Dangote Cement Plc Q3/9M 2020 Results: An All-round Positive Performance

November 11, 2020/InvestmentOne Report

·         Turnover Performance: up by 25.00% q/q and 34.20% y/y.

·         Gross margin performance: up by 264bps q/q and 522bps y/y.

·         OPEX/Sales ratio: down by 216bps q/q and 638bps y/y.

·         PBT Margin Performance: up by 549bps q/q to 38.34%, from 19.90% in Q3 2019. 

Dangote Cement published its Q3 2020 results displaying an impressive growth in topline on the back of rise in volume sales. Furthermore, the cement producer was able to keep a lid on its costs as gross margin improvement as well as lower OPEX/sales supported bottom-line performance. 

Stunning Volume Performance

Dangcem’s Q3 performance reflected the growth in overall volume sales (up 23.92% y/y to 7.09mmt) across its Nigerian and Pan-African market. While Nigerian sales were up 39.86% y/y to 4.51mmt, Pan-African volumes increased by 9.23% to 2.73mmt. While lower rainfall in Nigeria relative to last year and the recovery from lockdown and restrictions may have supported volume performance in Nigeria and other Pan-African markets, management affirmed that low interest rate environment in the Nigerian fixed income space increased the appetite for real estate investment.  

In addition, following its maiden shipment of clinker from its new Apapa port in Q2 2020, the company continued to thrive on its export strategy in the third quarter of the year as it affirmed the resumption of exports by land while also shipping six clinker vessels. Elsewhere, the performance in its Pan-African operations was on the back of improved volume sales in Ethiopia and Senegal.  

Furthermore, we estimate that its average cement price was up by about 4.31% y/y and 9.67% y/y in the Nigerian and Pan-African market respectively, owing to lower discounts dished out during the quarter. The higher cement price was more than enough to offset rise in COGS (up 18.87% y/y) in the quarter as its GPM registered at 59.55%, a 522bps jump from the same quarter in the previous year. We point out that, the increase in COGS during the quarter resulted from increase in energy cost (N5,644.53/ton , up 6.70% y/y) and material consumed (N33.89billion, up 18.82% y/y). As in the case of other cement producers, energy costs was largely impacted by the devaluation of Naira, which increased the gas price as it is priced in dollars. 

Bottom line Holds Stable

Following through from above, the company’s OPEX inched up by 1.22% y/y to N55.72billion on the back of positive impact of cash and cost optimisation programmes across its Nigerian and Pan-African operations. In addition, OPEX/sales ratio dropped by 638bps y/y to 19.58% as the producer saw rapid growth in topline. 

Moving on, a 71.59% y/y fall in net finance cost – fostered by increased finance income and FX gains – pushed PBT margin up to 38.34%, from 19.90% recorded in the same period last year. We opine that the increase in finance income may not be unconnected with improvement in the company’s cash balance (up 92.38% y/y) through which it may have gained interest income. 

So Far So Good

Group volume sales (19.21mmt), so far this year, is up 6.56% y/y despite the COVID-19 pandemic and lockdown measures imposed during the quarter. The cement manufacturers’ 9m numbers came in decent with topline increasing by 12.01% y/y to N761.44billion, as a 5.07% y/y increase in average price combined with improved group volume sales. Management affirmed that their National Consumer Promo (Bag of Goodies Season 2), shorter rainfalls and increasing real-estate activities drove growth in the Nigerian cement market while other Pan-African markets continued to recover following the easing of restrictions and lockdown measures. 

Furthermore, gross profit margin improved by 96bps y/y to 58.30%, while we saw OPEX/sales and net finance cost drop by 265bps y/y and 52.76% y/y respectively; these filtered into the bottom-line as PBT margin improved by 664bps y/y to 35.72%. 

What Next?

Going into the last quarter of the year, we expect the company’s topline performance to remain stable, as cement demand is likely to be sustained barring any significant weather changes. However, volume demand from the public sector may be weak as government revenue generation for the rest of the year comes under pressure.  

Nonetheless, we opine that its export strategy should bode well for topline performance in the medium and long term given the existing demand for cement and clinker in West Africa. This should also bode positively for FX revenue as well as lower clinker cost for some of its grinding factories/subsidiaries in Africa.

Source: Company’s Financials, Investment One Research

*Estimated from our model

Source: Company Financials, Investment One Research