BUA Cement

Staggering Demand for BUA Cement Bolsters Q1 2020 Earnings

BUA Cement Plc bolstered earnings performance on the back of 20% year on year growth in volumes, from 1.1 metric tons (MT) to 1.3 MT.

As a result of this, the company’s turnover rose sharply to ₦53.969 billion in Q1 of 2020, compare with ₦43.133 billion reported in Q1 2019.

At ₦43.20 per share, BUA Cement market capitalisation settled at ₦1.462 trillion on Tuesday.

The company’s stock price had peaked ₦44 in the last 52 weeks, hit bottom at ₦27.65 before going vertical again.

The cement company had reflated the performance of the Nigerian Stock Exchange on Tuesday as price appreciated from ₦41.50 to ₦43.20.

In its first quarter of 2020, its impressive performance revved up revenue, grew earnings by 26%.BUA Cement

Specifically, earnings per share spiked to ₦0.58 due to an improved after tax profit in the period.

ARM Securities Limited explained that staggering volume growth and tax credits buoyed the cement company’s earnings in Q1.

However, from the company’s unaudited results, analysts observed that growth started right from the top line.

It spiked 25% year on year and was sealed off with tax credits which pushed faster growth in PAT at 26% vis-a-vis PBT growth of 16%.

On other line, haulage income on goods delivery also rose sharply to ₦2.257 billion from ₦1.545 billion in the comparable period.

“Management is scheduled to hold conference call next week Monday and that should be followed up with the release of our initiation report on BUA”, ARM Securities stated.

ARM Securities stated that the performance was supported by a low base in Q1 19, but still impressive utilization rate.

BUA’s Q1 20 volume spiked 20% to 1.3MT from 1.1MT last year.

Management attributes the growth to the low base from last year, given the new 3MT/a plants did not commence until Q2 19.

That said, analysts found the utilization rate of 66% quite impressive compare to 56% in 2019, given borders remained shut in Q1 20 and chances of export activities in the quarter are slim.

Analysts stated that the growth in volume, together with a 4% increase in revenue per ton drove the 25% increase in revenue to ₦54 billion.

On the cost leg, BUA recorded a faster growth in cost of goods sold by 33% to ₦29 billion which pressured margins 340 bps lower to 45.5%.

Asides impact of the increased volumes, there was also an increase in COGS per ton, rose +11% to ₦22,200 which analysts believe stemmed from increased energy cost  which surged +3% to ₦8,000/ton.

Total energy cost increased to ₦10.635 billion in Q1 as against ₦8.588 billion reported in the comparable quarter in 2019.

“Management attributed this to the increase in gas prices during the quarter, a similar trend we noted among peers”, analysts explained.

On the other hand, total operating expenses rose 31% to ₦5.8 billion, with operating expenses to sales increasing 50 bps to 10.8%.

Though, analysts stated that earnings before interest and tax (EBIT) margin contracted 320 bps to 39%.

Overall, we view the result as impressive, analysts at ARM Securities stated.

However, analysts noted the company’s negative cash flow position in the quarter.

This stemmed largely from paid off contract liabilities which is contained in the trade payables.

Hence, the property, plants and equipment (PPE) value of ₦393 billion as at FY 19 was inclusive of a transfer from Capital work in progress (WIP) and inclusive of the value of the new plant.

BUA currently trades at price earnings of 23x, which analysts considered as a premium to domestic peer average of 12.5x – DANGCEM (12x) and WAPCO (14x).

Déjà vu: Lower Rates, Higher Debt

Staggering Demand for BUA Cement Bolsters Q1 2020 Earnings