Dangote Cement Q2 2021 Results Review: Moving to Outperform from Neutral


Wednesday, August 25, 2021 / 2:13 PM / by FBNQuest Research / Header Image Credit: The Africa Report


Negligible changes made to EPS outlook over the '21-22f period; PT up by 15%

DangCem's Q2 results were broadly in line with our expectations. However, following its Q2 '21 investor call, we have made slight adjustments to our forecast. Firstly, we have raised our sales forecast for FY '21f by 3% to NGN1.4trn, up +31% y/y, and driven by upward adjustments to pricing. We have raised our price forecast by 3% to c.N45,514/tonne for the group, to reflect lower rebates and higher recovery in transportation costs during the quarter.

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We retain our cement production forecast of 29.8 million metric tonnes (mmt) for FY '21f. This year, DangCem has averaged cement sales of just below 5mmt (up +33% y/y) per quarter in Nigeria, while Pan African volume sales were up 16% y/y to 2.85mmt. We continue to see strong demand for the rest of the year, from real estate projects and road construction activities in Nigeria. Also, Q2 '21 volume sales growth in relatively smaller countries within the Pan African segment, such as Congo (+85% y/y) and Ghana (+82% y/y), remain supportive. We forecast a +19% y/y and +11% y/y elevation in cement volume sales for Nigeria and Pan Africa respectively for FY '21f.


Our projections imply a capacity utilisation of 57% for the group, which compares with an average of 62% for H1 '21, and taking into account the expected commissioning of a 3mmt plant at Okpella during this quarter. We have lowered our EBITDA margin estimate by -275bps to 49% as a result of higher freight charges, rising energy costs and inflationary pressures. Overall, our adjustments have led to negligible changes on our EPS outlook over the '21-22f period. We expect an earnings improvement of 37% y/y for FY '21f.


Our new price target of NGN297.8 is up 15% because we have rolled forward our valuation to 2022. Our price target implies a potential upside of 19% from current levels. Additionally, we expect DangCem's share buyback scheme to provide near-term support for its shares. Therefore, we have changed our recommendation on the stock to Outperform from Neutral. DangCem is trading on a '21f EV/EBITDA of 7.8x vs global peers (9.9x).


Q2 '21 EDITDA up 67% y/y to NGN173.1bn; helped by lower rebates and volume growth

DangCem reported Q2 earnings growth of 58% y/y to N102.5bn, slightly ahead of our estimate. All key P&L lines improved on a y/y basis. While sales grew by 57% y/y, PAT was up 58% y/y. DangCem posted double-digit y/y volume growth in both the Nigerian and Pan-African businesses. The firm posted strong EBITDA in Q2 for Nigeria (NGN153.3bn) and Pan-Africa (NGN23.5bn) respectively. In Q2, EBITDA margin for Nigeria and Pan-Africa of 60.2% and 22.3% compare with 59.5% and 22.8% for Q2 '21  respectively.

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