Dangote Cement Plc – Increased industry Competition Dampens Earnings

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Dangote Cement Plc reported a revenue decline of 1% in its audited financial statement for the full year ended December 2019. Gross profit grew by 1% on the back of production cost optimization. Profit before tax (PBT) decreased by 9% driven by an increase in haulage, advertisement and promotion expenses while profit after tax (PAT) declined by 49% owing to a higher finance cost and a one-off tax credit of N133.72bn in FY 2018. Management proposed a dividend of N16.00k per share (FY 2018: N16.00k).

Group revenue declined owing to higher discounts and weak macros

A harsh operating environment amid increased competition continues to wane on the group’s performance, as shown in the audited results for the full year ended December 31, 2019. The group’s revenue declined by 1% from N901.21bn in FY 2018 to N891.67bn in FY 2019 owing to a higher level of price discount and weak macroeconomic environment across markets. In Nigeria, revenue decreased by 1% YoY from N618.30bn to N610.25bn on the back of the decline in the average realized price per tonne from N43,610 to N43,222. Also, volume declined from 14.2Mt to 14.1Mt in FY 2019. We attribute the double whammy of price and volume decline to price discounting in reaction to competitor’s new capacity in a bid to safeguard market share and the sustained land border closure, which subtracted from export sales.

In Pan-Africa, the group grew volume by 2%, notwithstanding the technical challenges in Ethiopia – a key market. Sales in Ethiopia declined by 4% compared to FY 2018 as a result of shortages of limestone due to a significant issue with quarry. However, the considerable volume growth of 94%, 116% and more than 100% in Tanzania, Sierra Leone, and Senegal, respectively, was enough to offset volume loss in Ethiopia. Overall, though volume grew, revenue was relatively unchanged at N282.71bn in FY 2019.

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On production cost, the group continues to maintain its cost leadership status in the industry with a production cost margin of 43% in FY 2019. In FY 2019, cost of sales declined YoY by 1% in tandem with revenue. Significant components of production cost were material and energy cost, each weighting 31% (FY2018: 32%) and 32% (FY 2018: 35%), respectively, where the group has continued to record efficiency. Consequently, gross profit declined by 1% while gross profit margin contracted by 100bps to 57% (FY 2018: 58%).

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Haulage, advertisement and promotion expenses drag PBT

Profit before tax decreased YoY by 17% from N300.81bn to N250.48bn in FY 2019 informed by 17% and 3% increase in selling and distribution expenses and administrative fees, respectively. Selling and distribution expenses increased from N136.93bn to N160.65bn in FY 2019 primarily driven by a 115% spike advertisement and promotional expenses as well as a 22% increase in haulage expenses. Haulage cost rose from N88.04bn to N107.18bn in FY 2019, which we believe was driven by market penetration effort of the group amid poor road networks. In reaction to the intense industry competition as a result of a competitor’s new capacity, the group extended its advertisement and promotional activities to retain market share. As a result, advertisement and promotion expenses grew from N3.99bn to N8.60bn in FY 2019.

On the weight of a higher finance cost which grew by 16% from N49.78bn to N57.67bn as well as a one-off tax credit of N133.72bn which did not reoccur this year, profit after tax declined markedly by 49% to N200.52bn (FY 2018: N390.33bn), which translates to an earnings per share of N11.79k (FY 2018: N14.98k) for FY 2019.

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Historical Performance

Dangote Cement Plc - Increased industry Competition Dampens Earnings - Brand Spur

Recommendation

We note the increasing competition in the industry as a result of capacity expansion by existing players which has in effect limited the group’s ability to grow volumes and raise prices. Despite the advertisement and promotional activities in Nigeria, sales volume was flat, and revenue declined on the back of price discounting. Looking forward, however, we expect the group to leverage its cost leadership status in the industry to match the competition. Also, we believe that the return to a regular budget calendar and the earmarked infrastructural spending by the government would bode well for the group. Overall, we have a one-year target price of N175.57k on the stock. At the current market price of N170.00k, the stock is trading at a 3% discount to our fair value estimate and offers a dividend yield of 8.47% (fully Franked). Thus, we recommend a HOLD.

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The significant downside risk to our valuation is the coronavirus risk.

