FREE

CEMENT COMPANY OF NORTHERN NIGERIA PLC FY'16 - Earnings beat on strong Q4 performance

CCNN reported a FY’16 PAT of ₦1.3 billion, up 4% y/y and 65% better than Consensus estimate of ₦758 million. The modest bottom line performance was still impressive considering that the profit line was already down 56% y/y as at 9M’16. The recovery was driven by a strong q/q growth in Q4 across most major line items, particularly topline - up 77% q/q to ₦4.9 billion (the highest Q4 revenue on record). Although OPEX (as a percentage of sales) rose 220bps q/q to 19.2% amidst heightened inflationary pressure, the impact on bottom-line was largely watered down by the strong topline. Consequently, EBIT over the period rose three-folds to ₦622 million (EBIT margin: 13% vs 5% at Q3’16), with the period PAT accounting for 42% of FY’16.

Whilst we raise our near term outlook on CCNN, we reiterate that its relatively small capacity will continue to cap growth. At just 0.5 million MT capacity, CCNN might not be milking its regional advantage in the far North (Sokoto State, North West) well enough given its distance from other major competitors. The closest major competition to CCNN (ASHAKACEM in Gombe State, North East) is c.985km away, making CCNN’s market in the neighboring states protected to a large extent. Although we understand that there is an ongoing plant capacity expansion to 1.5 million MT (construction first reported in the media September 2014), we have not considered the expansion in our model as we await clarity on progress.

Our estimates and valuation are still based on the current 0.5 million MT capacity. We revise our FY’17 revenue estimate to ₦15.6 billion (Previous: ₦14.3 billion) amidst a more optimistic outlook on energy supply and strong price outlook. After updating our model, we revise our FY’17 PAT estimate to ₦1.3 billion (Previous: ₦1.1 billion). Our target price is raised to ₦7.34 (Previous: ₦7.03).