FRI 29 OCT, 2021-theGBJournal- On an annualized basis, Dangote Cement Plc’s 9M-21 EPS is 33.3% ahead of the 2020FY EPS of NGN16.24 and 4.7% above our 2021E EPS forecast of NGN20.67.
The subdued growth in Q3-21 EPS was due to a surge in net finance cost (+160.2% y/y) and higher tax charge (+41.6% y/y), both of which limited the trickle-down impact of the impressive topline growth (+16.5% y/y) to the bottom-line.
The cement manufacturing company published its 9M-21 audited financials Friday, reporting growth of 4.9% y/y in Q3-21 standalone PAT while EPS grew by 4.5% y/y to N5.02, bringing 9M-21 EPS to NGN16.23 (+32.5% y/y).
The group’s aggregate revenue grew by 16.5% y/y in Q3-21 (9M-21: +34.2% y/y), driven by broad-based expansion across Nigerian (+15.9% y/y) and Pan African (+13.5% y/y) operations. For Nigeria operations, the revenue growth was driven mainly by higher price per tonne (+22.2% y/y) as volumes declined (-5.1% y/y to 4.28MMT).
Management disclosed that the decline in sales volumes was due to heavier rainfalls and the high base from the prior year given the strong rebound in cement demand in Q3-20 following the impact of the pandemic in H1-20. Management further disclosed that regular scheduled maintenance was extended in Q3-21, which slightly impacted production in the quarter.
On Pan-African operations, the translation impact arising from the Nigerian naira’s devaluation combined with the mild increase in sales volumes (+0.9% y/y to 2.61MMT) drove the increase in the topline. Overall, the lower volumes in Nigerian operations pressured the group’s sales volume lower by 2.9% y/y to 6.89MMT in Q3-21 (9M-21: +15.4% y/y to 22.16MMT).
Group EBITDA grew by 19.2% y/y in Q3-21 (9M-21: +44.9% y/y), as the topline growth (16.2% y/y) overshadowed the increases in the cost of sales ex-depreciation (+10.1% y/y) and operating expenses ex-depreciation (+22.1% y/y).
Similarly, the EBITDA margin rose by 1.1ppts to 49.2% in Q3-21 (9M-21: +3.7ppts to 50.3%). The improvement in the group’s EBITDA margin was supported by the lower volumes outturn in Nigerian operations (-5.1% y/y), which cascaded into lower energy cost/tonne (-1.5% y/y in Q3-21) – the cost line that exerted pressures on margins in Q2-21.
Net finance cost surged by 160.2% y/y to NGN13.89 billion in Q3-21, following the increase in finance cost (+36.4% y/y to NGN18.33 billion in Q3-21) amidst the decline in finance income (-45.2% y/y to NGN4.44 billion in Q3-21).
The growth in finance cost is reflective of the impact of higher gross debt (+10.0% YTD to NGN543.45 billion). On the other hand, the reduction in finance income was due to the absence of FX gains in Q3-21 compared to NGN4.76 billion in Q3-20.
Consequently, PBT grew by 13.9% y/y in Q3-21, but weakened significantly on a q/q basis (down 17.8% y/y). However, the increase in tax charge (NGN49.23 billion in Q2-21 vs NGN9.24 billion in Q2-20) led to a single-digit growth in PAT (+4.9% y/y in Q3-21). On a q/q basis, PAT declined by 15.0% y/y in Q3-21.
Demand for cement is to remain healthy in the last quarter of the year, supported by increasing housing infrastructure by individual homebuilders even as government accelerates spending on capital projects given slightly improved public finances.
‘’We are impressed that the company has continued to leverage on its market leadership status in delivering superior revenue growth (+36.2% y/y) compared to its peers (LAFARGE: +21.9%, BUACEMENT: +19.4% y/y) as of 9M-21. We expect demand for cement to remain healthy in the last quarter of the year,’’ says Cordros analysts.
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