Dangote Cement Q1 2021 Result: Revving up Revenues but Growing Debt


Wednesday, May 12, 2021 / 10:50AM / by Adaeze Nwachukwu Proshare Research/Header Image Credit: Dangote Cement Plc 

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The Q1 2021 audited result from Dangote Cement Plc showed significant growth in earnings as the clinker makers debt ratio surged. The statement of financial position of Nigeria's dominant cement producer also showed a rise in liquidity year-on-year (Y-o-Y). The company's earnings growth was despite COVID-19-induced business challenges.


Key Takeaways

  • Revenue rose year-on-year by +33.50% from N249.18bn in Q1 2020 to N332.65bn in Q1 2021.
  • Profit before tax grew significantly by +47.75% Y-o-Y from N88.06bn in Q1 2020 to N130.10bn in Q1 2021.
  • Gross profit up Y-o-Y by +41.28%, from N144.86bn in Q1 2020 to N204.66bn in Q1 2021.
  • Sales volume up by +18.74% in Q1 2021 from 6.33m tons in Q1 2020 to 7.52m tons.
  • Cost of sales increased by +22.69% from N104.33bn in Q1 2020 to N127.99bn in Q1 2021
  • EBITDA rose Y-o-Y by +55.81% to N177.97bn in Q1 2021
  • EBITDA Margin increased from 45.80% in Q1 2020 to 53.50% in Q1 2021.
  • Finance income declined in Q1 2021 by -30.93%, from N5.29bn in Q1 2020 to N3.65bn in Q1 2021
  • Finance cost up significantly Y-o-Y by +180.70% in Q1 2021, from N9.01bn in Q1 2020 to N25.29bn.
  • Selling and distribution expenses dipped marginally by -0.73% Y-o-Y from N41.36bn in Q1 2020 to N41.06bn in Q1 2021.
  • Earnings per share up by +46.94% Y-o-Y from N3.6 in Q1 2020 to N5.29 in Q1 2021.
  • Total debt increased significantly by +38.38% in Q1 2021 from N293.22bn in Q1 2020 to N405.76bn.
  • Total assets grew Y-o-Y by +18.00% from N1.79trn in Q1 2020 to N2.12trn in Q1 2020.

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Share Price Movement- Bearish Blues

The year-to-date (YTD) share price movement of DANGCEM has been volatile moving along what analysts call a pennant or falling what amounts to lower prices at subdued forward volatility. The company's price was at its lowest between February and March 2021 propelled by investors going short on the back of a profit-taking spree as the company announced its 2020 dividend payment.


The company's  YTD price movement saw the cement manufacturer's stock value tumble by -11.39% as of 6th May 2021 (see chart 1 below).


Chart 1: DANGCEM's YTD Share price Movement (as of 6th May 2021)

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Source: NGX, Proshare Markets

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Profitability -A Spirited Rally

The revenue of the limestone crusher climbed steadily in Q1 2021 defying the COVID-19 gravity pull. The firms revenue rose by +33.50% Y-o-Y from N249.18bn in Q1 2020 to N332.65bn in Q1 2021. This was supported by a +18.74% rise in sales volume and a decline in discounts/rebates.


A breakdown of the group's revenue showed growth both in the Nigeria market and its othe African operations. Revenue from Nigeria rose by +33.65% Y-o-Y while other Africa revenues rose by +33.10%. The Nigerian operations contributed 72.05% to the group's total revenue.


Sales volume both from its Nigerian and Pan Africa activities rose, the volume from Nigerian operations rose by +22.15% Y-o-Y while Pan Africa sales grew by +12.82%.


Translating into US dollars revenue grew by a lower percentage, it rose by +14.45% Y-o-Y from US$762.89m in Q1 2020 to US$873.10m in Q1 2021. Conversion was done using the I & E FX window rate (see chart 2 below).


Chart 2: DANGCEM's Revenue Q1 2017 - Q1 2021 (N'bn)

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Source: Dangote Cement's Financial Statement, Proshare Research


Profit before tax (PBT) rose by +47.75% to N130.1bn in Q1 2021 from N88.06bn in the same period in the previous year.


Growth in PBT was achieved despite a +180.70% Y-o-Y rise in finance cost while finance income in Q1 2021 fell by -30.93%.


Gross profit also recorded a major growth, with gross profit rising by +41.28% to N204.66bn, despite a +22.69% increase in the cement makers cost of sales.


Converting into US dollars, PBT jumped by +26.66% Y-o-Y from US$269.59m in Q1 2020 to US$341.47m in Q1 2021. The lower percentage growth in US dollar terms against Naira was the result of a devaluation of the local currency (see chart 3 below).



Chart 3: DANGCEM's Profit Before Tax Q1 2017 - Q1 2021 (N'bn)

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Source: Dangote Cement's Financial Statement, Proshare Research

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Activity Ratio Analysis-Sweating the Assets

Current Ratio

The current ratio of the cement manufacturer rose in Q1 2021 relative to Q1 2020. Analysts note that the preferred ratio for a cement manufacturer would be 2, suggesting sustainability and modest leverage, however Dangote cement's ratio rose from  0.65 in Q1 2020 to 0.78 in Q1 2021, the ratio appears to be moving in the desired direction but from a relatively low base figure.


