BUA Cement Q1 2021 Result: Earnings Leap as Debt Numbers Spring Upwards

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Monday, May 17, 2021 / 12:30 PM / by Adaeze Nwachukwu Proshare Research/Header Image Credit:  BUA Cement Plc


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The Q1 2021 unaudited result of BUA Cement Plc showed an improvement in its revenue and profit running off the back of stiff economic and social headwinds in 2020. The company pivoted towards intensified competitiveness with a focus on production expansion and larger market share. The cement maker also saw a notable rise in its debt-to-equity ratio.

 

Key Takeaways

  • Revenue rose year-on-year (Y-o-Y) by +13.39% from N53.97bn in Q1 2020 to N61.19bn in Q1 2021.
  • Profit before tax grew by +23.06% Y-o-Y from N20.13bn in Q1 2020 to N24.77bn in Q1 2021.
  • Gross profit up Y-o-Y by +21.51%, from N23.98bn in Q1 2020 to N29.13bn in Q1 2021.
  • Cost of sales increased by +6.89% from N29.99bn in Q1 2020 to N32.06bn in Q1 2021
  • EBITDA rose Y-o-Y by +20.73% to N29.7bn in Q1 2021
  • EBITDA Margin increased from 45.60% in Q1 2020 to 48.50% in Q1 2021.
  • Net finance cost up slightly Y-o-Y by +2.80% in Q1 2021, from N854.83m in Q1 2020 to N878.73m.
  • Selling and distribution expenses up by +39.95% Y-o-Y from N1.11bn in Q1 2020 to N1.56bn in Q1 2021.
  • Earnings per share up by +13.79% Y-o-Y from 58kobo in Q1 2020 to 66kobo in Q1 2021.
  • Total debt increased significantly by +169.89% in Q1 2021 from N28.28bn in Q1 2020 to N76.32bn.
  • Total assets significantly grew Y-o-Y by +46.34% from N487.93bn in Q1 2020 to N714.01bn in Q1 2020.
  • Total equity up marginally Y-o-Y by +3.87% to N398.32bn in Q1 2021

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Share Price Movement- Braving Choppy Waters

The year-to-date (YTD) share price movement of BUACEMENT has been volatile for most of the trading session this year. Although the share price performance has improved as of 10th May 2021, closing +10.65% higher.

 

With the announcement of the commissioning of 3mmtpa  line-3 at Kalambina Sokoto State in 2021, the construction of 3 new plants across Adamawa, Edo, and Sokoto States, the share price of the stock is estimated to trend upwards in the second and third quarter of 2021. However, this is highly dependent on macroeconomic factors and the continued roll-out of the COVID-19 vaccine (see chart 1 below).

 

Chart 1: BUACEMENT YTD Share Price Movement as of 10th May 2021

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Source: NGX, Proshare Markets


 

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Profitability-Springy Steps Upwards

The company's revenue for Q1 2021 grew Y-o-Y by +13.39%, from N53.97bn in Q1 2020 to N61.19bn in Q1 2021. This was majorly attributed to the increased demand for cement. During the quarter, revenue per ton rose by +9.59% to N44,520/ton from N40,625/ton in Q1 2020 as stated in the financials (see chart 2 below).

 

EBITDA rose Y-o-Y by +20.73% to N29.7bn in Q1 2021 while the EBITDA margin grew from 45.60% in Q1 2020 to 48.50% in Q1 2021.

 

The devaluation of the Naira during the period impacted the revenue of the cement company negatively. In US dollar terms, revenue declined by -2.80% Y-o-Y from US$165.23m in Q1 2020 to US$160.61m in Q1 2021.

 

The CBN's official rate (I & E FX Window) was used in translating the figures to US dollar terms.

 

 

 

Chart 2: BUACEMENT Revenue 2019 - Q1 2021 (N'bn)

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Source: BUACEMENT Financial Statement, Proshare Research

 

Profit before tax (PBT) of the company grew Y-o-Y by +23.06% to N24.77bn in Q1 2021 from N20.13bn in Q1 2020 (see chart 3 below).

 

Gross profit also grew in Q1 2021, grew by +21.51% to N29.13bn despite a +6.89% rise in the cost of sales.

 

Net finance cost fell marginally by +2.80% to N878.73m in Q1 2021, this was despite the N280m recorded in foreign exchange loss.

 

PBT was up marginally by +5.50% in US dollar terms, from US$61.53m in Q1 2020 to US$65.02m in Q1 2021.

