Event

Dangote Cement Plc (‘The Group’) reported a 24% revenue growth in Q1 2022, driven by higher prices as volumes declined. Sales volume declined across the Group’s two markets. In its Nigerian market, volume sales declined by 2% YoY while it declined by 8% YoY in the Pan African market. The management attributed production constraints as the reason for the volume decline, on the back of supply chain challenges, gas disruptions, and scheduled plant maintenance. We believe that competitive pressures also affected volume decline. We premised our anecdotal evidence on the Group’s other competitors who recorded volume growth during the same period and these companies also experienced similar global and domestic macroeconomic challenges.

Based on our analysis, average prices grew by 36% YoY in the Nigerian market. Hence, revenue rose by 34% YoY to N321.92bn. In the Pan African market, average prices grew by 6% YoY. However, revenue declined by 2% YoY because of a steeper decline in volumes.

Margins Expand on the Back of Higher Distribution Expense

The Group’s operating margin declined by 200 basis points to 44% in Q1 2022, attributed to higher operating expense during the period. Operating expense increased by 37% YoY to N77.62bn, largely driven by higher haulage costs. We relate this development to the recent pressures on energy prices.

Solid Bottomline Growth Despite Higher Funding Cost

Net finance cost grew by 22% YoY to N26.41bn, induced by a 72% YoY increase in foreign exchange losses. Nonetheless, profit before tax grew by 20% YoY while profit after tax grew by 18% YoY to N105.85bn.

Outlook

Although the Group experienced production challenges in Q1 2022, we believe that the demand is still strong in the cement industry, and we expect to see sustained double-digit growth in the subsequent quarters. We premise our growth expectation on effective higher pricing and a low double-digit volume growth.

We maintain our previous forecasts as the Group’s performances are in line with our earlier projections. Our fair value estimate is N294.31 with a FY 2022 EPS forecast of N25.98. This implies a justified price to earnings ratio of 11.33x. At the current market price of N300.00, the stock trades at an 11.55x forward P/E. Therefore, we believe that the stock is already trading around its fair value. Based on about 5% total return (inclusive of a 7% dividend yield), we recommend a HOLD.

Please click the link “Dangote Cement Plc Q1 2022 – Thriving Despite Operational Challenges” to view the whole report on Dangote Cement Plc.

Thank you.