July 30, 2021/CSL Research

Dangote Cement in its H1 2021 results reported a 44.8% y/y growth in Revenue to N690.5bn in H1 2021 from N476.9bn in H1 2020. In Q2 2021 standalone, performance was quite modest as Revenue was up 7.6% q/q to N357.7bn (Q2 compared with Q1 2021). Thus, the significant y/y growth in Revenue can be attributed to the low base effect in H1 2020 in the wake of the pandemic when the top line was pressured. Favourable price and increased volumes drove the increase in Group Revenue, with the latter (cement & clinker volume; +26.1% y/y to 15.3Mt) having a stronger impact than the former (price per tonne; +14.8% y/y to N45,202/tonne).

As observed with peers, growth in Cost of Sales (adjusted for depreciation) tracked Revenue growth, up 40.0% y/y to N239.2bn in H1 2021 from N170.2bn in H1 2020. The growth in Cost of Sales (adjusted for depreciation) was driven by double-digit increases in materials consumed (+46.7% y/y) and fuel & power consumed (+53.5% y/y) both of which grew stronger than volume growth (+44.8% y/y) which implies increased cost pressures resulting in the recent price hikes. The impact of currency adjustments on inputs highly susceptible to FX shocks continues to impact earnings. Nevertheless, Gross profit grew by 47.5% y/y to N451.4bn in H1 2021 from N306.0bn in H1 2020. Gross margin expanded 1.2ppt y/y to 65.4% in H1 2021 from 64.2% in H1 2020

Similarly, Operating Expenses (adjusted for depreciation) rose by 17.3% y/y to N106.3bn in H1 2021 from N90.7bn in H1 2020. The growth in Opex was driven by a 16.7% y/y and 19.0% y/y growth in Selling & Distribution Expenses (adjusted for depreciation) and Administrative Expenses (adjusted for depreciation), respectively. The marked effect of a 120.8% y/y increase in Other Income to N6.1bn in H1 2021 coupled with strong Revenue fed into the 61.0% y/y growth in EBITDA to N351.1bn in H1 2021 from N218.1bn in H1 2020. Consequently, EBITDA margin expanded 5.1ppts to 50.8% in H1 2021 from 45.7% in H1 2020. Despite the 9.6% y/y increase in Depreciation & Amortization to N48.9bn, operating performance remained strong as EBIT grew 74.2% y/y to N302.2bn in H1 2021.

Net Finance Cost surged, up 97.1% y/y to N20.9bn in H1 2021 from N10.6bn in H1 2020 as Finance Income moderated (down 8.0% y/y to N9.4bn) while Finance Cost spiked (up 45.5% y/y to N30.4). Asides from elevated borrowings, the surge in Finance Cost was primarily due to the FX loss of N4.9bn incurred by the company in H1 2021 compared with nothing in H1 2020. Closely, the decline in Finance Income was on the back of no FX gains booked in H1 2021 relative to N5.0bn booked in the prior period. Save for the FX gains, Finance Income would have grown by 80.0% y/y reflecting strong cash generation as Cash & Cash equivalents grew 46.8% y/y to N151.7bn as of H1 2021.

Overall, Pre-Tax profit was up 72.7% y/y to N281.3bn in H1 2021 from N162.8bn in H1 2020. Effective tax rate grew to 31.9% in H1 2021 from 22.5% in H1 2020. Thus, Tax Expense grew significantly, up 144.2% y/y to N89.6bn in H1 2021 from N36.7bn in H1 2020. Against the odds, Net Income still grew 51.9% y/y to N191.6bn in H1 2021 from N126.1bn in H1 2020. Thus, a significant boost to earnings per share, which grew N11.2/s in H1 2021 compared with N7.45/s in H1 2020.

We have a BUY recommendation on the stock with a target price of N256.79/s. Current price; N248.00/s