EUR 18.24 For Business Accounts Only

DANGOTE CEMENT PLC FY'16 EARNINGS REPORT: Strong Q4 margins lift FY’16 earnings

DANGCEM reported a 4% y/y rise in FY’16 EPS to N11.34, 21% higher than our estimate of ₦9.41 (Consensus: ₦10.71). Although the company’s operating performance was quite impressive especially in light of the tough operating environment, we highlight that the FY’16 bottom line was significantly boosted by tax credit in Q4’16. We note that as at 9M’16, DANGCEM had reported a tax expense of N15.2 billion, however the group recorded a FY’16 tax income of ₦5.7 billion following deferred tax credits for Pan-African operations over the quarter. Save for the tax credit, PBT was down 4% y/y to ₦180.9 billion – much in line with our ₦178.2 billion expectation. The Board of Directors proposed a FY’16 dividend of ₦8.50/share (FY’15: ₦8.00), beating our expectation of ₦7.00.

The major revision to our model is the cut to our FY’17E revenue which largely stems from our more cautious stance on effect of higher cement pricing on volume. Consequent to the cut, we revise our FY’17 PAT to ₦245.0 billion (Previous: ₦259.4 billon). Apart from that, we maintain most of our erstwhile views on DANGCEM’s FY’17 operations. To be buoyed by strong cement pricing and savings in production costs expected from the use of local coal (expected to start March), we expect FY’17 margins to firm up further. Given the little revisions to our assumptions and forecasts, our target price is little changed at ₦192.46 (Previous: ₦191.09). DANGCEM trades at 11.8x FY’17 P/E, a discount to 5-year historic average of 17.1x and Middle East and Africa peers average of 14.2x. We have a HOLD rating on DANGCEM.