Nigeria’s Cement Market Battles: Dangote Cement in Focus

Proshare

Wednesday, June 12, 2019   /   08:0oAM / By  Proshare Research / Header Image Credit: Guardian 

 

Introduction

Corporate battles can be dirty, but in the Nigerian Cement market competitors appear to have worked out a sort of edgy accord. Rivalry in the cement business has progressed with Dangote Cement being the largest manufacturer in the country with about 60% of market share, followed by Lafarge Africa with 30% share of customer wallets and CCNN picking up the balance of 10% of consumer spending on the building item. 

The competitive structure has allowed for non-aggressive rivalry enabling prices to stay fairly stable, until recently. The price of cement has dropped a notch over the last few months in 2019 as the coming on stream of CNN’s Kalabaina plant has added to industry capacity and required the smaller manufacturer to cut product price to push higher sales volume. The fall in price has compressed margins of the larger players in the business and seen Dangote Cements margins fall below its previous 60% while Lafarge Africa’s margins dip slightly below 30% even though Lafarge’s sales volume is expected to have increased in Q1 2019 unlike the case of Dangote Cement which saw a YTD fall in revenue and sales volume. 

If this trend continues the genteel competition amongst rivals could turn tougher as each firm tries to protect sales volume as margins slide.

Nigeria’s cement rivals appear to serve distinct market segments. Although the competition is about to disrupt this trend, CCNN is focused in the North, while DANGCEM and WAPCO serve the southern part of the country. 

According to the 2018 Global Cement Directory, Dangote Cement is the 10th largest cement producer in the world. With a total capacity of 43.8Mt per year and 12 plants (10 integrated and two grinding plants), it is Africa’s largest home-grown cement producer. With a market capitalisation of N3.22 trillion as at 10th June 2019, it is the most capitalised company on the Nigerian Stock Exchange (NSE) as it contributes 24.12% to the total market CAP.

 

Financials

The earning profile of DANGCEM over the last few quarters from Q1 2018 to Q1 2019 reveals that except Q1 2019, revenue grew by at least 12%. However, revenue declined by 0.80% in Q1 2019 as the company recorded N240.16bln revenue. Notwithstanding, this performance has been very commendable as revenue increased impressively in each of the quarters of 2018. Going further, the PAT also followed an upward trend as PAT rose during 2018 but saw a reversal of 16.5% in Q1 2019.

 

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

   

Quarter

Revenue N'm

% chg in Revenue

PAT N'm

% chg in PAT

Q1 2018

242116

16.30%

72123

29.1%

Q2 2018

482439

16.90%

113164

3.10%

Q3 2018

685290

13.50%

158277

2.70%

Q4 2018

901213

12.00%

390325

91.00%

Q1 2019

240157

-0.80%

60254

-16.50%

Source: DANGCEM Annual Reports and Accounts

 

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

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

The Q1 2019 financial result of DANGCEM shows that the company recorded revenue of N240.16bln in Q1 2019, a decline of -0.80% compared to Q1 2018. During Q1 2019 the company sold cement worth N240.09bln and recorded N66m as revenue from the sale of other products. The increase in sales represents a marginal decrease compared to Q1 2018 as total revenue from cement was N241.99bn while revenue from sales of other products was N131m.

 

Chart 2- DANGCEM Revenue from Q1 2018 to Q1 2019

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

In Q4 2018, DANGCEM recorded an impressive growth of +12% in revenue, which represents a rise to N901.21bn as against N805.58bn recorded as revenue in Q4 2018. In Q3 2018, revenue also increased but by more than the increase in Q4 2018 as revenue growth rate YoY was +13.50% from N603.58bn in Q3 2017 to N685.29bn in Q3 2018. Furthermore, revenue also increased by +16.30% and +16.90% in Q1 and Q2 2018 respectively.

 

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

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research


In Q1 2019 DANGCEM recorded a decline of 16.50% in post-tax profit, PAT, from N72.12bln in Q1 2018 to N60.25bln in Q1 2019. The decline in PAT stems from a decrease in revenue over the period while other costs moved up slowly except sales and distribution expenses, which grew by 34% to N39.610bln. However, The Company recorded a spike PAT growth in Q4 2018 as PAT grew by 91%. Furthermore, there was a 2.7% growth in PAT of the company in Q3 2018 while it also increased by 3.10% and 29.1% in Q2 and Q1 2018 respectively.

 

Chart 4- DANGCEM PAT from Q1 2018 to Q1 2019

 

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

Share Price Movement

Despite strong FY’18 performance, DANGCEM was among the 109 losers in 2018 on the NSE with a share price decline of -17.52%. It opened the year with a share price of N230 and closed the year with a share price of N189.70. The company’s share declined alongside the All Shares Index (ASI) as the ASI shed -17.81% in 2018. However, when compared to the performance of the NSE industrial index in 2018, DANGCEM outperformed as the industrial sector recorded -38.29% decline representing the highest drop among other sectorial indices. YTD, DANGCEM share price has declined marginally by -0.37% from N189.70 at the beginning of the year to N189.00 as at 10 June, 2019

 

Visit Dangote Cement Plc IR Page in Proshare MARKETS

 

Graph – One Year Share Price Movement

 

Proshare Nigeria Pvt. Ltd.

