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CEMENT COMPANY OF NORTHERN NIGERIA PLC FY'17 - Limited capacity tempers positive outlook

Consolidating on strong 9M’17 result, CCNN released its FY’17 result, reporting a record PAT of ₦3.2 billion (translating to EPS of ₦2.57), more than double FY’16 PAT (₦1.4 billion) and ahead of Vetiva estimate (₦2.7 billion). Board of Directors proposed a final dividend payment of ₦1.25/share, translating to a 49% dividend payout ratio. Particularly, top line rose 39% y/y to a record ₦19.6 billion (Vetiva: ₦17.6 billion), lifted mainly by higher than expected volume shipment in Q4’17 (FY’17: c.468,000 MT vs. Vetiva: 410,000 MT). Notwithstanding a significant increase in operating expenses (up 54% y/y) amidst inflationary pressures, EBIT came in 134% stronger y/y at ₦4.2 billion (Vetiva: ₦3.9 billion). Bottom-line was further supported by a lower effective tax rate of 23% vs FY’16: 28% and Vetiva estimate of 28% - following a tax credit of c.₦935 million in Q4.                                      

Notwithstanding the strong FY’17 performance, we reiterate that CCNN’s long term earnings growth potential remains capped given the company’s capacity constraint (Capacity: 0.5 million MT), even as progress on reported expansion to 2.0 million MT remains unclear. Meanwhile, we raise our FY’18 volume forecast to 480,000 MT (previous: 450,000 MT), as we expect the recovering economic environment and improved government spending to support volumes. Adopting FY’17 average prices, our FY’18 revenue is revised to ₦20.1 billion (previous: ₦18.4 billion). We revise our FY’18 PAT to ₦2.6 billion (Previous: ₦2.5 billion). We have also revised our target price higher to ₦10.40 (Previous: ₦9.04), mostly on the back of a stronger cash position.