Friday, May 29, 2020 / 9:20 AM / by FBNQuest Research / Header Image Credit: Bloomberg
9% cut to our unit volume projections for 2020E
Dangote Cement (DangCem) delivered a decent underlying Q1 2020 performance, posting PBT growth of 12% y/y to N88.1bn. The Nigerian business recorded its highest quarterly sales of N179.3bn (up +6% y/y), supported by an average price increase of c.5% y/y to N44,633/tonnne. Nonetheless, we have cut our sales and EPS forecasts for 2020E by around -5% and -10% respectively, given a more subdued outlook for cement sales as countries fight to slow the spread of the coronavirus pandemic.
Although the approach by governments in markets across Africa have varied since late-March, we expect that the restriction of businesses and operations will weigh negatively on growth. Management remains optimistic that some of the lost sales in Q2 will come back in Q3. However, we retain a more conservative view given that the Q3 quarter falls in the off-peak rainy season. Consequently, we have cut our 2020E unit volume forecasts for Nigeria and the Group by around 7% and 9% respectively.
Following the downward revisions to our sales forecast, we see the firmâ€™s 2020E EBITDA margin narrowing to 44.2% from 45.1% previously. Beyond 2020E, we retain our unit volume projections as we anticipate a recovery in public sector infrastructure spending in Nigeria and key markets such as Senegal, Cameroon and Ethiopia. As such, both our earnings outlook over the 2020-21E period and new price target of N184.6 are relatively unchanged. DangCem shares have shed -2.5% year-to-date, broadly in line with the NSE ASIâ€™s -6.2% performance. We retain our Neutral rating on the shares.
Q1 PBT growth of 12% y/y primarily driven by net fx gains
Q1 sales of N249.2bn grew by 4% y/y. Topline improvement was driven solely by a 4% y/y rise in pricing to c.N39,565/tonne as cement volume sales were flattish y/y during the period. PBT growth was more significant at 12% y/y to N88.1bn as a result of a -61% y/y decline in net interest expenses. Net interest expenses benefitted from a 6% naira devaluation to N386/US$, resulting in net fx gains of N3.8bn during the quarter.
However, PAT of N52.3bn declined by -13% y/y because of a loss of -N10bn on the other comprehensive line. Excluding this loss, PAT would have been flattish on a y/y basis. Compared with our forecasts, while sales were in line PBT beat by around 16% primarily because of reported net fx gains of N3.8bn. PAT however missed by 14% because of the negative result on the other comprehensive income line.