The rise in the current ratio was caused by a +53.25% increase in current assets as against a +27.21% Y-o-Y increase in current liabilities (see chart 4 below).


Chart 4: DANGCEM's Current Ratio Q1 2017 - Q1 2021

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Source: Dangote Cement's Financial Statement, Proshare Research


Acid Test Ratio

The group's acid test ratio (quick ratio) or current ratio adjusted for inventories also rose Y-o-Y. The ratio grew from 0.48 in Q1 2020 to 0.63 in Q1 2021, representing a 31.25% Y-o-Y increase which may suggest improved liquidity and lower cash constraints.


The company's Q1 2019 results saw the group's highest quick ratio in the last five years while the group's Q1 2020 result witnessed the lowest five-year quick ratio (see chart 5 below).


Chart 5: DANGCEM's Acid Test Ratio Q1 2017 - Q1 2021

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Source: Dangote Cement's Financial Statement, Proshare Research


Liquidity Ratio

Dangote cement's liquidity ratio was strengthened in Q1 2021 on the back of a large rise in product prepayments. This was the highest liquidity ratio recorded by the group between Q1 2017 to Q1 2021.


The group's liquidity ratio rose from 15.43% in Q1 2020 to 22.22% in Q1 2021. Prepayment grew by +107.51% Y-o-Y to N342.37bn in Q1 2021 from N164.99bn in Q1 2020.


Total assets grew by +18.0% Y-o-Y while inventories went up by +14.74% in Q1 2021 (see chart 6 below).  



Chart 6: DANGCEM's Liquidity Ratio Q1 2017 - Q1 2021 (%)

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Source: Dangote Cement's Financial Statement, Proshare Research


Leverage Ratio

The Q1 2021 unaudited result of the cement maker saw the group's highest leverage ratio in the last five years. The group's leverage ratio rose from 30.91% in Q1 2020 to 41.78% in Q1 2021.


This was propelled by a +38.38% Y-o-Y rise in total debt as against a +2.39% flight short  in total equity (see chart 7 below).


Chart 7: DANGCEM's Leverage Ratio Q1 2017 - Q1 2021 (%)

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Source: Dangote Cement's Financial Statement, Proshare Research


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Competitor Analysis- The Dangote Tape Measure

Reviewing the Dangote cement group's FY2020 result in comparison to its closest competitors suggests that the cement behemoth is a clear leader in its corporate sector in respect of market share and revenue. The company aligns with the declared Dangote philosophy of being the first or second biggest company in any activity they choose to  venture into. The Nigerian cement market is essentially a non-collusive oligopoly made up of three large producers, namely Dangote Cement with roughly 70% of recent market share, followed by Lafarge Africa with an estimated 15.64% of market share and BUA Cement with close to 14.21% of market share.


In revenue terms, Dangote Cement contributes a little over 70% of the total industry revenue, with Lafarge Africa coming in next with 15.6% of industry revenue while BUA cement contributes 14.2% to total industry revenue.


With respect to 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 three major cement market players with a debt size of 6.59% of the estimated total borrowing in the industry. Dangote had over 60% of the industry's total borrowings which reflected the group's high leverage ratio while BUA cement accounted for 29.36% of total industry borrowings equally reflecting the company's relatively high leverage status(see table 1 below).

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Market Outlook- Earnings and Div. Flight

The cement market has seen a quick rebound from COVID-19 headwinds with domestic cement prices spiralling upwards as the average price of a 50kg bag of the building material has risen from N2,600 in the last quarter of 2020 to N4,000 in Q2 2021. The market structure of cement has led to a price discovery mechanism affording manufactures the opportunity of maintaining production margins in excess of that of producers of other goods with more elastic demand.


Nigerians may have to live with the higher cement price regime for some time to come as restrained competition and high leverage ratios would likely inform manufacturers to keep prices at levels that enable them service current debt and leave investors with a margin for attractive dividends.


Dangote had the highest dividend yield of 6.53% in 2020 while Lafarge Africa had a dividend yield of 4.76% at the end of the financial year chased by BUA with a yield of 2.67%. Lafarge Africa, however had the highest dividend cover of 1.91, followed distantly by BUA at 1.04 and Dangote at 1.01 (see table 2 below).


Table 2 Nigerian Cement Companies 2020 Dividend yields

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With the cement market heating up as upward price adjustments worry consumers investors may be on the other side of the wall of worry as dividends still provide some buffer to declining capital appreciation (or gains from rising stock prices).


The market play may still be bullish in the short-term as investors go long on perhaps Dangote and BUA as they hope for an upward price reversal at the end of Q2 2020.



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8.     DANGCEM Approves 2020 Audited Results; Recommends Payment of Final Dividend

9.     DANGCEM Announces the Resignation of Mr. Arvind Pathak as a Director

10.  DANGCEM Postpones its Board Meeting to March 18, 2021

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