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CEMENT COMPANY OF NORTHERN NIGERIA 9M'19 Earnings - Competitive Pressure Drives Q3 Earnings Miss

CCNN released its 9M’19 report on Friday, reporting a 119% y/y jump in PAT to ₦8.8 billion, albeit 16% below our estimate of ₦10.5 billion, following a much weaker than expected Q3 performance. Specifically, topline in Q3 came in at ₦10.4 billion, below our ₦15.0 billion estimate and ₦16.1 billion H1’19 run rate. We believe that the topline miss was on both volume and price estimates. We had expected the heavy rains in Q3 to slow down sales in the quarter by 3% but now believe that Q3 volumes must have come in lower than expected, a trend we have seen in Lafarge Africa as well. We also believe that the intense competition we had earlier reported caused prices to fall by more than the 2% we had earlier predicted, seeing as gross margin also moderated sizably in the quarter (Q3’19: 39.5%, Q2’19: 43.9%, Vetiva Q3E: 43.9%).

Pressure unlikely to ease off as key players continue promotions

We note that the topline miss in Q3 was largely driven by the lower than expected average revenue/tonne amidst still-high competition. Using Lafarge Africa as a proxy, average revenue/tonne fell 11% q/q as key producers competed fiercely on price rebates and sales deductions. With all three producers currently engaged in promotions, we expect pricing to remain weak, albeit with some relief as volumes are expected to pick up mildly in Q4.