MON, APRIL 29 2019-theG&BJournal- Late on Friday, DANGCEM published Q1 19 results, reporting a steep decline in EPS of 15.7% y/y to NGN3.54. (Cordros estimate: NGN4.14) and EBITDA contraction of 5.5 pps y/y to 46.5%.
”The deviation between our estimate and the reported EPS stemmed largely from the combination of lower gross margin and the surprise surge in OPEX” according to Cordros Capital Research.
Group revenue declined by 0.8% y/y. The decline in topline was underpinned by lower average cement price of NGN37,892 per tonne (-3.0% y/y), which offset the 2.3% y/y increase in sales volumes to 6.34MT over the period.
Management highlighted that despite the strong volume growth recorded in January (c. 11% y/y), especially in Nigeria, sales volume in February and March were impacted by inactivity caused by the delayed general and states elections in the country.
Looking at the regions, revenue in Nigeria dipped by 2.3% y/y, as price discounting (-2.9% y/y) in the period offsets volume sold (+0.6% y/y to 3.99MT).
”The moderation in price – which was akin to the previous quarter – was necessitated by the intense competition faced by the company, thanks to capacity build-up in the industry,” Cordros Capital Research said.
Thus, faced with capacity expansion by CCNN-Kalambaina (1.5MT in Sokoto) last year, DANGCEM sustained its low pricing strategy to at best, maintain market share (Q1 19: 63% of Nigeria market).
Across Pan African market, topline grew by 3.0% y/y, driven by mid-digit volume growth (+4.8% y/y), which masked slight decline in average cement price (-2.3% y/y). Pointedly, in spite of the sustained weaknesses in South Africa (-19% y/y) and Ghana (-39% y/y), Pan African volume growth mirrored production ramp up in Ethiopia (+19.1% y/y), Zambia (+14.9% y/y), and more than two-fold volume jump in Tanzania.
Amidst the decline in revenue, Q1 19 COGS rose by 2.2% y/y, thus gross profits declined by 2.8% y/y, with related margin contracting 1.2 pps y/y to 58.6%. Input cost increase was driven by the combined impact of higher materials consumed (+3.1% y/y), salaries & staff related cost (+5.6% y/y), and fuel & power consumed (+0.6% y/y). Meanwhile, since cement volume grew faster than total cost and energy cost, both total cost per tonne (-0.1% y/y) and energy cost per tonne (-1.7% y/y) moderated in the period under review.
Elsewhere, against a sharp jump in Group OPEX (+52.7% y/y), EBIT declined by 14.8% y/y, with EBIT margin shedding 6.1 pps y/y to 36.8%. OPEX pressure was driven by the combination of currency pressure in some countries, intense promotional activities across the region, and higher haulage cost.
Cordros noted that haulage cost per tonne is higher by 29.8% y/y. Also, DANGCEM profitability suffered as EBITDA margin shrank in both the Nigeria (-6.2 pps y/y) and Pan African (-2.0 pps y/y) operations, leaving Group EBITDA margin at 46.5% (Q1 18: 52.0%).
Worse still, DANGCEM reported net finance cost of NGN9.24 billion (relative to net finance income of NGN4.62 billion), which in addition to the above issues discussed, drove PBT and PAT lower by 27.2% y/y and 16.5% y/y, respectively. Against the foregoing, PBT and PAT margin shed 11.9 pps y/y and 4.7 pps y/y to 32.9% and 25.1%, respectively.
”Clearly, DANGCEM EPS is unimpressive, and should drive negative reaction to the stock in today’s trading,” Cordros said.
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