Peer Review – Share Price, Financials

DANGCEM Share Performance Compared with Peers

In 2018, there was a weak sentiment towards Nigerian stocks; the NSE industrial index shed -38.29% over the period. Except for CCNN which outperformed the market in 2018, both DANGCEM and WAPCO recorded a decline in share price over 2018 with WAPCO recording the highest decline of -72.27%.

However, DANGCEM and its peers have seen a decline in share price movement YTD as there has been a negative sentiment around the company’s shares. CCNN has the highest decline among the three while DANGCEM recorded the least decline YTD among its peers with a share price decline of -0.37% which is above the YTD performance of the NSE-ASI.

 

Table 4: Peer Analysis on Share Price Performance 

Proshare Nigeria Pvt. Ltd.


Reviewed quarterly, DANGCEM topped its peers in terms of share performance, and this happened in Q4 2018 and Q1 2019 even though it recorded a decline in Q4 2018. While its peers declined in Q1 2019, DANGCEM recorded a marginal increase of +0.69% in share price. Overall in 2018, CCNN emerged the top gainer while WAPCO topped the losers list.


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

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

Doing a five-quarter peer analysis shows that none of the listed cement companies experienced positive price growth YTD although DANGCEM recorded positive price growth in Q1 2019.

 

CCNN Financials Compared with Peers

Table 5: Peer Analysis of 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

 

Although the effect of merger reflected in the result of CCNN, DANGCEM has been able to increase its net asset by +21% from N986.613bln in Q1 2018 to N1046.709bln in Q1 2019. Overall, the bottom line results of the company improved QoQ as Net assets grew by +1% and +21% respectively while total liability declined by -19% QoQ. However, the top line was not impressive QoQ as the company’s performance saw a decline over the period.

 

Balance Sheet Financials Compared with Peers

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

 

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

Increase in retained earnings in Q1 2019 contributed to the growth recorded in the net asset as DANGCEM was able to reduce total liabilities while CCNN topped its peers in all the indicators.

 

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

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

DANGCEM has more assets than 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 growth in its financials especially in the growth of its assets as it recorded +1,223% in asset growth QoQ while, 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

 

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

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

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

Top-line and Bottom-line Compared with Peers

Overall, the revenue and PAT performance of DANGCEM was unimpressive QoQ. 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 N1.54bn during the period.

However, 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 the gross sale of cement in Q1 2018.

 

Chart 9- Peer Analysis on Growth in Revenue and PAT

 

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

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

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

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

Proshare Nigeria Pvt. Ltd.

Source: Proshare Research

 

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

 

Conclusion

Even though WAPCO is yet to release its Q1 2019 result, the Q1 2019 result of both DANGCEM and CCNN shows that competition is increasing in the cement industry with increasing volumes thereby denoting a case of price war taking a toll on margins of the firms. 

Although when compared to its financial performance in 2018, the performance of DANGCEM in Q1 2019 was not too impressive as it reflects the effect of increased competition, which outweighed the level of cement consumption.

In terms of share price, DANGCEM tops its peers as it was the only one with a positive share price growth in Q1 2019. YTD, it records the least decline in share price as its share price decline of -0.37% YTD is the lowest.

 

Proshare Nigeria Pvt. Ltd.


Related News

1.       DANGCEM Q1’ 19 - Mounting Competition, Margin Erosion, Declining Earnings

2.      DANGCEM Declares N60.25bn PAT in Q1'19 Results; Earnings Disappoint, EPS Contracts By 16.5% YoY

3.      DANGCEM Declares N60.25bn PAT in Q1 2019 Results,(SP:N186.90k)

4.      DANGCEM Notifies of the Company’s AGM

5.      Proshare Creates “Dangote Index” and “Elumelu Index”; Monitors Large Cap Equity Value Movements

6.      DANGCEM Announces notice of the Company’s Closed Trading Period

7.      DANGCEM Announces the Appointment of Mr. Guillaume Moyen as Acting Chief Financial Officer

8.     DANGCEM Announces the Resignation of Executive-Director, Mr ...

9.      DANGCEM Declares N158.28bn PAT in Q3 2018 Results,(SP:N210 ...

10.  DANGCEM Proposed Issuance of 950 Billion Series 3 and 4 Commercial Paper

11.   One Week After: DANGCEM Records -0.85% Price Depreciation; Volume Traded Grew by 291.98%

12.  Dangote Cement PLC H1 2018: On Track For a Strong FY’18 Performance

13.  DANGCEM Q2 2018 Results: PAT Came In Behind Estimate By c.37%

14.  Dangote Cement Plc Announces Its Closed Period

15.   Dangote pays 90% of net profits as dividend

16.  DANGCEM Declares N113.16bn PAT in Q2 2018 Results,(SP:N230.00k)


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP