Dangote Cement Plc Q1-21: Firing on All Cylinders

May 3, 2021/Cordros Report

Image Credit: Dangote Cement Plc

Event: DANGCEM published Q1-21 unaudited financials last week Friday (30th April), reporting solid growth in both topline and bottom line. Earnings surprised positively as PAT rose by 46.5% y/y to NGN89.71bn while EPS grew by 46.6% y/y to N5.28 in Q1-21. For context, the company has already achieved 32.5% of the EPS of NGN16.24 recorded in FY-20 and 30.6% of our 2021E EPS of NGN17.26. The growth in EPS was driven mainly by the strong topline growth (+33.5% yy) and further aided by the sub-inflationary growth in OPEX (+6.9% y/y).   

The group’s aggregate revenue grew by 33.5% y/y to NGN332.65 billion in Q1-21, driven by broad-based expansion across Nigerian operations (+33.7% y/y) and Pan African operations (+33.1% y/y). The revenue growth in Nigeria was driven mainly by volumes (+22.2% y/y to 4.91MMT) compared to the price per tonne (+9.4% y/y). We believe the robust sales volumes in Nigeria was supported by demand from the private sector, fueled by an increased appetite for real estate assets. Management also highlighted that realised prices increased due to lower rebates offered to key distributors. On Pan African Operations, the translation impact arising from the Nigerian Naira’s devaluation combined with the expansion in sales volumes (+13.4% y/y to 2.58MMT) drove the increase in the topline. Group’s overall sales volume increased by 18.7% y/y to 7.52MMT in Q1-21. 

Group EBITDA grew by 20.5% y/y in FY-20, as the topline growth (33.5% y/y) trumped the increase in the cost of sales ex-depreciation (+21.8% y/y) amidst the sub-inflationary growth in operating expenses ex-depreciation (+6.9% y/y). Similarly, the EBITDA margin rose strongly by 7.7ppts to 53.5% in Q1-21.  On a geographical basis, Nigeria EBITDA margin strengthened by 8.3ppts to 65.9%, supported by robust sales volumes, higher realised prices (as mentioned earlier) and higher recovery in transportation cost. On the other hand, Pan African Operations EBITDA strengthened by 4.6ppts to 25.5% in Q1-21 (Q1-20; 20.9%), the highest on record and substantially above the four-year average of 15.6%. According to management, the sturdy increase in Pan African margins was due to solid performances in Senegal and Cameroon.

Net finance cost rose significantly (+481.5% y/y) in Q1-21 on the back of a jump in interest expenses on debt (+67.1% y/y to NGN14.87 billion) which offset the increase in interest income (+137.3% y/y to NGN3.65 billion). We note that the company also reported FX losses of NGN10.62 billion in Q1-21, which was absent in Q1-20, amplifying the jump in net finance cost. The strong growth in interest income is traceable to the increase in cash and cash equivalents (+45.2% y/y to NGN147.87 billion).   

Overall, PBT grew by 46.7% y/y in Q1-21 with related PBT margin improving by 3.5ppts to 39.1%, on the back of the moderation in net finance cost and gains from cost management. Despite higher tax charge (+47.1% y/y in Q1-20), PAT still grew by 46.5% y/y to NGN89.71 billion.

Comment: We are impressed with the strong EBITDA margins delivered in its Nigeria operations despite the impact of the devaluation in the local currency on energy cost. We also like that the company has hit the ground running by exploiting the additional 3MTA added to the Obajana cement plant in August 2020. Management alluded to the fact that economies of scale associated with the additional capacity contributed immensely to the strong performance in Nigeria and, by extension, group level. Notwithstanding, we remain concerned that the significant upward movement in yields in the fixed income is likely to cause a slowdown in activities in the real estate sector. The preceding will put some brakes on private sector demand for cement. Our estimates are under review.

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