CardinalStone Research
Dangote Cement Plc (DANGCEM: TP N212.32 ) announced after-tax profits of N154.4 billion (-2.5% YoY) at the end of 9M’19, coxswained by average lower prices as well as higher selling & distribution costs.
In addition to the earnings publication, the board of Dangote Cement recently considered proposals to consolidate its share capital and embark on a share buyback programme. Subject to regulatory approval and required guidance, the cement giant also disclosed its intention to fully back these recommendations. If approved, the implementation of both proposals is likely to lead to a reduction in the number of DANGCEM’s shares in issue and an increase in both the nominal and market value of the shares. The details of the transaction will be communicated at a later date.
Some positives:
- In Q3’19, DANGCEM recorded a 4.5% YoY growth in revenue, partly due to a 5.0% YoY increase in cement sales despite unprecedented levels of rainfall during the period. The topline improvement was also supported by slightly higher prices (revenue/tonne in Q3’19: N43,337 vs N43,187 in Q3’18).
Some concerns:
- EBITDA margin contracted by 4.78 ppts in Q3’19 to 40.2% as EBITDA/tonne printed at N23,389, a record low in at least 11 quarters. Specifically, the main pressures on EBITDA stemmed from a significant jump in advertisement and promotion expenditures (N4.9 billion vs N1.3 billion in Q3’18). The company attributed the surge to heightened end-user marketing campaigns in order to strengthen the visibility of the Dangote brand in the cement market. Management hinted that this higher marketing spend is likely to persist until the end of the year.
- Net finance expense surged by over 3x to N18.8 billion as parent party loan clinched N89.5 billion levels at the end of 9M’19 from N56.5 billion at the beginning of the year. The company also sustained its Commercial Paper issue program in its latest series 11, 12 and 13 issues. Total active commercial papers in issue at the end of 9M’19 amounted to N131.3 billion, compared to N79.3 billion at the end of FY’18
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