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Initial View - BUA Cement FY 20 - Performance remains resilient

Performance remains resilient

• Last week Friday, the Management of BUA Cement published its unaudited FY 2020 numbers which showed a 19.37% YoY and 16.35% YoY growth in PBT and PAT to N79.07 billion and N70.52 billion, respectively.  This was largely supported by growth in topline (+19.35% YoY), marginal decline in operating expenses (-0.82% YoY) and lower financing charges (-33.77% YoY) over the period.
• We suspect the growth in FY 20 Revenue (+19.35% YoY) was volume driven following the 141bps YoY contraction in gross margin to 45.56% while gross profit increased by 15.76% YoY to N95.43 billion. We observed faster increases in cost of sales (+22.53% YoY to N114.04 billion) relative to the growth in revenue mostly due to the 29% YoY increase in energy cost. We believe this is reflective of the impact of the devaluation of the Naira in the official window from N306/$ at the start of the year to N379/$ by year- end, which put upward price pressures on dollar-linked gas contracts.
• BUA Cement continues to remain operationally efficient, with FY 2020 Opex/sales ratio printing at 10.59%, 215bps lower than 2019 levels. In absolute terms, OPEX declined marginally by 0.82% YoY to N22.18 billion, supported by the 9.93% YoY decline in administrative expenses which more than offset the 7.27% YoY rise in selling and distribution expenses. The rise in selling and distribution expenses was driven by higher distribution cost (+5% YoY to N11.79 billion) which may be attributable to higher PMS prices following the partial liberalisation of the downstream sector.
• Furthermore, net finance cost declined by 33.77% YoY to N3.44 billion supported by an increase in finance income (+232.01% YoY to N521 million), and a decline in finance cost (-25.97% YoY to N3.96 billion) despite significant increase in its borrowings (+56.96% YoY). Meanwhile, proceeds from bond issuance and increase in bank borrowings continue to support improvement in BUA’s cash balances.
• On a Q4 2020 standalone basis, BUA Cement Plc’s revenue rose by 14.83% YoY to N52.92 billion, faster than the 9.16% YoY increases in cost of sales over the same period to N29.22 billion. Accordingly, gross profit and gross margins expanded by 22.68% YoY and 287bps YoY respectively. The growth in topline coupled with a 685bps YoY moderation in Opex/sales and 61.63% YoY decline in net finance cost underpinned the growth in Q4 2020 PBT (+22.01% YoY to N19.58 billion). However, PAT over the same period declined by 2.34% YoY to N16.95 billion, following a tax charge of N2.63 billion in Q4 2020 (vs a tax credit of N1.31 billion in Q4 2019.
• Bearing in mind that the FY 2020 numbers are unaudited, we await the release of BUA Cement FY 2020 audited numbers to review our recommendation on the company. Our last communicated FVE was N31.18, which still implies a SELL rating on the stock based on the current market price of N79.