Initial View - Cement Company of Northern Nigeria Plc - Decent
- CCNN released H1 19 result last Friday, showing EPS of N28 which was unchanged from the previous quarter, but lower than Q2 18 (N1.21) and our forecast of N0.37. While the company continues to leverage on the expanded capacities post-merger, the pass-through to shareholders remains clouded owing to the 11.9 million shares added during the merger.
- Top line came in below the belt at N15.3 billion, compared to our estimate of N17.6 billion due to surprises on volume and price. On the volume front, 368kt was sold out of 399kt produced, compared to our forecast of 400kt (utilization rate of 80%). Prices, on the other hand, did not reflect the hike which was effected in April alongside other producers, as revenue per ton (ex-factory prices) increased by only N22/50 kg bag to N41,428/ton. This was due to recognition of the pre-payments (Q1 19: N8.3 billion to Q2 19: N2.6 billion) which were already transacted on the old prices. On the other hand, COGS printed at N8.6 billion, while cost per ton printed higher at N23,239 compared to N22,410 in Q2 18 and N22,329 in Q1 19. As a result, gross margin contracted by 396 bps YoY to 43.9% (Q2 19: 45.5%).
- Operating costs in the quarter printed at N4 billion, while on a per ton basis it came in higher at N6,560 compared to N6,320 in Q2 18. Understandably, most of the pressure on opex stemmed from increased selling and distribution expenses (+33% YoY to N2,670 per ton). Consequently, opex to sales was 166bps higher YoY to 16%, while EBIT margin contracted 507bps YoY to 29% (EBIT: N4.4 billion) from a record high of 34% in Q2 18.
Overall, PBT printed at N4.4 billion, almost unchanged from the EBIT helped by a nearly muted interest burden, albeit net finance cost printed at N1.9 million, compared to N933,000 net finance income in Q2 18. Furthermore, a lower effective tax rate of 16% (Q2 18: 30%, Q1 19: 32%), translated to PAT of N3.64 billion. CCNN trades at a current P/E of 4.6x compared to domestic peer average of 6.1x. Our last communicated FVE of N22.87 translates to a BUY rating. Our model is under review.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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