DANGOTE CEMENT Q1'17 - Concrete start to FY’17

​Concrete start to FY’17
DANGCEM’s Q1’17 earnings showed strong y/y and q/q growth across all line items, ahead of both Vetiva and Consensus estimates. As expected, strong cement pricing in Nigeria weighed on the region’s cement volume, down 17% y/y to 3.8 million MT (Vetiva: 3.7 million MT). The price increase however more than offset the volume drop as the region’s revenue grew 42% y/y to ₦152.4 billion. Coupled with revenue from Pan-African operations where volumes continue to grow amidst capacity ramp up, group revenue rose 48% y/y to ₦208.2 billion, slightly ahead of our ₦204.9 billion estimate. More importantly, EBITDA margin in Nigeria came in very strong at 65% (Q1’16: 62%) as DANGCEM officially commenced the use of locally mined coal (cheaper than gas/imported coal/LPFO) in its fuel mix over the quarter – 39% of total fuel in use at Obajana, 12% at Ibese. EBITDA margin however fell across Pan-African operations to 13% (Q1’16: 22%) amidst energy cost pressure in Tanzania, lower demand in Zambia owing to heavy rains and price slash in some regions including Senegal. Buoyed by the Nigerian operations however, group EBITDA rose 42% y/y to ₦103 billion, 4% ahead of our estimate. Although finance costs surged partly on the back of higher interest rate on loan facilities (according to management), the strong earnings from operations ensured bottom-line remained robust as PAT rose 34% y/y to ₦70 billion, 11% ahead of our estimate.

Going by management’s guidance on pricing, we expect EBITDA margin to remain strong in Nigeria even as the use of locally mined coal is expected to keep cost contained. We forecast group EBITDA margin at 49%, partly weighed down by lower margins from Pan-African operations. Overall, we revise our FY’17 EBITDA ₦393.9 billion (Previous: ₦381.8 billion) and our FY’17 PAT to ₦250.9 billion (Previous: ₦245.0). We revise our target price to ₦209.21 (Previous: ₦192.46) largely on the back of higher pricing assumption post-FY’17.