Buacement Faces Earnings Pressure Despite Strong Revenue Growth in Q1-24

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Buacement, a leading cement manufacturer, reported a robust 51.5% year-on-year revenue growth in the first quarter of 2024, fueled by volume expansion and potential price hikes. However, the company grappled with significant cost pressures stemming from raw materials, energy, and operational expenses, which dampened its earnings performance. Despite a relatively low base from the previous year, Buacement’s earnings per share (EPS) for Q1-24 stood at NGN0.53, down from NGN0.79 in Q1-23. Analysts predict further strain on profitability throughout 2024, prompting a downward revision of the stock’s target price and maintaining a “SELL” recommendation.

Buacement’s sales performance in Q1-24 exceeded expectations, driven by increased demand both domestically and in export markets. Analysts anticipate sustained momentum throughout the year, with volume growth and potential price adjustments expected to bolster revenue. However, the company’s management acknowledged the challenges posed by foreign exchange fluctuations and rising energy prices, necessitating periodic price reviews to offset operational costs.

A significant portion of Buacement’s expenses, particularly energy and maintenance costs, are denominated in foreign currency, exposing the company to currency volatility and inflationary pressures. Analysts project a decline in EBITDA margin for 2024, reflecting the impact of rising production costs and anticipated foreign exchange losses. Despite these challenges, EPS is forecasted to grow to NGN2.60, albeit at a slower pace compared to previous years.

Buacement’s free cash flow (FCF) margin is expected to improve in 2024, supported by reduced capital expenditure following the completion of major plant expansion projects. With no imminent funding requirements, management anticipates a recovery in FCF margin to 20.2%, contributing to a favorable long-term outlook.

In terms of valuation, analysts derive a target price of NGN56.99 per share, considering a blend of discounted cash flow (DCF) and sector-relative valuation metrics. Despite the optimistic revenue projections, the target price adjustment reflects concerns over earnings sustainability amid escalating costs and foreign exchange risks.

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