Culled—-Proshare

October 23, 2017/Vetiva Research 

·         Records 45% y/y increase in PAT to ₦193 billion

·         Coal usage across plants now over 50%

·         Noticeable downtrend in quarterly performance amidst low volume roll out

·         Valuation revised, TP cut to ₦234.90

Strong Prices Continue to Drive Impressive Revenues
DANGCEM reported a 37% y/y rise in 9M’17 revenue to ₦604 billion, slightly lower than our ₦607 billion estimate. Across regions, the Cement giant recorded a 35% y/y rise in revenue from its Nigerian operations to ₦417 billion, despite a 19% y/y moderation in volumes (9M’17: 9.6 million Mt). However, on a q/q basis, Q3’17 revenue was down 10% to ₦125 billion – largely driven by a 10% decline in volume to 2.8 million Mt as high prices continue to constrain demand amidst weak private and government consumption and unfavorable construction weather conditions. 

Meanwhile, revenue from Pan-African operations grew by 40% to ₦192 billion amidst price increases and a gradual ramp up in volumes over the 9-month period (8% y/y increase to 7 million Mt). Q/q revenue was also modest across the region, up 3% to ₦67 billion despite a 5% q/q fall in Pan-African volumes to 2.3 million Mt. According to management, the strong Q3’17 performance from Pan-African business was driven by price increases in South Africa and Ethiopia. 

Also, we understand that the Congo plant (1.5 million MT) came onstream as planned and has so far added 5 thousand Mt to Group’s volumes. Overall, the Group reported a 10% y/y rise in 9M’17 volume to 16.5 million Mt (Vetiva estimate: 17.0 million Mt) – but recorded a q/q decline of 9% to 5.0 million Mt.

Coal Usage Continues to Support Nigeria Earnings
Meanwhile, DANGCEM reported a 64% y/y increase in group EBITDA to ₦294 billion, 2% below Vetiva estimate of ₦299 billion. The increase was driven by persistent strong pricing in Nigeria – despite a 10% price rebate observed in August, positive contributions from Pan-African operations, and continued ramp up in use of coal at Obajana (coal usage 9M’17: 57% vs H1’17: 38%) and Ibese (coal usage 9M’17: 56% vs H1’17: 43%) plants. We gathered that the company sources over 50% of the utilized coal from Dangote Industries Limited mines, 27% from local coal miners, and just about 20% is imported – further reducing its cost and Foreign exchange dependence. 

On a q/q basis, Q3’17 EBITDA across Pan-African operations rose 5% to ₦13 billion (30bps increase in EBITDA margin to 18.8%), spurred by cost moderations across plants as well as higher prices across certain regions. However, following price rebates in Q3’17, Nigeria’s EBITDA margin moderated 130bps lower to 64.4% for the quarter. 

Overall, the Group’s Q3’17 EBITDA margin declined marginally to 47.5% (Q2’17: 49.2%). Furthermore, the cement giant reported a net finance cost of ₦13 billion (Vetiva estimate: ₦12 billion), putting 9M’17 PBT at ₦220 billion – 48% higher y/y but 2% below Vetiva expectation of ₦225 billion. However, following a larger-than-expected tax expense of ₦27 billion (Vetiva estimate: ₦17 billion; Q3’17 standalone of ₦16 billion), PAT came in at ₦193 billion (up 45% y/y) for the period – lagging our ₦208 billion estimate.