DANGOTE CEMENT Q1: Benefits of expansion on profitability that drive price



Monday, May 4, 2015 3:05 PM /Invest Data Consulting


Dangote Cement Plc is a world class cement production company and Nigeria’s largest cement manufacturer with ambitious plans to expand into 14 other African countries.  A fully integrated quarry-to-depot producer, the company has production capacity of about 20 million tonnes yearly in Nigeria.


It is currently investing more than $4 billion to expand its production and import capacity to around 50 million tonnes a year by end of this year.  This investment would increase capacity in Nigeria to at least 32 million tonnes, with new capacity being added to Ibese and Obajana, and a new factory being planned for Calabar, in Cross River state. 

Dangote Cement was listed by introduction on the floor the Nigerian Stock Exchange on October 26, 2010 and has remained the most capitalised company ever since. It currently has a market value of N3.07 trillion which is equivalent to $15.41 billion.



2014 Performances Analysis


The company, thriving on strong business strategies and influence of the Nigerian great business tycoon Alhaji Aliko Dangote, struggled during the pre-election period as its share price nose-dived with the general market. This was regardless of the seemingly strong numbers, from a high of N244.50 per share in August 2014 to as low as N150.90, which made it possible for new traders and investors to invest in the company in 2014 till the first quarter of 2015.

Its strong influence on the market as the most capitalised equities singled it out among others.It may have gained the interest of the entire traders after it carried the market along with its trending pattern.  Please note that the N7 dividend reward stands relatively strong, when compared to the selling price and the market price, which largely accounted for investors’ confidence and sentiments for the equity.

Five-Year Financial Analysis.

Looking at the company's scorecard, the increased capacity to satisfy Nigeria’s rising demand for cement and end its historic reliance on imports and even turning the country into a net exporter had reflected on the numbers posted.
The regular release of its financials in compliance with the post listing requirement made the company's corporate governance strong such that investors could forecast and plan their investment. 

The sales revenue of the company for the period under review grew consistently from N235.70 billion it was listed to N391.69 billion, an increase of 66.18 per cent. Also, its bottom line was up by 67.58 per cent to N184.69 billion from N110.21 billion in 2010 after it hit a profit level in excess of N200 billion in 2013.

The shareholder’s funds for the period was up by 179.84 per cent from N211.51 billion in 2010 to N591.89 billion.


Since the listing of the company in 2010, it has consistently rewarded shareholders with dividend, supported by improving numbers.  The company, since it got listed had paid a total dividend of N19.50 per share, excluding the bonus of one new ordinary share for 10 held in 2011

Estimated Performance Ratios

Dangote Cement's earnings power for the period of five years grew by 52.46 per cent to N10.84 from N7.11 in 2010, after the said earnings per share had recorded all high of N12.99 in 2013 on N7 dividend.   The company had four years of straight up trend in earnings before sliding down marginally in 2014, due to increased investment in its capacity building and harsh business environment.

The company recorded a Price Earnings ratio of 13.93x in 2014, reducing investors waiting period from all time high of 17.71x (times) in 2013 and 2010 respectively.  On the other hand, the said earnings per share was same as 7.18 per cent of its price at the released date.
The book value as at the last financial was N34.73, the highest so far in the company's existence as a quoted entity. This is however relatively low, compared to its market value. The growing net assets and robust retained earnings would further boost the company's business to earn more.

The estimated ratio also reveals that Dangote Cement's profit margin for the period has consistently been above benchmark internationally, ranging from 46.76 to 53.37 per cent. This is healthy and shows the commitment of management to reducing cost and in the process support profitability.

On the strength of the figures posted, the stock is fairly priced at N220 each, considering fund managers and investor’s preference for consistent dividend and competent management to drive profitability.

The company's first quarter result for the period ended March 31, 2015 was made available to the market last week, earlier than the release date of 2014. The numbers revealed improved performances compared to the previous year as the top and bottom line where in the north direction. This is despite the high cost of finance which increased by 410 per cent in a year from N3.18 billion in 2014 to N16.27 billion.

This reflects the cost of financing capacity expansion and operation that had started driving profitability.  Sales revenue stands tall over the corresponding period by 10.78 per cent from N103.57 billion in 2014 to N114.74 billion. Profit after tax for the period was up by 44.10 percent to N68.62 billion from N47.62 billion in 2014. 

The company's high cost of operation did not hamper its profit for the period as reduction in tax supported its earnings power. Net assets soared to N662.27 billion from N591.89 billion last year. Its earnings per share for the period grew to N4.03 from N2.79 in 2014. The EPS for first quarter is a replica of price in 11.44x which is attractive and lower than the 20.21x recorded last year as released market value. The trailing book value for the period stood at N38.86 from N35.19. The high profit margin evidence in the full year and the quarterly result indicates management effectiveness in controlling costof operation.

Technical View

Dangote Cement at the beginning of 2013 started its rally that lasted to August 2014 where the stock hit the N250 mark. This uptrend was supported by strong financials that were made available on quarterly basis.  But in the last nine months, the stock has been trending down, making lower lows to N141.90 in the month of February before reversing up and  currently side-trending at the level of N180. 

Meanwhile, the short to medium trending pattern holds strong support around N151.40 with bullish channel. At this point, the stock is attractive for positioning and more attractive when the share price declines further.

DANGCEM closed above the upper band by 5.7%.  This combined with the steep uptrend suggests that the upward trend in prices has a good chance of continuing.  However, a short-term pull-back inside the bands is likely, as other indicators like RSI is showing over bought at the current value of 75.12, CCI, MACD and Money flow are  signaling buy as funds enter the stock.

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