May 5, 2021/Cordros Report
BUA Cement published Q1-21 unaudited financials on 29th April, reporting PAT growth of 13.0% y/y to NGN22.37 billion while EPS printed N0.66 (+13.0% y/y). The growth in EPS was driven mainly by the strong topline growth (+13.4% y/y), which offset the rise in operating expenses (+15.2% y/y).
Revenue grew by 13.4% y/y to NGN61.19 billion in Q1-21, driven by the combination of increases in sales volumes (+3.5% y/y) and price per tonne (+9.6% y/y). We believe the higher growth in price per tonne than volumes indicates that management offered lower discounts to key distributors. The management action may have been necessitated by the need to mitigate the impact of the local currency devaluation on margins. We highlight that the double-digit revenue growth is consistent with results from the other players in the industry – DANGCEM (+33.5% y/y) and LAFARGE (+12.2% y/y).
EBITDA grew by 21.0% y/y in Q1-21, as the price-led increase in revenue was strong enough to offset the increase in operating expenses ex-depreciation (+15.2% y/y) amidst the single-digit growth in the cost of sales ex-depreciation (+6.3% y/y). Similarly, the EBITDA margin rose strongly by 3.0ppts to 47.6% in Q1-21. However, we highlight that energy cost per tonne (+8.2% y/y) grew faster than the increase in volumes (+3.5% y/y), reflecting the pass-through impact of the local currency devaluation.
Net finance cost rose marginally (+2.8% y/y) in Q1-21, as the decline in interest expense (-31.4% y/y) partly offset the collapse in finance income (-90.3% y/y). We note that the company also reported FX losses of NGN280.00 million in Q1-21, which was absent in Q1-20. The decline in interest income is traceable to the reduction in cash in the bank (-44.1% YTD to NGN68.83 billion).
Overall, PBT grew by 23.1% y/y in Q1-21 with related PBT margin improving by 3.2ppts to 40.5%, supported mainly by the price-led expansion in revenue. Consequent to the jump in tax expense (NGN2.40 billion in Q1-20 vs NGN339.65 million in Q1-20), PAT still grew slower by 13.0% y/y to NGN110.00 billion.
Comment: Although we are not impressed that the revenue growth was price-driven, we think the need to preserve margins due to higher energy cost must have compelled management to review its pricing strategy. However, we anticipate that the Kalambiana line II 3MMT set to come on stream in H2-21 will result in economies of scale that will impact margins positively. As we expressed with the other players, we are concerned that the significant upward movement in yields in the fixed income is likely to cause a slowdown in activities in the real estate sector. The preceding will put some brakes on private sector demand for cement. We have initiated coverage on BUA Cement. Click here to read the report.
