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DANGOTE CEMENT PLC Q1'18 - Firing on all cylinders; on track for a strong FY’18

DANGCEM released its Q1’18 earnings, reporting impressive earnings, with bottom line coming in at ₦72 billion, 29% higher y/y and ahead of our estimate of ₦55 billion. The earnings beat was driven by strong operating performances across the Nigerian and Pan African businesses, with Group EBITDA rising 22% y/y to ₦126 billion (52% margin), 8% ahead of our estimate. On a regional basis, Nigerian operations remained strong, with Q1’18 EBITDA (₦115 billion) easily outpacing Q1’17 (₦99 billion) and Q4’17 (₦90 billion) figures on the back of still-strong cement prices as well as continued ramp up in use of cheaper fuels. Contribution from Pan African operations also came in decent, with EBITDA rising 77% y/y to ₦13 billion. Driven by stronger cement prices as well as improving operations, EBITDA margin hit a high of 19% in the quarter. Furthermore, bottom line was supported by a Net Finance Income of ₦5 billion coming from a 9% moderation in finance costs as well as a ₦12 billion foreign exchange gain arising from translation of foreign currency denominated debt balances.

Following impressive volume rollout in Q1, we are more optimistic about cement sales in Nigeria in 2018. We therefore revise our Nigeria volumes estimate to 15.3 MT from 14.5 MT. All in, we raise our volume forecast for the Group to 26.5 MT (Previous: 25.3 MT) and our Revenue to ₦960 billion (Previous: ₦874 billion). We have also adjusted our cost estimates to reflect the Q1’18 run rate, translating to a ₦499 billion EBITDA for the Group (Previous: ₦421 billion). After adjusting for interest and tax expenses, we estimate a higher FY’18 PAT of ₦278 billion (Previous: ₦212 billion) and a target price of ₦289.45.