EUR 53.02 For Business Accounts Only

CCNN PLC - Despite challenges earnings beat estimates

• CCNN reported a 72% q/q increase in Q2 PAT to N416 million amidst significant improvement in cost of production for the period. As a percentage of sales, production costs came in at 63% over the 3-month period compared to 77% in Q1. This suggests improvement in energy cost over the period. We recall the commencement of operations at the Kaduna refinery (CCNN’s main LPFO supplier) since the start of Q2, having being shut down over February and March. We gather that capacity utilization at the refinery for April and May were at 11% and 19% respectively, and believe this would have improved local LPFO supply in place of the more expensive imported LPFO. Notwithstanding, H1’16 PAT was down 49% y/y to N659 million (Vetiva: N455 million), partly weighed down by previous weak Q1 earnings.
• Considering a number of factors such as higher cement prices (compared to Q1), our assumption of lower disruption to plant activities from subsequent plant maintenance and cautious optimism on H2’16 following some CAPEX budget releases, we have raised our FY’16 revenue estimate to N11.9 billion (Previous: N10.1 billion). Another prolonged halt in operations of the Kaduna refinery however remains a key risk to our estimate. We still have not considered the ongoing 1.5 million MT expansion in our model as we await clarity on progress. Consequently, our estimates and valuation are based on the current 0.5 million MT capacity. After updating our model, we revise our FY’16 PAT estimate to N1.2 billion (Previous: N910 million). Our target price has been revised to N8.92 (Previous: N8.64).