EUR 4.00 For Business Accounts Only

Dangcem Q1 21 - Improved volumes and margins buoyed performance

Improved volumes and margins buoyed performance

• Dangote Cement Plc (DANGCEM) recently released its Q1’21 result which showed strong double-digit YoY growth of 47.8% and 48.1% in PBT and PAT to N130.1bn and N89.7bn respectfully.  The solid performance stemmed largely from improved volumes and margins as well as better cost management during the quarter.
• Taking a closer look at the results, we saw group revenue increase by 33.5% YoY to N332.7bn supported by higher average realized prices (+12.4% YoY to N44,230/tonne) due to lower discount and increased volumes (+18.7% YoY to 7.5Mt) in both its Nigerian and Pan African markets. The continued recovery from the COVID-19 pandemic was quite supportive of the demand for cement with DANGCEM recording volume growth in 8 out of its 9 Pan African subsidiaries. Furthermore, the recently revamping of its Obajana line 5 also helped garnered more volumes following strong cement demand in the Nigerian market, which began since Q3’20.
• DANGCEM registered a 22.7% increase in cost of sales during the quarter, with the pressure mostly felt on the raw material (+59.2%) and energy (21.4%) cost lines. This may have been driven by the weakness in the Naira and inflationary pressures. Cumulatively, gross profit and margin expanded by 41.3% YoY and 339bps YoY to N204.7bn and 61.5% respectively.
• Over the quarter, OPEX grew by 4.8% to N56.8bn on the back of a 22.8% surge in administrative expenses. However, OPEX/sales ratio contracted by 467bps to 17.1% supported by the flattish selling and distribution expenses as well as strong growth in topline. This together with robust gross margin led operating margin higher by 878bps YoY to 45.6%. However, the spike in net finance cost to N21.6bn (vs N3.7bn in Q1’20), mainly due to a foreign exchange loss of N10.6bn recorded over the period, moderated the growth in PBT margin (up 377bps YoY to 39.1%). Furthermore, the absence of pioneer tax incentive led to a spike in tax charges (up 47.1% YoY to N40.4bn). Consequently, PAT settled at N89.7bn, leaving its profit margins at 27.0%.
• On a balance of factors, for the rest of the year, we remain broadly positive on DANGCEM and expect the company to sustain earnings growth, albeit, at a slower pace in H2’21 due to the high base of H2’20. Like 2020, we expect top line to remain volume driven in 2021. We have a FVE of N257.92 (previously N255.75) on the stock, which implies an OVERWEIGHT rating based on current market price of N217.00