%

-16%

223%

CCNN

Source: Companies Quarterly and Annual Reports

 

The QoQ performance score reflects the effect of CCNN merging with Kalambiana cement as it recorded sharp increase in its financials metrics in Q1 2019 when compared to the result declared in Q1 2018. From the performance score above, CCNN led its peers in terms of Asset growth, liability growth, Net asset growth, revenue and PAT growth on QoQ basis. Total assets grew by more than 1000% of the asset growth recorded by DANGCEM and WAPCO combined. This therefore reflects in the net asset growth of the company as net assets grew by 2076% QoQ.


Balance Sheet Financials Compared with Peers

Chart 6- Peer Analysis on Growth in Assets, Liabilities & Net Assets

 

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Furthermore, the company recorded 85% increase in total liabilities and this can be attributed to an increase of payment advances from customers from N1.996bln as at 31st December 2018 to N8.29bln as at 31st March 2019. In relation to this, payables to other companies also increased by 88.45% from N496.902mln as at 31st December 2018 to N936.412mln as at 31st March 2019.

 

Chart 6- Q1 2018 & Q1 2019 Total Assets of CCNN and Peers

 

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DANGCEM has more assets that CCNN and WAPCO combined as its total assets grew by 1% to N1.74 Trillion at the end of Q1 2019. However, CCNN has been impressive in terms of recording impressive growth in its financials especially in its assets growth as it recorded 1223% in asset growth QoQ. However, WAPCO experienced a decline in its asset from N562.56bln recorded in Q1 2018 to N546.23bln recorded in Q1 2019.


Chart 7- Q1 2018 & Q1 2019 Total Liabilities of CCNN and Peers

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Chart 8- Q1 2018 & Q1 2019 Net Assets of CCNN and Peers

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Top-line and Bottom-line Compared with Peers

The revenue profile of CCNN at the end of Q1 2019 reveals a surge in the revenue growth rate from 23.97% in Q1 208 to 213% in Q1 2019. Attributed to this was the increase in the sale of cement as a result of an increased expansion accompanied by the use of alternative sources of energy. Therefore, gross sale of cement in Q1 2019 was N19.02bln up from N5.98bln recorded from gross sale of cement in Q1 2018.

However, its peers- DANGCEM and WAPCO recorded 1% and 11% decline each in revenue during Q1 2019 and Q3 2018 respectively while WAPCO recorded 223% decline in loss as a result of effectively managing and reducing the companies cost of sales and operating expenses as well as an income tax credit of N1.54bln during period.

 

Chart 9- Peer Analysis on Growth in Revenue and PAT 

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Chart 10- Q1 2018 & Q1 2019 Revenue of CCNN and Peers

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Chart 11- Q1 2018 & Q1 2019 PAT of CCNN and Peers

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NB: WAPCO is yet to release its 2018 audited result and Q1 2019 unaudited result. Therefore, the company’s financials was compared using Q1 2018 and Q3 2018 unaudited results.

 

Conclusion

Notwithstanding being the top gainer of the 32 gainers in 2018FY, CCNN came second in the top losers during the month of April as it ended the month with a share price of N14.00 against N19.90 recorded during the end of March 2019. This represents a decline of 29.65% which made it among the top losers of the month, just below ABCTRANS which ended the month of April as the top loser with a share price decline of 43.40%. This can be attributed to the sell pressure on the share of CCNN in order to take profit from the rise in the share price from the beginning of the year.

The analysis has also been able to provide an empirical support to the theoretical assumption on an increase in assets of a company arising from merging with another company, other things being equal. And when compared with its peers, CCNN emerged the leading across all metrics in terms of growth QoQ as it has been able to capitalize on the advantage of an increasing economies of scale from increased expansion and production capacity.

 

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Related News

1.      CCNN Declares N3.64bn PAT in Q1 2019 Results,(SP: N17.00k)

2.      CCNN Notifies of the Company’s Closed Trading Period

3.    CCNN Declares N5.73 bn PAT in 2018 Audited Results,Proposes N0.40k Per Share Dividend

4.      CCNN Declares N4.010bn PAT in Q3 2018 Results,(SP: N15.70k)

5.      CCNN, CILEASING and NEM Top As Best Performing Stocks YTD

6.      NSE Reviews Composition of Market Indices; STERLNBANK, CCNN Are Likely Incoming Stocks

7.      CCNN Plc and Kalambaina Cement Company Merger- One Game Before The Finals

8.     Shareholders Overwhelmingly Approve BUA’s Kalambaina Cement and CCNN Merger

9.      CCNN Receives SEC Approval To Merge With Kalambaina Cement Company Limited

10.   CCNN and BUA Cement’s Kalambina Cement Company Files For Merger

11. CCNN Declares N2.60bn PAT in Q2 2018 Results,(SP: N30.9k)

12. CCNN Releases the Resolutions Passed at its 39th AGM

13. CCNN Plc to Hold Its 39th AGM on 26th of July, 2018

14.   CCNN Announces Resolution of Its Board Meeting


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