The recently released Q2’19 report of the Nigerian Investment Promotion Commission (NIPC) showed that the pioneer tax extension application of Dangote Cement Plc. (DANGCEM) was declined on the basis of its ineligibility under the Industrial Development Income Tax Relief Act. However, upon engagement with the Investor Relations team of the company, CardinalStone Research gathered that DANGCEM subsequently obtained the required tax concession approval on all three lines (Ibese Lines 3 & 4 and Obajana Line 4), with the expected Q3’19 NIPC report likely to provide full disclosure on the development.
We recall that the related lines were commissioned in 2014 and had already received NIPC approval for initial three years tax holiday each. The company assumed that all three lines would be granted the further 2 years tax concession applied for and, therefore, charged effective tax rate at c.19.0% for the Nigerian business in H1’19. We retain the view that DANGCEM’S Nigerian effective tax rate will remain around the 19.0% level on the back of management’s confirmation of the approval of its pioneer tax status extension application. Absent this development, the effective tax rate would be c.32.0% by FY’19.
Dangote Cement remains a cost leader in Nigeria’s growing cement market, boasting a market share of c.64.0% as at H1’19. The company has EBITDA and PAT margins of 46.6% and 25.5% (using H1’19 numbers) respectively. We have a 12-month Target Price of N212.32 on the company and see a 40.7% upside relative to the stock’s last market close. We have a BUY recommendation on the stock