BUA Cement Waxing Stronger Against All Odds

Must Read

How To Block Your Bank Account And SIM Card In Case Of Emergency

Losing your phone and wallet or having them stolen can be very frustrating. However, in case that happens to...

List of United Bank for Africa (UBA) Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is held. The sort...

List of Access Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number which usually identifies both the bank and the branch where an account is...
- Advertisement -

Further Revenue Growth in Q3 Boosts Overall 9M Topline Performance

In Q3:2020, BUA Cement Plc. improved on the revenue gains made in H1:2020 to deliver another impressive topline performance in 9M:2020. The company grew sales volumes by 15.95%, from 3,291 kilotons in Q3:2019 to 3,816 kilotons in Q3:2020. This puts standalone revenue for the quarter at NGN55.29bn – a 39.72% improvement compared to NGN39.57bn in Q3:2019.

Since the merger, BUA Cement has focused on leveraging on its wider geographical footprint to access new markets and claim a stronger market share.

BUA Cement Posts Impressive Q3, 2020 Financial Results As Revenue Hits N156.6Bn

While BUA Cement efforts have resulted in enhanced brand awareness and a wider distribution chain, performance in Q3:2020 was largely supported by the pick- up in economic activities following the easing of lockdowns in Q2:2020 and the relatively short rainy season which aided cement distribution. Overall, the 9M:2020 financial scorecard showed revenue growth of 20.95%.

For 2020FY, we maintain our expectation of a total turnover of NGN211.65bn by 2020FY- a growth rate of 20.59% when compared to NGN175.52bn in 2019FY.

Lower Net Finance Costs Delivers Stronger Bottomline

- Advertisement -

In spite of the improvement in topline, energy costs remain a persisting problem pressuring margins. In our last update, we highlighted how the Naira devaluation triggered higher energy costs for the company and this narrative remains unchanged in the period under review.

A devaluation induced spike in energy costs (+23.07%) in 9M:2020 pushed the cost to sales ratio to 54.18% (vs 51.23% in 9M:2019). In subsequent periods, while fuel mix optimization efforts are expected to yield some gains, a lot still depends on exchange rate stability. Similarly, higher operating expenses (+15.72%) due to higher marketing and distribution costs further pressured the company’s operating margin.

Read Also:  Bua Cement Plc: The Synergy Game

Hence, the EBIT margin declined from 41.65% in 9M:2019 to 39.83% in 9M:2020. However, sizable amounts in interest income (NGN233.80mn vs NGN96.63mn in 9M:2019) and a lower interest expense (-19.77% YoY) lifted bottom-line. Hence, Profit after tax for the period (NGN53.57bn) was higher by 23.85% when compared to NGN43.25bn in 9M:2019.

Planned Debt Issuance to Support Working Capital Requirement

In line with our expectation, BUA Cement has expressed its intentions to access the bond market. This is given the need to shore up working capital and fund its expansion activities. The company also looks to take advantage of the low-interest environment and as well refinance its related party source of funds (which resulted in a spike in related party liabilities by +1,974.05% in H1:2020) with cheaper debt.

- Advertisement -

We note that the company maintains a decent leverage position with a negative net debt of – NGN42.97bn and an interest coverage ratio of 20.02x. Hence, given its consistent cash flow generation and decent leverage, we expect a fair credit rating of BUA Cement and consequently, a modest cost of debt. Currently, the debt to equity ratio stands at 0.08x and thus we anticipate the company to aim for a more balanced capital structure going forward.

Read Also:  Building Collapse in Nigeria: 6 Early Warning Signs

Recommendation

We maintain our EBITDA projection of NGN81.85bn and an EV/EBITDA of 17.23x for 2020FY. Hence, we retain our 2020FY target price of NGN42.03 which represents a downside of -7.63% (compared to its current price of NGN45.50). We thereby rate the counter as HOLD.

- Advertisement -
BUA Cement Waxing Stronger Against All Odds - Brand SpurBUA Cement Waxing Stronger Against All Odds - Brand Spur

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

BUA Cement Waxing Stronger Against All Odds - Brand SpurBUA Cement Waxing Stronger Against All Odds - Brand Spur

Latest News

Qatar Airways Touches Down for the First Time in Abuja, Nigeria

The airline will operate three weekly flights from Abuja via Lagos Passengers from Abuja can enjoy more flexible travel options...

Why the South African Rand is 2nd-best performing EM currency

Since the onset of the COVID-19 pandemic, foreign exchange markets experienced a whirlwind of volatility as movement restrictions and a weakened global trade weighed...

Weststar Increases Product Portfolio with Mercedes-Benz Axor

Weststar Associates Limited, Authorized General Distributor of Mercedes-Benz in Nigeria, has announced Mercedes-Benz Axor as its new offering for commercial vehicle fleet owners in...

Ellah Lakes announces a joint venture with Ondo State for the development of Oil Palm and Cassava Plantation

Lagos, November 27, 2020: Ellah Lakes Plc (Ellah Lakes) is happy to announce that it has executed an agreement with Ondo State Government for...

GOtv Nigeria: For the Love of Local Entertainment

In two days, a new cooking and lifestyle show will debut on GOtv, the digital terrestrial television platform from MultiChoice Nigeria. Titled 'Jollof With...
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -BUA Cement Waxing Stronger Against All Odds - Brand SpurBUA Cement Waxing Stronger Against All Odds - Brand Spur