WED 27 OCT, 2021-theGBJournal- BUA Cement published 9M-21 unaudited financials Tuesday, reporting PAT growth of 23.2% y/y to NGN65.91 billion while EPS printed NGN1.95 (+23.2% y/y).
The growth in EPS was due to the strong topline growth (+19.4% y/y) and moderation in net finance cost (-63.5% y/y), both of which outweighed the increases in cost of sales (+17.3% y/y) and operating expenses (+31.4% y/y).
Revenue grew by 13.3% y/y in Q3-21 (9M-21: +19.4% y/y). Although management is yet to provide details behind the double-digit growth in revenue, we imagine that sustained private sector demand combined with the upward adjustment in cement prices, implemented at the start of the year, supported the topline performance. At the H1-21 conference call, management disclosed that the increase in price per tonne (+10.6% y/y) was due to reduction in the discounts offered to key distributors. For us, the action must have been induced by the need to mitigate the impact of the local currency devaluation on margins.
EBITDA grew by 14.8% y/y in Q3-21 (9M-21: +18.5% y/y), as the revenue growth (+13.3% y/y) outstripped the growth in cost of sales ex-depreciation (+9.4% y/y) and OPEX ex-depreciation (+68.0% y/y). The surge in OPEX was due to growth in admin expenses (+50.8% y/y in Q3-21) reflective of the impact of the increment in wages and salaries. As a result, the trickle down impact of the revenue growth on margins was limited as EBITDA margin rose marginally by 0.6ppts to 48.4% in Q3-21. On a YTD basis, EBITDA margin weakened moderately to 46.8% from 47.1% in 9M-20.
Earnings were also lifted by the steep deceleration in net finance cost (-81.7% y/y in Q3-21), following the decline in interest expense (-80.5% y/y) even as finance income moderated (-69.5% y/y in Q3-21). The decline in interest expense is traceable to gains from refinancing expensive debts in the prior year given the low yield environment.
Overall, PBT grew by 22.8% y/y in Q3-21 with related PBT margin improving by 3.1ppts to 39.8%. Consequent to the jump in tax expense (NGN2.43 billion in Q3-21 vs NGN1.57 billion in Q3-20), PAT grew slower by 20.1% y/y to NGN22.51 billion.
Comment: We are impressed with the margins delivered by the company despite energy cost pressures caused by the local currency devaluation amidst high inflationary pressures. We expect private sector demand for cement to remain healthy in Q4-21 as macroeconomic conditions continue to improve. In addition, we believe economies of scale associated with the new Kalambiana line II (3MMT) will impact margins positively. We are cautiously optimistic that the improved liquidity conditions in the FX market will also ease supply chain challenges. Our estimates are under review.
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