Analysts Keep Dangote Cement Shares on Hold Rating

Analysts Keep Dangote Cement Shares on Hold Rating

In a research note published by CardinalStone, analysts Khalil Woli and Phillip Anegbe advise investing clients to be neutral on Dangote Cement shares following its hold rating on the ticker: DANGCEM.

Dangote share price has jumped higher significantly after the cement company announced the second tranche of its share buyback. Despite the rally, CardinalStone insists on keeping the stock on hold.

“We retain our views on the stock from our last cement sector report”, Woli told MarketForces Africa via a response requesting if the share price appreciation on the ticker would affect the recent rating.

The share price has inched higher to N284.90 while the cement market valuation moves near N4.90 trillion with outstanding shares of 17.040 billion.

“The volatility of the stock’s share price does not in any place affect our recommendation. Our recommendation is usually hinged on a 12-month target price”, CardinalStone Woli explained.

Nigeria’s largest cement producer target price was set to N277.90 by CardinalStone in its latest equity report, an upward review from N257.88 previous compared to the reference price of N270.


Possibly, some investors that rely on CardinalStone view would engage in sell down, taking profit ahead of possible share price reversal. However, positioning is expected to be strong ahead of the earnings announcement.

Dangote Cement is expected to release its audited financial statement for 2021 on March 1, 2022. Last year, the cement company with the largest market share sales crossed the N1 trillion mark last year with a best-in-class profit margin.

Speaking to the industry dynamics in the pre-election year, CardinalStone said in its industry report that it envisaged a tighter competitive landscape in 2022 as manufacturers look to build on their 2021 performance.

It noted the market share dynamic of 2021 was largely influenced by DANGCEM’s introduction of its new 3Mt line at Okpella and Lafarge WAPCO’s production struggles in the first half of 2021.

These events, consequently, enabled Dangote cement to deepen its market presence at the expense of its peers, according to CardinalStone analysts.

Per CardinalStone estimate, DANGCEM expanded its domestic market share by 2.5 percentage points year on year to 62.5% while BUA CEMENT and WAPCO’s market share contracted by 1.0 percentage points and 1.5 percentage points year on year to 19.2% and 18.4%, respectively.

But there is a projection for reverse gear, analysts think that market share dynamics could change slightly with WAPCO and BUA CEMENT likely to tune up the competitive landscape.

Specifically, analysts said the return of WAPCO’s Ewekoro Line 1 in September 2021, after it was shut down for most of the year due to prolonged maintenance, and BUACEMENT’s expected commissioning of a new 3mta in Kalambaina could support both companies’ market share.

it’s another year of excellence for Dangote Cement, according to analysts at CardinalStone. Like winter in December, DANGCEM has turned up year after year over the last decade and 2022 may not be any different, CardinalStone analysts noted.

Cardinalstone analysts said the cement company has made its market share dominance in Nigeria count, growing revenues by an average annual growth rate (CAGR) of 17.7% over the last ten years. Pan African operations have equally had their share of gains, given the recent market penetration in Congo and Ethiopia.

“We also note the robust group profit after-tax average annual growth rate of 10.1% and an industry-best average return on equity (ROE) of 35.5% over the same period”. For 2022, analysts forecast a 10.6% year on year increase in the company profit after tax to N404.2 billion on the projected impact of stronger volumes.

Nigerian volume is likely to be supported by high private cement consumption and exports, CardinalStone said in its equity research note. On the latter, analysts noted that the company resumed exportation of clinker in the first half of 2021 and expect this trend to persist.

Across its Pan African segment, CardinalStone analysts see scope for continued traction in high growth markets – Congo and Tanzania, amid rising public and private investments in projects such as housing and industrial parks development.

Improving route-to-market is also likely to sustain market penetration in Tanzania and Senegal, according to analysts. In contrast, CardinalStone analysts believe that Ethiopia could record negative growth on the impact of rising political unrest.

Similarly, they stated that yield hikes in South Africa and Ghana could potentially sway investors from real estate projects – one of the pillars of cement demand in these markets. Nonetheless, CardinalStone analysts forecast a 5.0% volume growth in the Pan African segment on the positive of its high growth market.

“We retain a hold on DANGCEM, as our new 12-month target price of N277.90 is at a 2.9% upside to current market price”. Previously, the investment firm had set N257.88 as the target price for the stock.

Naira devaluation, politically-induced civil unrest in key markets, and excessive rainfalls are downside risks to forecast, analysts said. Analysts at CardinalStone unequivocally said WAPCO remains the firm’s standout pick in the cement space, given its implicit mispricing relative to domestic peers and its historical average.

Explaining their choice, analysts detailed that Lafarge WAPCO share trades at the financial year 2022 estimated price-earnings ratio of 6.7x against a 5-year mean of 13.9x.

According to CardinalStone, this suggests a material undervaluation despite its return on equity (ROE) improvement in recent quarters. WAPCO annualized return on equity as of 9M-2021 printed at 14.4% while its 3-year average printed at 6.9%.

“WAPCO also ranks second in our earnings quality assessment for the sector, with an average earning a quality score of 18.7 using annualized 9M-2021 results”, CardinalStone analysts stated.  #Analysts Keep Dangote Cement Shares on Hold Rating

Read Also: Dangote Cement: Analysts Forecast 13% Increase in Dividend

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