Initial View - Dangote Cement Plc - Non-core lines support PAT
- DANGCEM released Q2 19 results earlier today which showed EPS grew by 44% to N46 (in line with our estimate of N3.43) from N2.41 in Q2 18, emanating largely from a material decline in net finance cost (-71% YoY) and tax provision for the period (-51% YoY).
- Group revenue dropped 5.3% YoY to N228 billion, reflecting declines in both Nigeria (-6.9% YoY to N158 billion) and Pan-African (-0.4% to N70 billion) businesses. Dangcem continues to face receding market share (64% vs 66% last year) in Nigeria with volumes dropping 6.2% YoY to 3.6MT, while prices (-0.8% YoY, +3.3% QoQ to N43,952/ton) are yet to fully reflect the N150/50 kg bag hike (similar to peers) -- mirroring lingering impact of the erosion in prices over H2 18. For Pan-Africa, volume was relatively flat at 2.3MT, while prices dipped 1% on the year to N29,839/ton.
- On the positive, COGS declined 6.5% YoY, with gross margin expanding 54bps to 58.8%. The cost savings emanated from improved energy cost (-14% YoY), with related cost per ton declining 3% YoY to N15,763. We believe the improvement is linked to the new gas turbines installed in Tanzania and improved efficiency on coal utilisation.
- Meanwhile, Opex rose 15% YoY to N52 billion, due to increased marketing expenses which offset the decline in admin cost (-9% YoY to N12 billion). As a result, EBITDA dropped 12% YoY, while related margin contracted 372bps to 48% – Nigeria (-416 bps to 61%) and Pan-Africa (-99 bps to 17%).
- The decline in net finance cost (-71% YoY to N5.6 billion) was spurred by the drop in FX loss (-94% YoY to N956 million) which left PBT nearly flat YoY at N77 billion. In addition, a lower ETR of 23% compared to 47% in Q2 18, supported growth in PAT by 44% on the year to N59 billion. DANGCEM currently trades at a P/E of 11.8x compared to Bloomberg Middle East & Africa peer average of 20.2x
Our last communicated FVE of N248.14 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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