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Dangote Cement Maintains Dominance With Strong Earnings

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…Reaps benefits of pan-African expansion

Dangote Cement Plc recently released its full-year earnings report for the period ended December 31, 2017 to the Nigerian Stock Exchange (NSE), strengthening investors’ interest and confidence. It was also helped by the impressive dividend proposed on the strength of a significant improvement in performance.

The growth in the Pan African segment has become more apparent over the years- as the segment contributed 32.1 per cent in 2017. No doubt, the strategy of continuous expansion continues to support the earnings of the cement giant.

In 2017, the segment recorded total volumes of 9.37MT, an increase of 8.4 per cent year-on-year, with strong performances in Cameroon 14.8 per cent year-on-year,  Ethiopia 13.2 per cent year-on-year and Senegal 21.4 per cent year-on-year.

Dangote Cement also extended its frontier into two new markets in 2017, Sierra Leone and Congo, which recorded initial contributions of 91kt and 32kt respectively to total sales volumes growth.

Also, shareholders of the company are surely in for a good deal as the company’s directors have recommended an increase of 23.5 per cent in the dividend payout to the shareholders, for the period under review. The amount will translate to N178.9 billion as against a dividend of N8.70 kobo per share that was paid in the corresponding period of 2016.

The company’s group revenue grew by 31 percent, from N615.1 billion in 2016   to N805.6 billion, while its net profit   rose by 43 percent, from N142.86 billion to N204.25 billion. Earnings per share rose to N11.65 compared to N8.78 at the previous year indicating an increase of 32.7 percent.

A breakdown of the report indicated that while sales from the three plants in Nigeria contributed N552.36 billion to the group’s revenue, the balance of N258.44 billion was accounted for by plants in other African countries. Revenue attributable to Nigeria grew by 29.6 percent while that from Pan-African operations rose by 32.5 percent.

Though group sales volumes were lower by seven percent due to depressed Nigerian market, Pan-African sales volumes went up by 8.4 percent to 9.4Mt with strong volume increases in Senegal, Ethiopia and Cameroon and new capacities of 1.5Mta in Congo, 0.5Mta in Sierra Leone.

Acting group chief executive officer, Dangote Cement, Joe Makoju, speaking on the results said, “Dangote Cement turned in a record year with revenues up 31 percent to N805.6bn and EBITDA up by 50.9 percent to N388.1bn. Although Nigerian volumes were lower in 2017, our Pan-African operations increased volumes by 8.4 per cent and now make up 42 per cent of the Group’s total cement sales, demonstrating the robust diversification of our business.

“We expanded our footprint from eight countries to ten with the opening of new facilities in the Republic of Congo and Sierra Leone, while our operations in Cameroon, Senegal and Ethiopia achieved strong sales growth during the year. With total sales volumes of nearly 22 million tonnes, we are by far the leading manufacturer of cement in Sub-Saharan Africa.”

Recently, the chairman of the company, Aliko Dangote, while presenting the 2016 reports to the shareholders said the company’s strategy in every country of operations is to be the leader on costs, quality and service.

He said the company build large, modern, highly efficient plants that combine the latest equipment from Europe, China and beyond to enable it make higher-quality cement at lower costs, thereby giving it strong competitive advantages.

CardinalStone Research said “In 2018, we see scope for further growth in pan African segment as Dangote Cement continues to gain grounds in these countries. Moreover, we envisage increased contribution from Sierra Leone and Congo. Altogether, we expect total volume to settle at 10.77MT in full year 2018, 15 per cent year-on-year growth and revenue to N290.8 billion.

“Thus, increasing revenue contribution of the non-Nigerian segment to 33.2 per cent from 32.1 per cent in 2017. Overall, we project group full year 2018 revenue to settle at N915.7 billion.

“While our outlook on the counter remains bright, we have made slight downward adjustments to our full year 2018 PAT projections, in light of the recent developments in regard to the tax rate. Consequently, using a blend of DDM, EV/EBITDA and FCFE valuation methodologies, we arrived at a target price of N291.69, with a potential upside of 14.4 per cent, based on the last close price of N255.00 on March 26, 2018. Therefore, we recommend a HOLD.”

Analysts ARM Securities Research also said, “Going into 2018, we remain broadly positive on Dangote Cement and expect the company to sustain earnings growth, albeit at a much slower pace than 2017. Specifically, we see volume induced revenue growth and lower energy as key drivers of earnings in full year 2018, relative to the price-induced growth story in prior year.”

On pricing, ARM Research said, “we believe with Nigeria gross margin now ahead of the pre-crisis level of ~61.8%, the argument for leaving prices at currently elevated levels to compensate for cost pressures will fall apart.”

Cordros Capital noted that the management is targeting seven to 10 per cent volume growth in 2018, saying that stable cement prices and broadly better economic and infrastructure spending outlook in Nigeria are enablers.

Outside Nigeria, Cordros noted that Ethiopia, Senegal and Cameroon are expected to continue to perform strongly, and importantly, utilization rate in Tanzania is expected to average 45 to 50 per cent compared to 25 per cent in 2017, as the plant starts running on gas from May.

“Whilst acknowledging pressure from competition, management said it expect its Pan Africa prices to be stable from last year and will likely raise prices, specifically in Ethiopia, to offset the impact of last year’s devaluation on prices,” they said.

Cordros estimated group sales volume of 24.5 million tones, comprising 14 million tonnes in Nigeria and 10.5 million offshore.

Dangote Cement is Africa’s leading cement producer with nearly 46Mta capacity across Africa. A fully integrated quarry-to-customer producer, with a production capacity of 29.25Mta in its home market, Nigeria.  Obajana plant in Kogi state, Nigeria, is the largest in Africa with 13.25Mta of capacity across four lines; Ibese plant in Ogun State has four cement lines with a combined installed capacity of 12Mta and  Gboko plant in Benue state has 4Mta.

Through recent investments, Dangote Cement has eliminated Nigeria’s dependence on imported cement and has transformed the nation into an exporter of cement serving neighbouring countries. In addition, Dangote Cement have operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (1.5Mta import), Ethiopia (2.5Mta), Senegal (1.5Mta), Sierra Leone (0.5Mta import), South Africa (2.8Mta), Tanzania (3.0Mta), Zambia (1.5Mta).


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