EUR 4.00 For Business Accounts Only

Initial View - Dangote Cement Plc FY 18 - Earnings braced by Taxes

• Dangote Cement Plc (Dangcem) full-year 2018 (FY 18) earnings was far ahead of our expectation with the cement front-runner reporting EPS of N22.91 (+91% YoY) relative to our expectation of N13.52. In terms of the variance, Dangcem got the much-awaited tax holiday in the 4th quarter which was sizably higher than our expectation. We note that PBT of N300 billion (+4% YoY) was in line with our estimate of N303 billion reflecting mild expansion in gross margin, higher operating expenses and expansion in net finance cost. Dangcem declared dividend per share of N16.0 (N10.5), which translates to translates to a yield of 8.3%.
• Focusing on core operations, we note that Dangcem faced a highly competitive environment in Nigeria over 2018 which resulted in price cuts of N1,076 per tonne during the year. That said, the price cut in Nigeria supported 11.4% YoY growth in volume to 14.2MT (revenue growth of 11.9% YoY to N618 billion). For the Rest of Africa, sales volume was impacted by civil unrest in Ethiopia, economic slow-down in South Africa which necessitated a 6.4% decline in volumes in that market and delays in the installation of gas turbines in Tanzania all of which limited growth in volume for the Rest of Africa. However, despite the flat sales volume in the Rest of Africa of 9.3MT, the relatively higher price per tonne across markets (+13.7% YoY) – owing to translation impact of the increased exchange rate from N331/$ to N359/$ --  necessitated a 9.6% YoY growth in revenue (+9.6% YoY to N283 billion) with group volume expanding 7.4% YoY to 23.5mt and related revenue by 11.9% YoY to N901 billion.
• Meanwhile, over FY 18, higher operating expenses led to slower EBIT growth of 11% (to N338 billion) compared to 67% last year. The group’s EBITDA margin also improved slightly by 1 bp to 48.3%, as the margins in Pan-African business (+2.5 ppts to 17.3%) offset the decline in Nigeria (-1 ppts to 64.3%). Furthermore, a surge in net finance cost by 129% to N38.5 billion, thanks to a forex loss of N8.11 billion as opposed to a forex gain of N26.8 billion in 2017, drove a much slower growth in PBT (Q4 18: +4%, Q4 17: +60%) to N300 billion.     
• DANGCEM trades at a P/E and EV/EBITDA of 8.1x and 7.7x compared to Bloomberg Middle and East Africa Peers at 9.9x and 11.0x respectively. Our last communicated FVE of N253.03 translates to a BUY rating on the stock. Our model is under review.