April 26, 2022/Cordros Report

BUA Cement published Q1-22 unaudited financials last week Friday (April 22), which showed that PAT expanded by 48.2% y/y to NGN33.14 billion while EPS settled at NGN0.98 (+48.2% y/y). The growth in EPS was due to the double-digit topline growth and moderation in net finance cost.

BUA Cement delivered double-digit revenue growth of 58.5% y/y in Q2-22, akin to LAFARGE (+26.8% y/y). Though management is yet to provide details behind the increase in revenue, we believe the topline growth was price-driven, given the significant hike in prices implemented in the prior year. In addition, we think resilient private sector demand for cement provided another layer of support.

EBITDA grew by 55.9% y/y in Q1-22, as revenue growth (+22.9%) was strong enough to neuter the increases in cost of sales ex-depreciation (+58.7% y/y) and OPEX ex-depreciation (+88.8% y/y). We note that the surge in OPEX was due to the sharp increases in admin expenses (+42.4% y/y) and selling and distribution expenses (+171.3% y/y). On the latter, we note that marketing expenses and overheads spiked by 338.1% y/y in Q1-22, suggesting management intensified spending on marketing to drive sales. As a result of cost pressures, the trickle-down impact of the revenue growth on margins was limited as the EBITDA margin weakened by 0.8ppts to 47.7% in Q1-22 (Q1-21; 48.5%).

Earnings were also lifted by the steep moderation in net finance cost (-96.5% y/y), supported mainly by the decline in finance cost (-60.7% y/y). We attribute the substantial reduction in finance cost to the positive impact of refinancing expensive debt with a cheaper source of finance in 2020. We recall that BUA Cement issued a local bond of NGN115.00 billion in December 2020, which was partly utilised to settle expensive facilities.  

Overall, PBT grew by 71.0% y/y to NGN42.35 billion in Q1-22, with related PBT margin improving by 3.2ppts to 43.7%. Following the jump in tax expense (+283.1% y/y to NGN9.20 billion in Q1-22), PAT grew slower by 48.2% y/y to NGN33.14 billion.

Comment: We like that BUA Cement was able to leverage the favourable pricing environment in delivering double-digit revenue growth. Just like we stated for LAFARGE, we are concerned about the sustainability of the current pricing environment in driving topline growth, given continued cost pressures (particularly energy cost) which may warrant further price increments to preserve margins. In addition, we expect the momentum in private sector demand for cement to moderate this year as activities in the real estate sector normalise to pre-pandemic levels. Our estimates are under review.