March 1, 2022/CSL Research

Based on its recently released FY 2021 results, Dangote Cement sustained the upbeat it started the year with, recording a solid 33.8% y/y growth in Revenue to N1.38tn in FY 2021 from N1.03bn in FY 2020. The actual full-year Revenue is slightly ahead of our 2021 estimates by 3.7%. In Q4 2021, performance was moderately better compared to Q3 2021 as Revenue was up by 9.0% q/q to N361.5bn. In line with our prognosis, Q4 revenue was the highest in the year as the quarter is historically proven to be the best quarter for the cement players. One, the early dry season in Q4 is best suited for construction and housing developments in Nigeria. Moreso, the euphoria towards completing many residential homes before the yuletide season amidst the newly launched 3MT Okpella plant to capture growing cement demand must have also aided growth. Specifically, Revenue from the Nigerian operations increased by 38.7% y/y to N993.4bn in FY 2021 on the back of higher realized prices (+18.1% y/y)  and strong volume growth (+16.8% y/y). Similarly, for the Pan African region, Revenue increased by 24.7% y/y to N397.3bn in FY 2021 owing to better price per tonne (+14.6% y/y) and volume growth (+8.8% y/y).

Growth in Cost of Sales (adjusted for depreciation) lagged Revenue growth, up 27.4% y/y (vs. Revenue growth of 33.8%) to N475.1bn in FY 2021. We note that most of the increase in Cost of Sales in the year came from Q2 and Q4, with a growth of 15.7% q/q and 17.5% q/q, respectively. The y/y growth in Cost of Sales (adjusted for depreciation) was mainly driven by double-digit upticks in Material consumed (+30.0% y/y) and Fuel & Power consumed (+34.4% y/y), which grew stronger than Revenue growth (+33.8% y/y). Nevertheless, due to the robust growth in Group Revenue, Gross profit grew by 37.4% y/y to N908.6bn in FY 2021 from N661.2bn in FY 2020. Similarly, on a q/q basis, Gross profit rose, up 4.9% to N234.0bn in Q4 2021. Gross margin expanded by 1.7ppt y/y to 65.7% in 2021 from 63.9% in 2020. Meanwhile, Gross margin tapered by 2.5ppts q/q to 64.7% in Q4 2021 relative to Q3, due to a faster growth in Cost of Sales (+17.5% q/q) in Q4 compared to Revenue growth of 9.0% q/q.

Operating Expenses (adjusted for depreciation) rose by 22.0% y/y to N231.2bn in FY 2021 from N189.5bn in FY 2020.  The growth in Opex reflects the 28.2% y/y and 6.6% y/y growth in Selling & Distribution Expenses (adjusted for depreciation) and Administrative Expenses (adjusted for depreciation), respectively. The marked effect of a 30.9% increase in Other Income to N6.2bn in FY 2021 coupled with the strong Revenue fed into the 43.5% y/y growth in EBITDA to N683.6bn in FY 2021. Consequently, EBITDA margin also expanded 3.3ppts to 49.4% in FY 2021 from 46.1% in FY 2020. Despite the 12.5% y/y rise in Depreciation & Amortisation to N100.8bn, operating performance remained strong as EBIT grew 50.6% y/y to N582.8bn in FY 2021.

Net Finance Cost surged, up 217.1% y/y to N44.9bn in FY 2021 from N14.2bn in FY 2020 as Finance Income declined (down 30.4% y/y) while Finance Cost increased (up 49.4% y/y). The decline in Finance Income was primarily due to cumulative FX losses of N8.8bn incurred by the firm in 2021 compared with an FX gain of N16.6bn booked by the company in the prior year. Eliminating the impact of the FX loss, Finance income would have grown 57.5% y/y. Furthermore, Finance cost increased due to a 28.1% y/y increase in Interest Expenses on Borrowings, partly on the back of higher average interest rate of 10.75% in 2021 compared to 9.67% in 2020.

Overall, Pre-Tax profit was up 44.3% y/y to N537.9bn in FY 2021 from N372.7bn in FY 2020. Effective tax rate rose significantly to 32.4% in FY 2021 from 26.1% in FY 2020. Nonetheless, Net Income still grew 32.1% y/y to N364.0bn in FY 2021 from N275.5bn in FY 2020. Overall, Earnings per Share settled at N21.24/s in FY 2021 compared with N16.14/s in FY 2020.

The management proposed a final dividend of N20.0/s, representing a 25.0% increase relative to N16.0/s in 2020 and implying a dividend yield of 7.3% based on the last closing price of N273.50/s.

We have a target price of N294.42/s with a BUY recommendation on the stock. Current price; N273.50/s. Our numbers are currently being reviewed.

The company will hold a conference call today, Monday, 01 March 2022 at 3:00 pm Lagos time to discuss the results.

Source: Company financials, CSL Research