October 29, 2021/CSL Research
Based on its recently released 9M 2021 results, Dangote Cement recorded a solid 34.2% y/y growth in Revenue to N1.02tn in 9M 2021 from N761.4bn in 9M 2020. In Q3 2021 standalone however, the performance was quite uninspiring relative to Q2 2021 as Revenue was down 7.3% q/q to N284.6bn. According to the management, the torrential rainfall witnessed in Q3 was a drawback. Nevertheless, Annualised 9M 2021 Revenue is slightly ahead of our 2021e by 3.0%. Both volume and price growth supported the increase in Group Revenue in 9M 2021. Cement & Clinker volume grew by 15.4% y/y to 22.2m tonnes in 9M 2021 from 19.2m tonnes in 9M 2020. Meanwhile, price per tonne also rose, up 16.3% y/y to N46,121 per tonne in 9M 2021.
Growth in Cost of Sales (adjusted for depreciation) tracked below revenue growth, up 29.1% y/y (vs Revenue growth of 34.2%) to N347.6bn in 9M 2021. We note that most of the increase in Cost of Sales was in Q2 as Q3 Cost of Sales (adjusted for depreciation) dipped by 17.6% q/q. The double-digit upticks in material (+37.0% y/y) and fuel & power consumed (+35.6% y/y) drove the growth in Cost of Sales (adjusted for depreciation). As a result of the increase, there were price adjustments, especially in the first half of the year, as evidenced by the improved price per tonne (+15.4% y/y). Due to the robust growth in Group Revenue, Gross profit grew by 37.1% y/y to N674.5bn in 9M 2021 from N492.1bn in 9M 2020. In contrast, on a q/q basis, Gross profit tapered down 1.4% to N223.2bn in Q3 2021. Gross margin expanded 1.4ppt y/y to 66.0% in 9M 2021 and 4.1ppts q/q to 67.3% in Q3 2021, supported by the reduced cost of sales in Q3.
Operating Expenses (adjusted for depreciation) rose by 19.0% y/y to N167.3bn in 9M 2021 from N140.5bn in 9M 2020. The growth in Opex mirrors the 18.7% y/y and 20.0% y/y growth in Selling & Distribution Expenses (adjusted for depreciation) and Administrative Expenses (adjusted for depreciation). The marked effect of 109.8% increase in Other Income to N7.2bn in 9M 2021 coupled with the strong Revenue fed into the 44.9% y/y growth in EBITDA to N514.5bn in 9M 2021. Consequently, EBITDA margin also expanded 3.7ppts to 50.3% in 9M 2021 from 46.6% in 9M 2020. Despite the 10.2% y/y rise in Depreciation & Amortisation to N73.9bn, operating performance remained strong as EBIT grew 53.0% y/y to N440.6bn in 9M 2021.
Net Finance Cost surged, up 118.2% y/y to N34.8bn in 9M 2021 from N16.0bn in 9M 2020 as Finance Income declined (down 24.4% y/y) while Finance Cost increased (up 42.0% y/y). The decline in Finance Income was primarily due to the absence of FX gain in 9M 2021 compared with FX gain of N9.8bn booked by the company in 9M 2020. Eliminating the impact of the FX gain, Finance Income would have grown 61.6% y/y. Furthermore, Finance Cost increased due to a 16.4% y/y increase in Interest Expenses on Borrowings and an FX loss of N8.3bn incurred in 9M 2021.
As a result, Pre-Tax profit was up 49.2% y/y to N405.7bn in 9M 2021 from N287.9bn in 9M 2020. Effective tax rate rose significantly to 31.4% in 9M 2021 from 23.3% in 9M 2020. One, the pioneer tax exemption for the Ibese lines and Obajana line in its Nigerian operations ended in 2020. Also, the management attributed the increase in group effective tax rate to intercompany exchange gains. Nonetheless, Net Income still grew 33.4% y/y to N278.5bn in 9M 2021 from N208.7bn in 9M 2020. Overall, Earnings per Share settled at N16.23/s in 9M 2020 compared with N12.25/s in 9M 2020.
We have a target price of N283.16/s with a BUY recommendation on the stock. Current price; N280.00/s. Our numbers are currently being reviewed.
The company will hold a conference call on Monday, 01 November 2021 at 3:30 pm Lagos time to discuss the results.
