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CEMENT COMPANY OF NORTHERN NIGERIA PLC Q1'18 - Another Impressive Quarter, Expecting Strong FY’18

CCNN recently released its Q1’18 results, reporting a jump in earnings largely buoyed by decent topline performance - up 24% y/y to ₦5.4 billion, slightly higher than our ₦5.2 billion estimate. Taking a cue from results from other cement producers, we believe the topline line performance was a mix of both higher cement pricing and volume, with the price support particularly higher than we had expected. Consequently, Gross Profit (₦2.3 billion) rose 39% y/y and outpaced our ₦1.8 billion expectation despite some pressures from energy costs. With OPEX moderating 8% y/y, EBIT doubled y/y to ₦1.4 billion and ahead of our ₦1.2 billion estimate – translating to an Operating margin of 27% (Q1’17: 17%). On a q/q basis, however, earnings came in largely mixed. Whilst topline was 9% lower than Q4’17, Operating Profit was 15% ahead of the preceding quarter. Overall, PAT rose 111% y/y but fell 9% q/q to ₦1.1 billion, 29% ahead of our ₦840 million estimate. 

We revise our top line growth expectation higher given the better than expected Q1’18 performance. We also expect the higher cement prices from the start of April to support topline growth. Consequently, we raise our FY’18 Revenue forecast to ₦21.4 billion (Previous: ₦20.1 billion). Also, whilst we continue to monitor LPFO prices – CCNN’s major fuel input, accounting for over 65% of Production cost – we revise our operating profit margin 575bps higher to 23%, partially reflecting the strong margins in Q1’18. With this, we revise our FY’18 EBIT estimate to ₦5.0 billion (Previous: ₦3.6 billion). With an estimated effective tax rate of 28%, we raise our FY’18 PAT estimate to ₦3.8 billion (Previous: ₦2.6 billion). Overall, we revise our Target Price to ₦11.12 (Previous: ₦10.40).