March 20, 2018/FBNQuest Research
Event: Dangote Cement reports Q4 2017 results
Implications: Upward revisions to consensus 2018 PBT forecast likely
Positives: Sales and PBT up by 17% y/y and 116% y/y respectively
Negatives: After-tax loss of –N16.1bn due to negative surprise in OCI
This afternoon, the NSE published Dangote Cement’s (DangCem) Q4 2017 results which showed that PBT grew by a stellar 116% y/y to N69.4bn. The underlying drivers behind the marked y/y growth in earnings were a 17% y/y expansion in sales, a 799bp y/y expansion in gross margin to 54.7% and an -86% y/y reduction in net interest expense.
To a lesser extent a N2.2bn profit from associates related to DangCem’s investment in Onigbolo Cement in Benin Republic also contributed. These positives completely offset a 53% y/y rise in opex. In contrast to the stellar earnings growth posted above the tax line, DangCem reported an after-tax loss of –N16.1bn, driven by a negative result of –N21.8bn in other comprehensive income (OCI) and a significant increase in income tax rate to 84% (vs. 11% Q4 2016). Sequentially, Sales and PBT grew by 6% q/q and 7% q/q respectively. However, the after-tax loss of –N16.1bn was a complete divergence from the PAT of N43.2bn that the company reported in Q3 2017.
On a full year basis, sales and PBT were up by 31% y/y and 60% y/y to N805.6bn and N289.6bn respectively. However, due to the negative result on the OCI line, PAT declined by -22% y/y to N195.1bn. Management has proposed a dividend of N10.35 per share, which is up 24% y/y and broadly in line with our and consensus DPS forecasts of N10.1 and N10.7 respectively. The DPS imply a yield and pay-out ratio of 3.9% and 90.4% respectively.
Although unit volumes for Nigeria are still under some pressure, it appears that demand is starting to pick up slowly. Based on management’s statement, unit volumes for Nigeria showed a slower rate of decline of -4% y/y to 3.09 million metric tonnes (mmt), compared with the -16% y/y decline to 2.8mmt in Q3 2017. We would be looking to get more evidence on this point on the company’s conference call which is billed to hold later today (see details below). In contrast, unit volume growth for the pan-African operation was up by around 11% y/y in Q4 to around 2.3mmt, driven by strong performances in Cameroon, Ethiopia and Senegal.
DangCem’s 2017 PBT came in slightly ahead of consensus 2017 PBT forecast of N280bn. As such, we expect to see upward revisions to consensus 2018 PBT forecasts. Although we do not expect the market to focus on the negatives in the results (mainly the OCI and the after-tax loss) we expect to see a somewhat subdued reaction from the market.
We rate the shares Neutral. Our estimates are under review.