BUA Cement 9Months 2020 Results: Resilient Performance In A Pandemic


Sunday, November 15, 2020, / 1:00 PM / By Proshare Research   /  Header Image Credit: @BUACement

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Despite macroeconomic and health headwinds that have trailed the domestic and global economy in 2020, BUA Cement Plc, a major player in the local Nigerian cement business, posted an impressive 9Months 2020 results. The Company recorded an increase both in its top-line and bottom-line financial positions. Currently operating at 8 MMT per annum, the company to increase its capacity to 11 MMT per annum through the commissioning of a new 3 MMT per annum plant by the first half of 2021.

The Company's managers attribute the decent performance of the firm to an increase in customer satisfaction as well as a growing demand from a resilient private sector customer base. Although the size of the company's debt has increased marginally by +4.07% Year-on-Year (Y-o-Y), BUA still intends to increase its corporate financial leverage by taking on additional loans at lower nominal rates in the domestic  debt market.


Key Takeaways

  • Cement volume sold went up by +16.0% from 3,291Kt in 9months 2019 to 3,816Kt in 9months 2020.
  • Cost of sales climbed by +27.92% to N84.82bn from N66.31bn in 9months 2019.
  • Earnings per share grew by +23.9% to N1.58k for the period
  • Gross profit up by +16.05% year-on-year (Y-o-Y).
  • Profit before tax (PBT) increased significantly by +18.53% Y-o-Y and +7.65% Quarter-on-Quarter (Q-o-Q).
  • Finance cost declined by -22.73% Y-o-Y to N2.87bn in 9months 2020
  • Selling and distribution costs increased by +16.05% Y-o-Y to N9.68bn for the period.


Profitability in Two Parts; Naira Vs Dollar


Revenue of BUA cement Plc for the period was majorly from the sale of cement, revenue increased Y-o-Y by +20.95% from N129.43bn in the same period of 2019 to N156.55bn. Growth in revenue translated to a +13.64% increase in gross profit despite a +27.92% significant increase recorded in cost of sales. The clinker manufacturer also posted an increase of +16.91% in revenue for Q-o-Q, from N47.29bn in Q2 2020 to N55.29bn in Q3 2020 (see chart 1 below).


In USD terms, revenue for the period actually declined by -2.56% which contrasts the growth posted in Naira terms, from $421.7m in 9months 2019 to $410.89m in 9months 2020 using the official CBN exchange rates during the periods.


Chart 1: BUA Cement's Revenue 2019 - 2020 (N'bn)

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Source: BUA Cement Financial Result, Proshare Research


The Company recorded a +18.53% growth in profit before tax from N50.19bn in 9months 2019 to N59.48bn for the period. This was majorly driven by +15.68% growth recorded in operating profit, growth in operating profit was as a result of the significant increase in an insurance claim by the Company from N673,211 to N66.41m in 9 months 2020. BUA cement also posted an improvement in its Q-o-Q performance of PBT which grew by +7.65% fromN18.88bn in Q2 2020 to N20.32bn for Q3 2020 (see chart 2 below).


Converting to USD terms, the Company's PBT declined Y-o-Y by -4.52% from $163.51m in 9months 2019 to $156.12m for 9months 2020 as a result of the devaluation of the domestic currency (using the CBN official exchange rate during the different periods).


Chart 2: BUA Cement's Profit Before Tax 2019 - 2020 (N'bn)

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Source: BUA Cement Financial Result, Proshare Research


Making Sweat Work of Liquidity

Current Ratio

The current ratio (a measure of liquidity) of the Company declined to 0.62 from 0.70 recorded in Q2 2020, this is despite the +96.08% Q-o-Q increase in cash and short term deposits and -4.60% Q-o-Q decline in trade and receivables. A current ratio of 2 would be the preferred ratio, however, the latest results indicate liquidity tightness for the Cement manufacturer (see chart 3 below).


Chart 3: BUA Cement's Current Ratio 2018 - 2020

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Source: BUA Cement Financial Result, Proshare Research


The quick ratio (a more conservative measure of liquidity) of BUA cement increase to 0.47 from 0.41 in Q2 2020, a preferred ratio would be 1.5, although, inventory declined by -11.73% Q-o-Q  (see chart 4 below).


Chart 4: BUA Cement's Quick Ratio 2018 - 2020

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Source: BUA Cement Financial Result, Proshare Research


Liquidity Ratio

Q3 2020 liquidity ratio of the company stood at 12.33%, this was higher than the 7.52% recorded in Q2 2020 (see chart 5 below).


Chart 5: BUA Cement's Liquidity Ratio 2018 - 2020

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Source: BUA Cement Financial Result, Proshare Research

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Swinging The Debt Club Upwards


Leverage Ratio


Q3 2020 saw BUA with a leverage ratio of 8.06% as against 6.54% recorded in Q2 2020, suggesting that the company has low debt leverage allowing for higher debt leverage opportunity if the company needs financing to grow business revenues post-COVID 19 (see chart 6 below).


Chart 6: BUA Cement's Leverage Ratio 2018 - 2020

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Source: BUA Cement Financial Result, Proshare Research


Investors Back To Play

Share Price Movement

The limestone crusher is the 4th most capitalized stock on the NSE and the share price performance of the company has reflected the volatility of both the domestic economy and investor sentiments. The recent bullish orientation of BUA's share price movement has reflected a steady spending recovery witnessed since the easing of the COVID-19-induced lockdowns in March 2020. By June 2020 market sentiment had become preppy with investors finding renewed market confidence which, nevetheless, dipped for a second time in August before the new October 2020 upward rally (see chart 7 below).


Chart 7: BUA Cement's Year-to-Date Share Pricement Movement (as of 12th November 2020)

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Source: NSE, Proshare Research


As recently as 2018, Dangote cement controlled 60% of the domestic cement business, with Lafarge Africa taking up 30% of domestic market share and BUA (before the merger with CCNN) coming in as the third leg of a tripod with a 10% share of the domestic cement sales. Today things have evolved a bit differently. Dangote still controls roughly 60% of domestic market share but Lafarge Africa has seen its piece of the pie shrink to 21.8% while BUA has gobbled up a nice piece of the business with an additional 7.6% of the domestic market to advertise a recent market share of 17.6% (see illustration 1).


Illustration 1: Nigeria's Cement Market Matrix-The New Hardball Games

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In the absence of a second wave of the COVID-19 pandemic disrupting domestic economic activities, BUA Cement should see modest growth in both top and bottomline income but a second wave of the virus necessitating a new round of lockdowns could prove devastating for the company's 2020 performance. Managers at the company as with all other local manufacturing corporations are keeping their fingers crossed.

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