Initial view: BUA Cement Plc Q1 2020 - Staggering volume growth and tax credits buoy earnings
- Earlier today, BUA debuted the year with an impressive Q1 20 result, with growth in EPS by 26% YoY to N0.58. Growth started right from the top line (+25% YoY) and was sealed off with tax credits which pushed faster growth in PAT (+26% YoY) vis a vis PBT growth of 16% YoY. Management is scheduled to hold conference call next week Monday and that should be followed up with the release of our initiation report on BUA. That said, we run through key highlights of the Q1 20 result in this note.
- A low base in Q1 19, but still impressive utilization rate. BUA’s Q1 20 volume spiked 20% YoY to 1.3MT from 1.1MT last year. Management attributes the growth to the low base from last year, given the new 3MT/a plants did not commence until Q2 19. That said, we still found the utilization rate of 66% quite impressive (FY 19: 56%), given borders remained shut in Q1 20 and chances of export activities in the quarter are slim. The growth in volume, together with a 4% YoY increase in revenue per ton drove the 25% increase in revenue to N54 billion.
- Overall, we view the result as impressive. However, we noted the company’s negative CFO position in the quarter, which stemmed largely from paid off contract liabilities which is contained in the trade payables. We would seek clarity on this from management. Meanwhile, it is worth stating that management gave necessary clarification on the treatment of the OBU II asset which we had flagged earlier. According to management, the OBU asset was already 90% complete as at 2018, with some proportion of the asset sitting in WIP. Hence, the PPE value of N393 billion as at FY 19 was inclusive of a transfer from Capital WIP and inclusive of the value of the new plant. BUA currently trades at P/E of 23x, a premium to domestic peer average of 12.5x – DANGCEM (12x) and WAPCO (14x).
Pioneer tax credit secured on the Kalambaina line 1 and extension on Okpella line 2 in February 2020
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