Dangote Cement Boosts Earnings on Strong Pan-African Demand

Dangote Cement Boosts Earnings on Strong Pan-African Demand

Dangote Cement Plc boosts earnings performance pretty well in the first quarter (Q1) of financial year 2021 on strong demand from domestic economy and across African countries where it registered its presence.

Recall the company released its Q1 2021 unaudited financial results recently, where it reported an impressive 33.5% year on year growth in revenue to N332.65 billion from N249.2 billion in Q1 2020.

In an equity report, analysts at CSL Stockbrokers noted the significant increase in revenue was supported by strong volume growth, following a gradual economic recovery.

Dangote Cement Plc.’s financial statement showed that the revenue growth recorded came from both its Nigerian and Pan African operations on improved capital expenditures.

It was noted that sales volume in the local market (Nigeria) increased by 22.2% year on year to 4.9 million tonnes in Q1 2021 while the Pan African 0perations rose by 12.8% year on year to 2.6m tonnes.

Overall, the group volume jerked up by a whooping 18.7% year on year to 7.5 million tonnes.

“For the Nigerian operations, while we recognize the continued contribution from increased private sector investments following the removal of movement restrictions in Q3 2020, we also cite the additional volumes from 3Mt Obajana Line 5 commissioned in August 2020 as a contributory factor to the firm’s topline performance”, analysts said.

For the Pan-African operations, CSL Stockbrokers believe that strong cement demand from countries such as Cameroon in preparation for the African Nations Championship assisted the volume growth.

Also, Sierra Leone was not excluded as demand for housing requirements, increased infrastructure projects supported volume growth.

Growth in cost of sales (adjusted for depreciation) tracked below Revenue growth, up 21.8% year on year to N107.6 billion in Q1 2021 from N88.4 billion in Q1 2020.

The growth in Cost of Sales (adjusted for depreciation) was mainly driven by double-digit growth in material consumed (+59.2% year on year) and fuel & power consumed (+21.4% year on year).

Consequently, Gross profit grew by 39.9% year on year to N225.0 billion in Q1 2021 from N160.8billion in Q1 2020 as Gross Margin expanded by 3.1ppts year on year to 67.6% in Q1 2021.

Similarly, operating expenses (adjusted for depreciation) rose slightly, up 6.9% year on year to N51.0billion in Q1 2021 from N47.7billion in Q1 2020.

The modest growth in operating expense coupled with strong growth in revenue led to a 55.8% year on year increase in earnings before interest tax depreciation and amortisation (EBITDA) to N178.0billion in Q1 2021 from N114.2billion in Q1 2020.

EBITDA margin expanded 7.7ppts to 53.5% in Q1 2021 from 64.5% in Q1 2020.

Depreciation & Amortisation grew by 16.9% year on year to N26.2 billion in Q1 2021, thus limiting operating performance as earnings before interest and tax (EBIT) grew 65.3% year on year to N151.7 billion in Q1 2021.

The company’s net finance cost surged 481.5% year on year to N21.6billion in Q1 2021 from N3.7billion in Q1 2020 as finance cost spiked (up 180.7% year on year) while finance income declined (down 30.9% year on year).

The surge in Finance Cost was due to the foreign exchange loss of N10.6 billion incurred by the company in Q1 2021 compared with nothing in Q1 2020.

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Nevertheless, analysts noted that excluding the FX loss, finance cost still grew 61.7% year on year which reflects increased borrowings arising from its Bond and Commercial Paper issuances as financial liabilities increased 39.6% year on year. 

Furthermore, finance income declined by 30.9% year on year to N3.7billion in Q1 2021 reflective of the low yield environment.

Overall, Pre-Tax profit was up 47.7% year on year to N130.1billion in Q1 2021 from N88.1billion in Q1 2020.

Meanwhile, effective tax rate remained unchanged at 31% as tax expense grew significantly, up 47.1% year on year to N40.4 billion in Q1 2021 from N27.5 billion in Q1 2020.

Nevertheless, Dangote Cement net income still grew 48.1% year on year to N89.7 billion in Q1 2021 from N60.6 billion in Q1 2020.

Reflecting a pretty outturn in the period, the company’s earnings per share settled at N5.29/s in Q1 2021 compared with N3.60/s in Q1 2020.

“We maintain our Buy recommendation on the stock with a target price of N250.13 per share”, CSL Stockbrokers said.

Dangote Cement Boosts Earnings on Strong Pan-African Demand