March 16, 2017/Cordros Research
We have raised DANGCEM’s 2017 EBITDA and PAT slightly higher to N329.9 billion (previously N323.8 billion) and N212.7 billion (previously N209.7 billion) respectively, following (1) significant decline in Nigerian energy cost in Q4-2016 which came earlier than expected, (2) additional price adjustment also in Nigeria, and (3) likely resolution of fuel challenges in Tanzania. Consequently, we have increased target price by 8% to N187.52, while retaining HOLD recommendation on 16.83% upside. Altogether, we like DANGCEM’s forward-looking approach, and continue to rate the company high in our universe of cement companies. The stock has lost 7.8% YtD and trades at 11% discount to SSA peers on 11.2x FPE.
Our EBITDA scenarios in Nigeria range from (1) N296.4 billion on -11% volume and N38,855/tonne price, (2) N257.7 billion on -23% volume and N38,855/tonne price, (3) N284.1 billion on +8% volume and N32,000/tonne price, (4) N270.7 billion on +3% volume and N32,000/tonne price, and finally (5) N277.4 billion on +6% volume and 32,000/tonne price. 12-month target price under these scenarios ranges from N166.19-N187.52, representing 3.5%-16.83% upside from market value.
