Culled—Proshare

November 17, 2020

FBNQuest Research

Increasing our EPS forecasts over the 2020-22E period by 26%

Dangote Cement (DangCem) delivered very strong Q3 2020 results. Group sales, up 34% y/y to N284.6bn, were boosted by strong cement demand across Nigeria and major Pan African markets. For Nigeria, cement sales were up 40% y/y to 4.5 million tonnes.

The recovery in demand from a subdued Q2 was driven by:

1) re-starting of construction projects post the COVID-related lockdown;

2) resumption of clinker exports to neighboring countries;

3) growth in new real estate projects due to a relatively lower interest rate environment; and more significantly,

4) reduced rains.

We believe management’s clinker export strategy provides significant upsides for the business such as higher capacity utilisation for local plants as well as stronger fixed cost absorption. DangCem shipped 6 more deliveries of clinker in Q3 since the first batch in Q2. For Pan Africa, demand across Ethiopia, Cameroon and Senegal – important to the group’s strategy outside Nigeria – remain robust; they accounted for c.50% of volume sales in Q3. Of the three, in our view, the most notable near-term risk to the business is growing political tensions in Ethiopia. Given a strong growth outlook, we have raised our cement volumes forecast by 12% to 26.0 million tonnes for 2020E. We do not expect any price increases in Q4.

Given the relatively stronger Q3 performance vs our estimates and a more optimistic near-to-medium term outlook, we have raised our earnings forecasts for the 2020-22E period by around 26% on average. Our 2021E-based price target of N236.6 is up 29.5%. At current levels, our new PT implies a potential upside of 18.3%. We retain our Neutral recommendation on the stock. DangCem shares gained 41% year-to-date which compares with the NSE ASI’s +30% performance.

Q3 PBT and PAT up +159% y/y and +188% y/y respectively

Q3 sales of N284.6bn were up 34% y/y and 25% q/q respectively. Compared with our forecast, sales beat by around 25%. Unit volumes for the group were up by around 24% y/y to 7.1 million tonnes.

For Nigeria, sales grew by 46% y/y to N203.1bn while EBITDA margin expanded by around +591bps y/y to 60%. Pan African sales grew 20% y/y to N87.6bn while EBITDA margin for the region expanded by +458bps y/y to just under 24%. Below the sales line, PBT and PAT advanced by 159% y/y and 188% y/y to N109.1bn and N77.0bn respectively.

Profitability during the period was driven by a gross margin expansion of +522bps y/y to 59.5% and a y/y decline in net finance charges to N5.3bn. Compared with our forecasts, PAT beat by around 28%.