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DANGOTE CEMENT PLC H1'18 - On track for a strong FY’18 performance

On track for a strong FY’18 performance                                                                              

DANGCEM released its H1’18 result, reporting a 3% y/y PAT growth to ₦113 billion vs. our ₦123 billion estimate. The earnings growth was supported by strong Nigerian and Pan African operations, with Group EBITDA rising 21% y/y to ₦246 billion ahead of our ₦226 billion estimate – translating to a 51% margin vs 49% in H1’17. EBITDA was particularly strong in the Nigeria operation, rising 19% y/y to ₦227 billion, supported by healthy cement prices (following a price hike in April) and continued improvement in fuel efficiency. The region’s EBITDA was however 3% weaker q/q, following a mini-surge in operating costs in the quarter, with EBITDA margin consequently falling 80bps q/q though remaining strong at 65.5% (H1’18: 65.9%). Operations in the Pan African business also remained strong within the period, with EBITDA rising 32% y/y to ₦26 billion. Similarly, the region’s EBITDA was 2% weaker q/q, taking EBITDA margin 80bps lower q/q to 18.3% (H1’18: 18.7%). Meanwhile, Net finance costs rose 89% y/y to ₦15 billion (Vetiva: ₦6 billion), weakened by a ₦15 billion FX loss in Q2’18 from Pan African operations that use the CFA as a functional currency. Overall, PAT rose 3% y/y, weakened by a higher effective tax rate of 39% (H1’17: 29%, Vetiva: 31%).                                                                  

Following better than expected volume roll out in H1’18, we revise our Nigeria volumes estimate to 15.4 million MT (Previous: 15.3 million MT) for the year. With management hinting at no plans to change prices any time soon, we estimate an FY’18 Revenue of ₦685 billion (Previous: ₦681 billion). Meanwhile, we note the sustained downtime across certain Pan African operations and thus, revise our FY’18 volume expectation to 10.8 million MT from 11.2 million MT. Furthermore, we raised our interest expense from ₦27 billion to ₦39 billion, after taking into account the FX losses in Q2 and the recently issued Commercial papers (Series 1: ₦12.04 billion at 12.40% PA, Series 2: ₦37.96 billion at 12.65% PA). We understand that the proceeds from the notes would be used to fund some local projects and improve working capital. After adjusting for tax, we revise our PAT to ₦243 billion. With a revised target price of ₦276.28 on the stock, we maintain our BUY rating.