March 9, 2022/Cordros Report
Dangote Cement Plc delivered impressive earnings in 2021FY, reporting a record PAT of NGN364.44 billion (+32.0% y/y), translating to an EPS of NGN21.19 (+31.2% y/y). The solid growth in earnings was propelled by broad-based expansion in Nigeria and Pan African revenues together with gains from operational efficiencies underpinned by efficient production techniques. In 2022, we expect a favourable price volume mix across its regions of operations combined with effective cost management to remain supportive of earnings. However, we expect slower momentum in earnings growth given our materially lower forecast on revenue growth (+11.1% y/y in 2022E vs +38.1% in 2021FY) from Nigerian operations (accounted for 71.8% of group revenue in 2021FY). Following the addition of 6MMT new capacity in Nigeria over the past two years, Management has guided to a less capital-intensive expansion cycle, which will be focused on building grinding plants across West and Central Africa. Overall, we estimate EBITDA and PBT of NGN757.28 billion (+10.8% y/y) and NGN625.25 billion (+16.1% y/y), respectively, in 2022E.
Group Revenue to Grow Slower in 2022 on Reduced Sales in Nigeria: The group’s aggregate revenue grew by 33.8% y/y in 2021FY, driven by broad-based expansion across Nigerian (+38.0% y/y) and Pan African (+24.7% y/y) operations. For Nigeria operations, the revenue growth was driven mainly by higher price per tonne (+18.1% y/y) and volumes (+16.8% y/y to 18.6MMT). We believe the strong volume sales in Nigerian operations reflects gains from the recovery in activities in the real estate sector, led by individual homebuilders amidst weak public sector demand. For context, the real estate sector grew 2.3% in 2021FY (vs contraction of 9.2% in 2020FY). We believe the double-digit increase in price per tonne was necessitated by the need to shield margins from inflationary and foreign exchange pressures, which drove cash cost per tonne 38.9% y/y higher than the increase in volumes (+16.8% y/y). Though we expect private sector demand to remain resilient in 2022, we envisage increased sensitivity to prices at the retail end of the market. Accordingly, we estimate lower expansion in Nigeria cement volumes (+9.5% y/y in 2022E vs 16.8% y/y in 2021FY). On Pan African Operations, Management noted that the volume growth (+8.7% y/y to 10.9MMT in 2021FY) was driven by the strong outturn in Tanzania, Senegal, and Ethiopia. Over 2022E, we estimate Pan African volumes will grow by 5.3% y/y to 11.2MMT, underpinned by fiscal spending on infrastructure projects, building projects in the corporate sector, and increased demand for residential housing. All in, we estimate group sales of NGN1.56 trillion in 2022E (+12.6% y/y vs +33.8% y/y growth in 2021FY).
EBITDA Margin to Weaken Marginally on Slower Topline Expansion Amidst Cost Pressures: Group EBITDA grew by 43.5% y/y in 2021FY, as the topline growth (+33.8% y/y) overshadowed the increases in the cost of sales ex-depreciation (+22.9% y/y) and OPEX ex-depreciation (+30.7% y/y). Similarly, the EBITDA margin rose by 3.3ppts to 49.4% in 2021FY. We believe the expansion in the group’s EBITDA margin was buoyed by the substantial increment in price per tonne in Nigerian operations (+18.1% y/y) and operational efficiencies given the improvement in OPEX/sales ratio (16.7% in 2021FY vs 18.3% in 2020FY). We see little scope for significant upward adjustments in prices given the significant increment implemented in the prior year. As a result, we estimate 2022E EBITDA will grow slower by 10.8% y/y (vs 43.5% y/y in 2021FY), while EBITDA margin will moderate to 48.6% from 49.4% in 2021FY.
Valuation: The net impact of the changes to our model is an increase in our target price to NGN298.85 (previously: NGN272.55/s). Based on the limited potential upside of 9.9%, we maintain our HOLD rating on the stock. Accordingly, on our 2022E EPS of NGN24.95 (+16.3% y/y), we estimate a DPS of N22.46, implying a dividend yield of 8.2% based on the price of NGN273.50/share (March 8). On our estimates, DANGCEM is currently trading on a 2022E P/E of 10.9x and EV/EBITDA multiple of 6.4x.
