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DANGOTE CEMENT PLC 9M'18 - Decent yoy performance driven by strong operations

Decent y/y performance driven by strong operations                                                                   

Dangote Cement recently released its 9M’18 result, reporting decent earnings for the period. Bottom line came in at ₦158 billion, 3% ahead of 9M’17 and just shy of our ₦169 billion expectation. The earnings growth was driven by strong operations across the Nigerian and Pan African businesses, with Group EBITDA rising 15% y/y and 2% ahead of our estimate at ₦337 billion (49.2% margin). Drilling down to regional performance, Nigerian EBITDA remained strong, rising 13% y/y to ₦306 billion, printing at ₦79 billion in Q3 as smaller volumes, lower prices and high operating costs moderated margins (9M margin: 65%, Q3 margin: 62%). Pan African EBITDA also rose 21% y/y to ₦39 billion, following an 8% q/q jump in revenue (9M margin: 18%). The company also plans to connect gas lines to the kilns in November, a move which is expected to generate a positive EBITDA margin in Tanzania. Overall, in spite of higher Net finance costs (9M’18: ₦19 billion; 9M’17: ₦13 billion), PBT rose 12% y/y to ₦247 billion (Vetiva: ₦259 billion).                                                                               

Though we maintain our optimistic view of DANGCEM’s operations, we have made a series of adjustments to our estimates to reflect the mild earnings deviation in Q3. First, we revise our FY’18 volumes estimate for the Nigerian business to 15.0 million MT (Previous: 15.4 million MT), translating to an FY’18 revenue of ₦645 billion (Previous: ₦685 billion). Overall, we revise our FY’18 Group volume forecast to 25.1 million MT (Previous: ₦26.2 million MT) and our FY’18 Group topline to ₦943 billion from ₦958 billion. In spite of revisions to the forecasts, we note that DANGCEM is still on track to deliver record profits this year. After adjusting our costs to reflect the 9M’18 run rate, we revise our FY’18 PAT to ₦227 billion and Target price to ₦265.41. We maintain a BUY rating on DANGCEM.                                     

Dangote Cement PLC is Nigeria's leading cement producer with three plants in Nigeria and expansions in 15 other African countries. The Group is a fully integrated quarry-to-depot producer with production capacity of 45.6 million tonnes as at 2015, with plans to increase to at least 77 million in 2019.