 

Chart 3: BUACEMENT Profit Before Tax 2019 - Q1 2021 (N'bn)

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Source: BUACEMENT Financial Statement, Proshare Research



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Operational Numbers-The State of Play

 

Current Ratio

The current ratio of the limestone crusher improved notably in Q1 2021, from 0.86 in Q1 2020 to 1.36 which was higher than its major rivals in the industry.

 

This growth in the current ratio was spurred by a +115.74% rise in current assets over the +35.83% rise in current liabilities (see chart 4 below).

 

Working capital also rose stunningly in Q1 2021 by over +400%, from a negative value in Q1 2020 to N46.54bn in Q1 2021.

 

Chart 4: BUACEMENT Current Ratio 2019 - Q1 2021

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Source: BUACEMENT Financial Statement, Proshare Research

 

Acid Test Ratio

The quick ratio (or acid-test ratio) of the company also saw significant improvement in Q1 2021 compared to its levels in Q1 2020. From 0.56 in Q1 2020 to 1.07 in Q1 2021, which is still above its counterparts in the cement market.

 

Although, the ideal quick ratio for a cement manufacturing company would be around 1.5 showing that the company could meet its short-term obligations without its inventories (see chart 5 below).

 

 

 

Chart 5: BUACEMENT Quick Ratio 2019 - Q1 2021

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Source: BUACEMENT Financial Statement, Proshare Research

 

Liquidity Ratio

The liquidity ratio of the clinker maker improved by +325.32% Y-o-Y to 15.41% in Q1 2021 from 3.62% in Q1 2020 (see chart 6 below).

 

The cash and short-term deposit increased remarkably by +522.40% to N110.01bn from N17.67bn in Q1 2020.

 

Total assets also grew majorly by +46.34%, from N487.93bn in Q1 2020 to N714.01bn in Q1 2021.

 

Total assets had a lower percentage growth in US dollar terms compared to Naira terms.  Total assets grew Y-o-Y by +25.45% from US$1.49bn in Q1 2020 to US$1.87bn in Q1 2021.

 

 

Chart 6: BUACEMENT Liquidity Ratio 2019 - Q1 2021 (%)

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Source: BUACEMENT Financial Statement, Proshare Research

 

Leverage Ratio

The debt-to-equity ratio rose from 7.37% in Q1 2020 to 19.16% in Q1 2021. This was on the back of +169.89% growth in the total debt size of the company (see chart 7 below).

 

The growth in total debt was supported by a +79.52% rise in long-term borrowings while short-term borrowing was N25.55bn in Q1 2021.

 

Total equity went up slightly by +3.87% from N383.49bn in Q1 2020 to N398.32bn in Q1 2021. The growth of leverage denominated in Naira was reversed in US dollar terms, it slumped by -10.95% Y-o-Y from US$1.17bn in Q1 2020 to US$1.05bn in Q1 2021.

 

Chart 7: BUACEMENT Debt-to-Equity Ratio 2019 - Q1 2021 (%)

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Source: BUACEMENT Financial Statement, Proshare Research

 

Industry Analysis

According to the FY2020 result of the major players in the Nigerian cement industry, Dangote Cement is the market leader by revenue and the size of its statement of financial position. This shows a rough estimate of the market share of the major players in the cement business.

 

In revenue terms, BUA Cement contributes a little above 14% of the total industry revenue, with Lafarge Africa coming in next contributing 15.6% while Dangote cement took home the largest slice of the revenue cake at 70.15% to total industry revenue.

 

Notably, for PBT, total assets and total equity BUA cement comes in after Dangote and ahead of Lafarge Africa.

 

Lafarge Africa had the lowest leverage ratio amongst the major players with a debt size of 6.59% of the estimated total borrowing in the industry. Dangote was responsible for over 60% of the industry's total borrowing which explains its high leverage ratio and BUA cement's rising debt which accounted for 29.36% of the total borrowing in the industry (see table 1 below). 

 

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Outro- Uncertain Growth, The Case of Cost Hikes

The cement business in 2021 will see a notable glide in revenues as the economy recovers a few ticks from the recession of 2020. The rise in gross domestic product (GDP) growth may see the construction sector run at a faster pace but with cement price rising phenomenally the surge in growth of the sector could be short-circuited by a fall in demand and a deferment of construction commitments and immediate spending. Price hike allergies may lead to consumer resistance and a fall in the top and bottom-line earnings growth in 2021. 




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