BUA Cement — Better Export Volumes to Sustain Revenue Growth

L – R: Finn Arnoldsen, Group Chief Operating Officer (BUA Cement); Chimaobi Madukwe, Group Chief Operating Officer (BUA Group); Oscar Onyema, President, Nigeria Stock Exchange (NSE); Yusuf Binji, Managing Director, BUA Cement; Kabiru Rabiu, Group Executive Director, BUA Group; Ahmed Aliyu, Company Secretary, BUA Cement, O’tega Ogra, Group Head, Corporate Communications, BUA Group and Gbolahan Oluwasegun, Senior Manager, Corporate Finance, BUA Group at the 1.3trilliion Naira listing of BUA Cement on the NSE on Thursday.

In a year that was particularly challenging for businesses, BUA Cement Plc (BUACEMENT) recorded significant improvement (growth of 13.31%) in sales volume from 4,501 Kilotonsin 2019FY to 5,100 Kilotons in 2020FY.

This was due to a resilient Q2:2020 (the lockdown period) performance, the relatively short rainy season, improved economic conditions in the second half of the year and an unrelenting drive to penetrate new markets.

These tailwinds culminated into a topline growth of 19.33% from NGN175.52bn in 2019FY to NGN209.44bn in 2020FY. In assessing the performance, we cannot deny the impact of the export approval enjoyed by the company during the year. We also recognize the company’s commitment to expanding its Nigerian footprint through its capacity expansion initiatives cutting across geopolitical zones.

While additional capacity is expected to suffer some under-utilization in the near term, prospects of the Nigerian cement market as seen in the adoption of cement for road construction, and development of other critical infrastructure gives reason for optimism.

For 2021FY, we expect revenue to grow by 17.63% from NGN209.47bn in 2020FY to NGN246.41bn. We anchor our expectations on improvements in macroeconomic conditions and higher export volumes (due to reopened borders and the AfCFTA).

Margins Take Slight Hit

Profitability metrics were only slightly affected by cost pressures arising from a combination of elevated energy costs(+18.63%) and raw material costs(+81.24%). Gross margin for the year stood at 45.59% (vs 46.97% in 2019FY) and operating margin at 39.16% (vs 40.70% in 2019FY).

However, to combat the perennial problem of high energy cost, we note the company’s efforts towards fuel mix optimization (reconfiguration of Kalambaina plant to run on gas and coal as opposed to Low Pour Fuel Oil previously used), and we expect this to yield some gains subsequently. Nonetheless, exchange rate stability remains a key factor if costs would be kept in check.

Regardless, the company reported a 19.36% increase in Profit after tax to NGN72.34bn (vs NGN60.61bn in 2019FY), supported by lower finance cost (-28.27% YoY) and tax benefits enjoyed under the pioneer status incentive (effective tax rate of 8.48% vs 8.49% in 2019FY). While we expect an uptick in finance costs for 2021FY due to new debt issuance during the year, tax shields granted on Obu line 1 and Kalambaina line 2 should preserve margins.

BUACEMENT Completes NGN100bn Bond Issuance

Like we expected in our 9M:2020 report, the company’s consistent cashflow generation and decent leverage position (Interest coverage ratio of 20.02x and debt to equity of 0.08x in 9M:2020) earned it a fair credit rating (A by Agusto, AA- by DataPro).

Thus, the company’s successful 7-year fixed-rate senior unsecured NGN100bn bond issuance was oversubscribed by 1.38x to the tune of NGN137.82bn. This brings total debt to NGN269.33bn (vs NGN21.47bn in 2019FY) representing a net debt to EBITDA of 1.50x (DANGCEM – 0.77x and WAPCO – -0.05x).

The proceed from the bond is intended to support working capital requirements and fund expansion initiatives. While the issuance raised the company’s debt-to-equity ratio from 0.08x to 0.47x (DANGCEM – 0.54x and WAPCO – 0.15x), the company’s liquidity position also improved (current ratio – 1.15x vs 0.64x in 2019FY) and (working capital – NGN30.53bn vs deficit of NGN34.30bn in 2019FY).

Moreover, the company’s ability to meet its debt obligation is not in question with an interest coverage ratio of 21.38x.


In arriving at our 2021FY target price, we project an EBITDA of NGN125.88bn and applied a forward EV/EBITDA of 20.71x (African peer average of 23.73x). Having adjusted for a net debt of NGN183.35bn, we arrived at a target price of NGN71.57, a downside potential of -1.55% when compared to its opening price of NGN72.70 on April 14, 2021. Hence, we rate the counter as a HOLD.