August 1, 2017/InvestmentOne Research
Q2:2017 results highlight: Higher pricing and Improved energy mix boosts performance
§ Mixed topline growth: down -1.8% q/q, up +34. 8% y/y
§ Resilient opex/sales ratio: down -100bps q/q; -520bps y/y
§ Improved PAT performance: up +4.1% q/q; +45.1% y/y
On Friday, DANGCEM published its unaudited Q2 2017 results which were reflective of benefit from higher pricing and improved energy mix on operating performance despite decline in volume in the home market of Nigeria.
On a y/y basis, turnover was up +34.8% y/y to c.N204.5bn with support from appreciable volume growth in Pan-African operation (up +12.6% to 4.7mmt ). Margin wise, gross margin expanded by +687bps y/y to 56.1% , driving the +53.7% y/y growth in gross profit to c.N114.7bn. This, in our opinion, reflects improved energy efficiency from increased usage of gas and coal as opposed to expensive LPFO.
Moving down the P& L line, opex/sales ratio contracted by -520bps y/y. On the flip side, a combination of -92% y/y decline in finance income as well as a -51.3% y/y decline in other income led to a -811bps y/y contraction in PBT margin to 38.4% despite a -88.3% y/y decline in finance cost. PAT margin of 35.9% however expanded by 253bps y/y due to 2189bps y/y decrease in tax burden.
On a sequential basis, turnover was down by a meagre -1.8% q/q reflecting the impact of rainy season on demand. Furthermore, gross margin contracted -170bps q/q driving the -4.7% q/q decline in gross profit. That said, despite a -327% q/q decline in finance income and a 10.9% q/q rise in finance cost, PBT was up by a meagre +1.2% q/q aided by a -100bps q/q contraction in opex/sales ratio.
Overall, the results were headlined by mixed topline performance, recovery in margin as well as contraction in opex/sales ratio.
In the near term, while improved energy efficiency bodes well for earnings, we see drag on volume from impact of elongated rainy season and competition for market share in Nigeria from arch-rival Lafarge.
Over the medium to longer term, we see support to DANGCEM’s performance from its economics of scale advantage as well as government planned y/y increased in CAPEX spending. DANGCEM remains our top pick among universe of cement stocks listed on the Nigerian bourse
Dangote Cement Plc Q2 2017 figures ( N’ millions)
YE(DEC) | Q2 2017 | Q/Q | Y/Y | Actual | Y/Y |
Sales | 204,510 | -1.8% | 34.8% | 412,676 | 41.2% |
Cost of Sales | (89,747) | 2.2% | 16.6% | (177,549) | 27.6% |
Gross Profit | 114,763 | -4.7% | 53.7% | 235,127 | 53.7% |
Gross margin | 56.1% | -170.5bps | 687.3bps | 57.0% | 461.2bps |
Administrative expense | (10,931) | 9.1% | -13.7% | (20,950) | 9.8% |
Selling and distribution expense | (24,130) | -13.1% | 13.6% | (51,890) | 39.4% |
OPEX | (35,061) | -7.2% | 3.4% | (72,840) | 29.4% |
Opex/sales | 17.1% | -100.5bps | -520.8bps | 17.7% | -162.1bps |
Other income | 548 | -17.3% | -51.3% | 1,211 | -10.2% |
Finance Cost | (12,832) | 10.9% | -88.3% | (24,404) | -79.3% |
Finance Income | 10,846 | -327.5% | -92.1% | 16,487 | -88.6% |
PBT | 78,264 | 1.2% | 11.2% | 155,581 | 24.6% |
PBT margin | 38.3% | 112.7bps | -811.5bps | 37.7% | -504.2bps |
Tax Credit/ (Expense) | (4,792) | -29.0% | -75.7% | (11,537) | -46.3% |
Tax rate | 6.1% | -260.1bps | -2189.4bps | 7.4% | -977.6bps |
PAT | 73,472 | 4.1% | 45.1% | 144,044 | 39.3% |
PAT margin | 35.9% | 202.4bps | 253.7bps | 34.9% | -49.0bps |
Source: NSE, Investment One Research
