Dangote Cement: Analysts Forecast 13% Increase in Dividend
Equity analysts at WSTC Securities Limited are expecting Dangote Cement Plc (Ticker: DANGCEM) to increase dividend payment by 13% in 2021 after a stellar earnings performance in the first half of the year.
Valued at N4.217 trillion on the Nigerian Exchange on 17 billion outstanding shares, 85.75% of which is owned by Dangote Industries Limited according to Moody’s recent report, the cement company is in the process of purchasing its shares back.
Some analysts told MarketForces Africa that the share buyback program was initiated as part of the group move to list the company at the London Stock Exchange.
As such, there is a need to stem the stock volatility in the Nigerian Stock Exchange and to drive the price upward for the pricing purpose for possible listing in London.
However, Moody’s said in a recent report that the cement company has raised its exposure on what it terms excessive leverage, resulting in a potential downgrade.
At the current market price, Dangote Cement accounts for one quarter of the total market value of all stocks listed at the Nigerian bourse with a share price quoted at N248.10.
Apparently, the share buyback announcement has raised the stock price from N230 when the announcement was made in 2021, the group had abandoned the move in 2022 due to pandemic-induced economic stress last year.
WSTC equity analysts led by Abdulrauf Bello, Joshua Chinga and Isaac Osaro said on the back of improved expectations of revenue and profit growth, they revise the tickers estimates.
For the financial year 2021, analysts projected that Dangote Cement sales would rise to N1.46 trillion as against the initial expectation of N1.24 trillion. WSTC analysts expect this to be driven by the expectation of price increases in the subsequent quarters of the year.
It was noted that the Dangote Cement 3mta Okpella plant is expected to commence operations in Q3-2021. WSTC said given the capacity addition, the investment firm expects to see more volume sales.
The cement company restarted the exportation of clinker from Nigeria in Q2-2021 through both the Apapa and Onne terminals after the project was suspended in Q1-2021 due to the need to meet the high demand in the domestic market.
DANGCEM also commissioned the second gas-fired power plant in Tanzania which analysts call the largest plant in Pan African operations during the second quarter of 2021.
For the financial year 2021, analysts forecast an increase in the company’s earnings per share to N22.91 from N18.10, expected to be driven by sustained cost optimisation and higher pricing.
Accordingly, they anchored their expectation on this and hope the Group will increase dividend payment by 13% to N18.00 for the year.
Reviewing the stock position, analysts said the ticker currently trades at 10.83x forward price-to-earnings ratio, relative to WSTC’S justified price-to-earnings ratio estimate of 12.75x.
By implication, analysts said they estimate a 32% total return on the stock and place buy recommendations on the company’s stock.
In its financial statement for the second quarter of 2021, Dangote Cement generated record volume sales, with a total of 7.76mt of cement sold in Q2-2021.
Volume sales in the Nigerian market stood at 4.96mt, representing a 46% year on year increase from 3.39mt in Q2-2020, driven by strong private sector demand, associated with post-lockdown economic recovery.
In 2020, the Group expanded capacity as its Obajana Line 5 came on stream.
Analysts explained that the increased demand from housing infrastructure and commercial construction was met with higher output. In addition, a low base magnified the volume growth in Q2-2021.
Equity report shows Dangote Cement also realised a higher average price, on a year-on-year basis, up 14% year on year to N51.29k per ton. Overall, revenue from the Nigerian market grew by 66% year on year to N254.46 billion in Q2 2021, from N153.04 billion in Q2-2020.
In the Pan-African market, revenue grew by 40% year on year to N105.53 billion in Q2-2021 from N75.18 billion in Q2-2020.
Improved macroeconomic fundamentals, an uptick in economic activities, and increased market share across the Group’s markets in Pan-Africa drove the revenue growth in Q2 2021, analysts said.
The company’s financials show that volume sales grew by 18% year on year to 2.85Mta. Remarkably, the Group recorded a volume growth across all its market in Pan Africa – except Senegal as average price grew by 19% year on year in Q2-2021.
The Group’s operating profit grew by 85% year on year to N148.31 billion in Q2-2021, resulting in a 600 basis points expansion in operating margin to 41% in Q2 2021.
Analysts at WSTC said the improvement was due to increased efficiency, scale, and cost optimisation efforts during the quarter. The better-than-expected improvement in the bottom line is noted to be supported by a lower finance cost.
In the period, Dangote Cement finance cost dropped 9% year on year to N10.73 billion in Q2-2021, while foreign exchange came at N5.67 billion in Q2-2021 in addition to a higher finance income, rising +56% to N5.75 billion.
the Group’s profit before tax advanced by 102% year on year to N151.15 billion in Q2 2021 while profit after tax grew by 55% to N101.92 billion.
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Dangote Cement: Analysts Forecast 13% Increase in Dividend
