FREE

DANGOTE CEMENT PLC 9M'17 - On track for strong FY close; q/q declines worrying

On track for strong FY close; q/q declines worrying                                                                        

DANGCEM reported a 37% y/y rise in 9M’17 revenue to ₦604 billion, slightly lower than our ₦607 billion estimate. Across regions, the Cement giant recorded a 35% y/y rise in revenue from its Nigerian operations to ₦417 billion, despite a 19% y/y moderation in volumes (9M’17: 9.6 million Mt). However, on a q/q basis, Q3’17 revenue was down 10% to ₦125 billion – largely driven by a 10% decline in volume to 2.8 million Mt as high prices continue to constrain demand amidst weak private and government consumption and unfavorable construction weather conditions. The Group’s Q3’17 EBITDA margin declined marginally to 47.5% (Q2’17: 49.2%). Furthermore, the cement giant reported a net finance cost of ₦13 billion (Vetiva estimate: ₦12 billion), putting 9M’17 PBT at ₦220 billion – 48% higher y/y but 2% below Vetiva expectation of ₦225 billion. However, following a larger-than-expected tax expense of ₦27 billion (Vetiva estimate: ₦17 billion; Q3’17 standalone of ₦16 billion), PAT came in at ₦193 billion (up 45% y/y) for the period – lagging our ₦208 billion estimate.                                                                           

With the decline in Q3’17 volumes and revenue already anticipated in our model, we maintain our FY’17 revenue assumption at ₦802 billion but increase outer years given our expectation of stronger volume push from Pan-African regions as well as possible cement road projects in Nigeria. However, reflecting the impact of the 10% price rebate on margins, we marginally cut our FY’17 EBITDA assumption to ₦400 billion (Previous: ₦402 billion). We have also raised our net finance cost to ₦18 billion for FY’17, reflecting the higher run rate in Q3’17 (₦5 billion vs expectation of ₦4 billion). Following this, we cut our PBT estimate of ₦287 billion (Previous: ₦292 billion). Also, due to the sharp increase in tax expense in Q3’17 and the expected higher effective tax rate going forward, we revise our group tax rate forecast to 12% (in line with management guidance), and raise our FY’17 tax estimate and PAT to ₦34 billion (Previous: ₦23 billion) and ₦253 billion (Previous: ₦268 billion) respectively. Overall, we revise our target price to ₦234.90 (Previous: ₦240.58) and maintain a HOLD rating on the stock.                                                                          

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 43.6 million tonnes as at 2015, with plans to increase to at least 77 million in 2019.