August 1, 2022/CSL Research

Dangote Cement reported a double-digit Revenue growth of 17.0% y/y to N808.0bn in H1 2022 from N690.5bn in H1 2021, based on its recently released H1 2022 results. On a q/q basis, growth between Q2 and Q1 2022 moderated, as Revenue was down by 4.4% q/q to N394.9bn from N413.2bn in Q1 2022.

Just as the global economic space was disturbed by geo-political tensions, worsened supply chain challenges, and heightened inflation in Q1 2022, Dangote Cement experienced gas supply challenges and group sales volume was down 7.0% y/y to 14.2m MT. Meanwhile, these challenges were amplified on the back of an already low gas generation in its Nigerian operations.

Also, production volume in its Pan-African operations was down amidst the global supply chain disruption and rising commodity prices, further exacerbated by the shutdown of its Congo plant for months and an extended power plant maintenance in its operations in Senegal. In essence, price increments came to the rescue.

Specifically, Revenue from the Nigerian operations increased by 26.1% y/y to N622.98bn in H1 2022, supported by a 33.2% y/y increase in price per tonne, which compensated for the 5.3% y/y decline in volume. On the other hand, for the Pan African region, Revenue declined by 6.8% y/y to N185.1bn in H1 2022 owing to a more significant decline in volume (-11.0% y/y) which outweighed the growth in price per tonne (+4.8% y/y).

Growth in Cost of Sales (adjusted for depreciation) tracked Revenue growth, up 17.4% y/y (vs. Revenue growth of 17.0%) to N280.9bn in H1 2022. With the decline in volume, it is evident that the firm had to contend with inflationary pressures, energy disruptions and supply chain challenges. The y/y growth in Cost of Sales (adjusted for depreciation) was mainly driven by double-digit upticks in Fuel & Power consumed (+31.3% y/y to N129.96bn), Plant maintenance cost (+23.8% y/y to N25.59bn), and Salaries (+28.1% y/y to N23.8bn). Material consumed also grew slightly by 3.2% y/y. However, still resilient, due to the robust growth in Group Revenue, Gross profit grew by 16.8% y/y to N527.2bn in H1 2022 from N451.4bn in H1 2021. On a q/q basis, Gross profit fell, down 12.0% to N246.7bn in Q2 2022 from N280.5bn in Q1 2022. Gross margin contracted by 0.1ppt y/y to 65.2% in H1 2022 from 65.4% in H1 2021.

Operating Expenses (adjusted for depreciation rose significantly, up 46.9% y/y to N156.2bn in H1 2022 from N106.3bn in H1 2021. The growth in Opex reflects the 58.9% y/y and 12.2% y/y growth in Selling & Distribution Expenses (adjusted for depreciation) and Administrative Expenses (adjusted for depreciation), respectively. A 65.3% y/y increase in haulage expenses drove the surge in Selling & Distribution expenses. Besides, the marked effect of a 73.5% y/y fall in Other Income to N1.6bn in H1 2022 moderated growth in EBITDA, which was up 6.1% y/y to N372.5bn in H1 2022. Consequently, EBITDA margin contracted by 4.7ppts to 46.1% in H1 2022 from 50.8% in H1 2021. Despite the 12.1% y/y rise in Depreciation & Amortisation to N54.8bn, operating performance remained resilient as EBIT grew 5.2% y/y to N317.8bn in H1 2022.

Net Finance Cost surged, up 154.2% y/y to N53.2bn in H1 2022 from N20.9bn in H1 2021. The growth in Net Finance Cost came from a 147.9% y/y increase in Finance Cost to N75.2bn, which masked the 233.9% y/y increase in Finance Income to N22.0bn. Given the elevated Net Finance Cost, Pre-Tax profit declined by 5.9% y/y to N264.5bn in H1 2022 from N281.3bn in H1 2021. Effective tax rate rose to 35.1% in H1 2022 from 31.9% in H1 2021. Consequently, Net Income declined, down by 10.4% y/y to N171.8bn in H1 2022 from N191.6bn in H1 2021. Overall, Earnings per Share settled at N10.10/s in H1 2022 compared with N11.21/s in H1 2021.

We have a Hold recommendation with a target price of N338.48/s. Current price; N265.00/s.

The company will hold a conference call on Wednesday, 03 August 2022 at 3:00 pm Lagos time to discuss the results.

Source: Company financials, CSL Research