May 24, 2022/CSL Research

Dangote Cement also had a fair share of the impact of the current inflationary pressures, FX depreciation and supply chain disruptions on business volumes as its group volume was down 3.6% y/y to 7.2m MT in Q1 2022. However, the combined better price realization (up 28.9% y/y) from both its Nigerian and Pan African operations came to the rescue, resulting in Revenue growth of 24.2% y/y in Q1 2022.  Net Income was N105.5bn in Q1 2022, a 17.6% growth compared to Q1 2021.  

Despite current production challenges faced by the Nigerian cement producers, which have led to aggressive price hikes, the demand for cement remains strong. Hence, the industry player with sufficient capacity to capture the growing demand will have a competitive edge and that puts Dangote Cement in a favourable position, given its sizable market capacity from its plants including its new 3million MT Okpella plant. However, the management noted low gas availability in its Nigerian operations, affecting production volume. Likewise, shutdown and extended plant maintenance in some of its plants in the Pan-African region (Congo and Senegal) also impacted volume growth in that region. Also, elevated bottlenecks in the Pan-African segment may affect volume growth.  

We forecast price growth of 18.9%, which will be the main driver of the group’s topline performance for the year while we expect subdued volume growth of 5.4% due to the identified concerns. We have revised our model and the overall effect is an upward review to our target price to N338.48 from N294.42, with an upside potential of 12.8% based on the last closing price of N300/s. We maintain our HOLD recommendation. On a relative valuation basis, the cement producer is currently trading at a 2022e EV/EBITDA of 7.0x compared with its EM peer average of 12.3x.

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