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DANGOTE CEMENT PLC FY'18 - Positive Outlook Sustained On Decent FY’18 Numbers

Positive outlook sustained on decent FY’18 numbers                                                                    

Dangote Cement recently released its FY’18 results, reporting a 91% y/y jump in bottom line to ₦390 billion, buoyed by a Group tax credit from the authorization of the pioneer tax status on the Ibese Production lines 3&4 as well as Obajana line 4. Consequently, management proposed a ₦16.00 dividend per share, representing a payout of 70% and yield of 8%. Notably, the jump in PAT exceeded Consensus (₦228 billion) and Vetiva (₦211 billion) estimates. Apart from the obvious impact of the tax credit, the impressive earnings growth was driven by a 12% y/y increase in Group EBITDA (Margin:48.3%) to ₦435 billion, ahead of Vetiva estimate of ₦427 billion. Region-wise, EBITDA in the Nigerian business remained strong, rising 10% y/y to ₦397 billion (Margin: 64.3%), driven by a stronger topline and continued improvements in fuel cost management. Similarly, EBITDA across the Pan-African operations jumped 28% y/y to ₦49 billion, with margin also expanding 250bps to 17.3%. This was driven by higher average prices as well as efficiency improvements across many regions.                                                                       

We remain convinced about the long-term potential of the Nigerian cement sector but foresee somewhat weak growth in 2019, dragged by distractions to public sector consumption. That said, we still project decent growth in volumes for DANGCEM’s Nigerian operations as sales from new product lines in previously underserved markets are ramped up. Thus, we forecast a 9% y/y increase in volumes to 15.4 million MT, translating to an FY’19 topline of ₦664 billion (FY’18: ₦618 billion). Following significant changes in the external environment as well as a revision to our crude price and FX outlooks, we have raised our risk premium by 50bps to 6% across our coverage, to reflect the cu