Financial Statement Summary

Dangote Cement Plc - Increased industry Competition Dampens Earnings - Brand Spur

WSTC Research

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Latest News

Strongest first quarter ever: Preliminary results of Deutsche Post DHL Group above market expectations

  • All divisions significantly increased EBIT in first quarter 2021; Group EBIT tripled to around EUR 1.9 billion
  • Free cash flow development continued positive trajectory and improved by more than EUR 1.4 billion to around EUR 1.0 billion
  • CEO Frank Appel: "The start into the new financial year was more dynamic than ever"


SINGAPORE - Media OutReach - 12 April 2021 - Deutsche Post DHL Group has today released preliminary results for the first quarter of 2021 and has raised the outlook for the current financial year. Preliminary operating profit (EBIT) for the first three months improved to around EUR 1.9 billion (Q1 2020: EUR 592 million). The positive development of the group's businesses seen in the fourth quarter 2020 has continued well through the first quarter 2021. In the first three months of the year the B2C shipment volumes remained high in all networks while the recovery in the B2B business continued.

"The start to the new financial year was more dynamic than ever. It proves that we have successfully geared our business to the right growth drivers. One year into the pandemic we experienced in the first quarter 2021 a sustained momentum in e-commerce and a significant stabilization in global trade with increasing air- and sea-freight volumes. Consequently all divisions reported a significant jump in earnings above market expectations. Global trade continues to recover and vaccine distribution is in full swing which makes me very optimistic for the rest of 2021 and beyond," said Frank Appel, CEO of Deutsche Post DHL Group.

All divisions optimally positioned for continuing e-commerce boom and growth in global trade

Express: The division reached an EBIT of around EUR 955 million in the first quarter 2021 compared to EUR 393 million in Q1 2020.

Global Forwarding, Freight: EBIT in Global Forwarding, Freight stood at around EUR 215 million in Q1 2021, clearly above previous year's Q1 of EUR 73 million.

Supply Chain: EBIT at Supply Chain came in at around EUR 165 million in the first quarter 2021 compared to EUR 105 million in Q1 2020.

eCommerce Solutions: eCommerce Solutions recorded a first quarter 2021 EBIT of around EUR 115 million, clearly above last year's Q1 result of EUR 6 million.

Post & Parcel Germany: EBIT in Post & Parcel Germany in Q1 2021 was around EUR 555 million (Q1 2020: EUR 334 million).

Earnings momentum mirrored in positive cash flow development and improved outlook


The continued positive business development is underpinned by a strong cash flow development; free cash flow amounted to around EUR 1.0 billion in the first quarter 2021. In Q1 2020 this figure was still negative at EUR -409 million.

In light of the strong earnings momentum, guidance for 2021 is adjusted as follows:

Group EBIT for 2021 is now expected to be significantly above EUR 5.6 billion (previous forecast: more than EUR 5.6 billion). Equally, the result for the DHL divisions is now seen significantly above EUR 4.5 billion (previous forecast: more than EUR 4.5 billion). EBIT for the Post & Parcel Germany division is no longer expected at around EUR 1.6 billion but above EUR 1.6 billion. The expectation of a Group Functions EBIT of around EUR -0.4 billion remains unchanged. Full year 2021 Free Cash Flow is now expected to be significantly above EUR 2.3 billion (previous forecast: around EUR 2.3 billion).

The Group will introduce a revised detailed guidance with the comprehensive disclosure for Q1 2021 which will be published as planned on May 5, 2021.

Deutsche Post DHL Group

Deutsche Post DHL Group is the world's leading logistic company. The Group connects people and markets and is an enabler of global trade. It aspires to be the first choice for customers, employees and investors worldwide. To this end, Deutsche Post DHL Group is focusing on growth in its profitable core logistics businesses and accelerating the digital transformation in all business divisions. The Group contributes to the world through sustainable business practices, corporate citizenship and environmental activities. By the year 2050, Deutsche Post DHL Group aims to achieve zero emissions logistics.


Deutsche Post DHL Group is home to two strong brands: DHL offers a comprehensive range of parcel and international express service, freight transport, and supply chain management services, as well as e-commerce logistics solutions. Deutsche Post is Europe's leading postal and parcel service provider. Deutsche Post DHL Group employs approximately 570,000 people in over 220 countries and territories worldwide. The Group generated revenues of more than 66 billion Euros in 2020.


The logistics company for the world.

Dangote Cement Plc - Increased industry Competition Dampens Earnings - Brand Spur
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