July 27, 2022/FSDH Research

FSDH Initial Reaction: BUA Cement 2Q22 results 

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Key Performance Highlights:

• BUA Cement continues to report strong YoY results, with revenue jumping 45.2%, while profit after tax surged 34.2% YoY in 2Q22. However, the company recorded a subdued performance sequentially as the revenue slipped 5.6% QoQ, and profit declined 14.8% QoQ to N28.2 billion. The 2Q22 cost of sales grew by a relatively lower 42.9% YoY to N48.7 billion from N34.1 billion reported in 2Q21. The increase in the cost of sales was primarily due to the rising inflationary pressures in the economy, resulting in a 64.7% YoY jump in energy cost and a 48.2% YoY increase in material cost. Thus, the gross profit stood at N42.9 billion in 2Q22 as the gross margin expanded 86 bps YoY to 46.8%.
• Bua Cement recorded a 71.6% YoY decline in the other income to N14 million in 2Q22 (2Q21:N50 million), driven by lower sundry income. The selling and distribution expenses soared 148.7% YoY to N4.8 billion in 2Q22, coupled with a 21.5% YoY rise in administrative expenses to N2.7 billion in the quarter. Consequently, Bua Cement recorded a 42.1% YoY rise in operating profit to N35.4 billion in 2Q22, compared to N24.9 billion in 2Q21. However, the operating margin recorded an 82 bps YoY drop to 38.6% in 2Q22. The company reported a net finance cost of N2.8 billion this quarter against a net finance income of N55 million in 2Q21, owing to increased interest expense to N2.9 billion in 2Q22 compared to N50 million in 2Q21, resulting from capitalization of bond and loan interest on Sokoto line 4, partially offset by a 178.9% rise in interest income. It’s worth noting that the company has mentioned that there will not be any more bond and loan interest capitalization on Sokoto line 4, accounting for the interest expenses increase. The company also recorded a massive 257.2% increase in exchange loss from the wide margin between auction bid rates and the I & E rates. The company reported a lower effective income tax rate of 13.3% this quarter against 15.6% in 2Q21; consequently, Bua Cement reported a 34.2% YoY jump in the net profit to N28.2 billion in 2Q22. The earnings per share came in at N0.83 in 2Q22 compared to N0.62 in the prior period.
• Looking at sequential performance, Bua Cement reported a 5.6% QoQ decline in revenue to N91.6 billion in 2Q22, while the cost of sales was marginally lower at 0.2% QoQ, settling at N48.7 billion. Resultantly, the gross profit fell 11.1% QoQ to N42.9 billion in 2Q22. Selling and distribution expenses spurted 48.5% QoQ to N4.8 billion, while the administration expenses edged 2.0% lower to N2.7 billion in 2Q22. Consequently, the profit after taxes slipped 14.8% QoQ to N28.2 billion in 2Q22, compared to N33.1 billion in 1Q22. The board of directors approved a dividend of ₦2.60 kobo per share in respect of the period ended December 31, 2021 (2020: ₦2.07 kobo per share).
• On July 25, 2022, BUA Cement announced that the company is discussing with the consortium led by International Finance Corporation (IFC) to obtain a loan for the expansion of BUA Cement’s integrated cement plant in Kalambaina, Sokoto State, Nigeria, which shall include increasing its capacity from 2.0 million tons per annum (MTPA) to 8.0 MTPA and the development of other ancillary utilities (the Expansion Project).
• Furthermore, earlier this month, speaking at the AGM, Abdul Samad Rabiu, Chairman of BUA Cement, mentioned that the aim is to invest more in the cement industry until Nigeria is self-sufficient, and cement is readily available, accessible, and affordable for all Nigerians. Furthermore, Mr. Rabiu disclosed that the company’s ongoing projects will be completed in 2023. They will increase the cement company’s installed capacity to 17Mta, solidifying BUA’s position in the Nigerian cement industry and positioning the company to take advantage of export opportunities. Engr Yusuf Binji, the company’s MD, added that when the company’s installed capacity increases by 2023, BUA Cement “will be better positioned to increase existing export volumes and, in the process, take advantage of some of the benefits of the African Continental Free trade Area.”

Market Reaction: The investor reaction to solid 2Q22 results was muted as the Bua Cement stock remained unchanged at N69.30, versus a 1.86% loss for the All-Share Index (26/7).

Bua Cement Earnings Highlights 2Q22

FSDH Research
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