DangCem’s net operating cash flow rose by 27.9% to N376.60 billion in 9months

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The management of Dangote Cement has published third quarters 2020 audited financials after the close of market yesterday on the floor of the Nigerian Stock Exchange. In that report, third quarters showed EPS growth more than doubled to N4.80 by 129.9% on year on year underpinned by solid revenue growth and foreign exchange gains, despite the surge in tax charge of N26.6bn in third quarters 2020 as against N7.1bn in third quarters 2019.

According the report, the robust growth in third quarters 2020 EPS drove 9months in 2020 EPS higher to N12.25 growth by 34.6% on year on year from N7.45 in half of 2020. On an annualized basis, the 9months 2020 EPS is 36.7% ahead of our Full Year 2020 forecast of N11.95.

The group’s aggregate revenue grew by 34.2% year on year in third quarter 2020, driven by the improvement in revenue from its Nigerian operations by 45.5% year on year and Pan African operations by 19.8% year on year.

The solid topline performance in third quarters 2020 provided a tailwind for a faster expansion in 9months 2020 where revenue increased by 12.0% year on year from 2.0% year on year in six months of 2020. While analyst awaits confirmation from management, we believe the strong growth in revenue from Nigeria was volume-driven, buoyed by the relaxation of restrictive measures which drove cement demand.

 

In highlight revenue growth in Nigeria is in tandem with the topline growth reported by the other two major players in the industry that is WAPCO: increased by 31.4% year on year and BUACEMENT: increased by 39.7% year on year during the third quarter.

 

On Pan African Operations

Analyst think the confluence of (1) the re-opening of regions challenged (South Africa, Ghana and Congo) during the second quarter, and (2) higher realized prices due to the devaluation of the local currency supported topline growth.  Showed the group’s overall production volume rose to 6.7MMT in third quarters 2020 from 5.45MMT in third quarters 2019.

The report also disclosed that EBITDA grew by 60.6% year on year in third quarters 2020, on the back of revenue growth by 34.2% year on year which outpaced cost of sales ex-depreciation by 22.4% year on year amid sub-inflationary growth in operating expenses ex-depreciation by 5.8% year on year. Accordingly, third quarters in 2020 EBITDA rose to N355.02 billion by17.1% year on year.

 

However, analyst noted that the company faced input cost pressures during third quarter 2020 arising from dollar-linked cost items. This is evidenced in the rise in energy cost by32.2% year on year in third quarter 2020.

However, the company kept a lid on operating expenses as it grew below the inflation rate by5.8% year on year.

 

Analysts from Cordros Research applaud the company’s operational efficiency, as it now delivers volumes directly to customers to reach untapped markets. Furthermore, overall, EBITDA showed margin strengthened by 7.9ppts to 48.1% in third quarters2020.

Further down, earnings received a boost from the moderation in net finance cost declined by 71.6% year on year in third quarters 2020. This was supported by the blend of higher interest income by 1.43x, a foreign exchange gain of N4.76 billion in third quarters 2020 which was absent in third quarters 2019, and the high base finance cost in third quarters 2019 due to foreign exchange losses of N6.99 billion. Adjusting for the impact of the FX gain in third quarters 2020 and FX loss in third quarters 2019, net finance cost would have declined by 14.4% year on year in third quarters 2020.

The company’s net operating cash flow rose by 27.9% year on year to N376.60 billion in third quarters 2020, supporting the growth in cash and cash equivalents by1.31x which fed into the expansion in finance income by 43.2% year on year despite the lower yield environment.

Overall, Profit Before Tax (PBT) surged by 158.6% year on year in third quarters 2020 with related margin improving by 18.4ppts, due to the growth in revenue and FX gain. Following higher tax charge N26.6 billion in third quarters 2020 compared with N7.1 billion in third quarters 2019 while Profit After Tax (PAT) grew slower by 135.1%.

Analysts comment on the above-market revenue growth in Nigeria’s operations which was delivered by the company in the third quarter is a testament to its market leadership position. With the better-than-expected EPS growth in third quarters 2020, analyst further expecting consensus estimates for Full Year 2020 EPS to be reviewed upwards.  From a market standpoint, market expert believe savvy investors took a cue from the strong earnings delivered by WAPCO and BUACEMENT in re-pricing DANGCEM as the share price has gained 16.3% over the past 10 trading days.


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