July 26, 2022/CSL Research
BUA Cement’s H1 2022 numbers were strong, as Revenue grew by 51.7% y/y to N188.6bn in H1 2022 from N124.3bn in the prior period (H1 2021). However, on a q/q basis, Revenue was down by 5.6% to N91.6bn in Q2 2022 from N96.98bn in Q1 2022. We believe the torrential rainfall seen in Q2 2022 may have limited cement demand in Q2 2022. Amongst its peers in Q1 2022, BUA Cement was the only player who managed to deliver volume growth in Q1 2022 (+26.2% y/y). However, as of writing, the management is yet to provide details of the drivers of the solid revenue growth in H1 2022, but we believe it will be price-volume mix as seen in Q1 2022. We recall that the firm commissioned its 3 million MTPA line 4 in its Kalambaina plant in Q1 2022.
Cost of Sales (adjusted for depreciation) grew in line with Revenue growth, up 50.5% y/y (vs. Revenue growth of 51.7%) to N89.7bn in H1 2022 from N59.6bn. We observed that most of the cost increases came from energy cost (+64.7% y/y to N43.6bn), and materials (+48.2% y/y to N28.0bn). We note that apart from the y/y increase in volume produced that may have necessitated cost increment, the company is also facing inflationary pressures and the impact of FX depreciation on energy prices. Given the robust Revenue growth, Gross profit still grew 52.8% y/y to N98.8bn in H1 2022 while Gross margin also expanded by 38bps y/y to 52.4% in H1 2022.
Operating Expenses (adjusted for depreciation) jumped significantly, up 83.4% y/y to N11.5bn in H1 2022 from N6.3bn in H1 2021. The astronomical increase was driven by both Administrative Expenses adjusted for depreciation (up 30.2% y/y to N5.0bn) and Selling & Distribution Expenses adjusted for depreciation (up 169.1% y/y to N6.5bn). Despite the cost pressures, EBITDA remained resilient, up 49.7% to N87.5bn in H1 2022. EBITDA was also boosted by a 175.8% y/y increase in Other Income to N200m, much of it arising from significant increased Insurance claims. On the other hand, EBITDA margin decreased by 63bps to 46.4% in H1 2022 from 47.0% in H1 2021. Despite a 23.2% y/y increase in Depreciation and Amortisation to N9.8bn, growth in Operating Profit accelerated, rising by 53.9% y/y to N77.7bn from N50.5bn in H1 2021.
BUA Cement recorded a steep increase in Net Finance Costs by 245.3% y/y to N2.8bn in H1 2022 from N824.0m in the prior period (H1 2021). Despite the increase in Interest Income (+256.0% y/y), the steep increase reflects a 246.1% y/y increase in Interest Expense to N3.2bn in H1 2022, further supported by a significant y/y increase (+257.2% y/y) in Exchange loss to N1.1bn in H1 2022. Increase in Exchange loss arose from the wide margin between auction bid rates and the I&E rates. Consequently, Pre-Tax profit grew significantly, up 50.7% y/y to N74.9bn in H1 2022.
Effective Tax Rate increased significantly to 18.1% in H1 2022 from 12.7% in H1 2021. As a result, Net Income climbed slower, growing by 41.4% y/y to N61.4bn in H1 2022 from N43.4bn in H1 2021. Earnings per share was up 41.4% y/y to N1.81/s for H1 2022 from N1.28/s in H1 2021.
Our estimates are under review. Current Price; N69.30/s.
Source: Company data, CSL Research
