Poor Earnings Cost BUA Cement 10% of Its Market Value
BUA Cement Plc lost 10% of its market valuation after the company posted a steep decline in profitability for 2023. Unsatisfied investors offloaded the cement company’s stock as earnings per share fell to N2.05 versus N2.98 in 2022.
Since it announced the results, its share price has declined to N135 from N150 while market valuation settled at N4.57 trillion on Friday, according to details from the Nigerian Exchange.
The market cuts the cement company’s market valuation despite its board of directors’ decision to pay N20 as the final dividend for the year.
In its audited results, BUA Cement grew the top line but couldn’t maintain a similar feat at the bottom line as a result of large exposure to foreign currency which damaged its earnings.
Revenue grew by 27.4% year on year in 2023 to N460 billion in December 2023 from N360 billion in the comparable year in 2022. The company’s financial scorecard showed that sales bolstered from its Nigerian market while export earnings contracted by more than 10%.
Analysts said they attribute the strong growth to the favourable price/volume mix in Q2-2023 underpinned by improvements in real estate and construction sectors’ demand.
Sequel to the price slash instituted in October 2023, analysts at Cordros Capital Limited said in a note that sales turnover sustained its growth momentum, settling higher at 8.1% q/q in Q4-2023.
The company’s gross margin went downward by 575bps to 44.2% in 2023, undermined by the heightened cost of sales ex-depreciation growth.
Notable increases in BUACEMENT’s cost line stemmed from energy consumption which grew by 35.2% year on year, according to analysts’ review – highlighting the impact of rising energy costs – and operation and maintenance service charges during the period.
The group’s earnings before interest tax depreciation and amortisation (EBITDA) margin contracted by 508bps to 37.0%, Cordros Capital Limited said in its review. The decline was further exacerbated by a growth in operating expenses, driven by a sharp increase in selling and distribution expenses.
BUA Cement net finance costs saw a sharp increase of 794.2% year on year, driven by a marked increase in FX losses which grew by 12.7x to N69.96 billion and about 90% interest expenses growth to N19.94 billion.
Also, BUA posted strong interest income, up by 563.5% to N12.88 billion. On the FX losses, analysts said they highlight that N52.48 billion is attributable to losses from financing of the group’s capacity expansion while N17.47 billion emanated from losses on foreign trade payables.
The audited report revealed that BUA cement pretax profit nosedived by 44.0% year on year to N67.23 billion in 2023. After accounting for a tax credit of N2.23 billion, the cement company’s net profit declined by 31.2% to N69.45 billion.
Going into 2024, analysts anticipate the group will maintain its topline growth as it ramps up production volume from its newly commissioned 3.00mmtpa lines at the Sokoto and Obu Plants.
There is an expectation that its new 70MW gas power plant in Sokoto and planned activation of the 70MW gas power plant at Obu in Q1-2024, will likely reduce energy costs in the near term and provide some needed respite for profit margins. #Poor Earnings Cost BUA Cement 10% of Its Market Value
