…Strong Cement Sales Undescores Topline Growth
In 2020FY, Dangote Cement Plc. proved its mettle as it continued on the path of growth and like we expected, reached a revenue milestone.
The company was unhindered by challenges from the COVID-19 pandemic as seen in the impressive year-on-year performance recorded in its home market and some pan-African locations.
In Nigeria, the low interest rate environment in 2020 made an investment case for the real estate sector and as such, propped up cement demand.
With support from its national consumer promotion (bag of goodies season 2) programmme, DANGCEM continued to enjoy significant market share. Thus, the company sold 15,739 Kilotons of cement in Nigeria in 2020FY (up 11.47% YoY). Also, adding to the success of its maiden clinker export in June, the company pushed out six more vessels via its Apapa terminal and continued cement exports by road.
Hence, total export volumes for the year amounted to 197 Kilotons. Overall, its Nigerian operations could boast of a total sales volume of 15,936 Kilotons (vs 14,119 Kilotons in 2019FY), which earned the company a revenue of NGN719.95 bn (vs NGN610.25bn in 2019FY).
Giant strides were also recorded in some of its Pan-African operations, with Congo leading the pack with a 59.00% increase in sales volume and Senegal at full capacity utilization. Other Pan-African businesses also performed better year-on-year, with the exception of Zambia and Ghana where sales volumes declined.
Consequently, Group sales volumes for the year was 25,721 Kilotons – an increase of 8.61% YoY. Thus, the company’s total revenue grew by 15.98% to NGN1.03trn (vs optimism stems from the continued adoption of cement for road construction and higher export volumes (on the back of the recently reopened borders and AfCFTA).
Profitability Undeterred by Heavier Tax Burden
Although energy costs spiked by 19.12% (an offshoot of the Naira devaluations) in 2020, cost-to sales ratio was marginally lower at 42.35% (vs 42.62% in 2019FY) as the increase in the cost of sales only played catch-up to revenue performance.
In a similar vein, improved logistics management which yielded a decline in haulage expenses (-7.67% YoY) ensured a moderation in operating expenses (-0.33%) despite higher administrative costs (+11.48%). EBITDA thereby increased by 16.67% to NGN421.42bn (vs 361.20bn in 2019). Furthermore, a combination of higher interest income (+76.23%) and foreign exchange gains of NGN16.63bn contributed to the increase in Profit before tax by 49.04% to NGN373.31bn.
We note also that the expiration of the pioneer tax status on most of the company’s plants in 2020 resulted in a higher effective tax rate of 26.05% (vs 19.94% in 2020FY). Nonetheless, Profit after tax (NGN276.07bn) bettered the previous year’s performance (NGN200.52bn) by 37.68%. This put the company’s net margin at 26.69% (vs 22.49% in 2019FY).
In the last quarter of the year, the company completed the first tranche of its share buyback programme, recalling 0.24% of its shares outstanding. While this did not significantly impact its share price, a combination of stronger earnings gave EPS a lift to settle at NGN16.14 (vs NGN11.79 in 2019) .
In arriving at our 2021FY target price, we project an EBITDA of NGN556.93.bn and an EV/EBITDA of 7.83x. Having adjusted for an expected net debt of NGN406.19bn, we arrived at a target price of NGN232.64, an upside potential of 3.86% when compared to its closing price of NGN224.00 on March 29, 2021.
Hence, we rate the counter as HOLD.