FSDH Initial Reaction: BUA Cement 3Q22 results 
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November 1, 2022/FSDH Research

Key Performance Highlights:

• BUA Cement continues to report strong revenue growth, with revenue jumping 18.2% YoY, while profit after tax declined 43.8% YoY in 3Q22. Moreover, the company recorded a subdued performance sequentially as the revenue slipped 19.2% QoQ, and profit declined 55.2% QoQ to N12.7 billion. The 3Q22 cost of sales grew by a relatively higher 35.3% YoY to N45.3 billion from N33.5 billion reported in 3Q21. The increase in the cost of sales was primarily due to the rising inflationary pressures in the economy, resulting in a 51.5% YoY jump in energy cost and a 34.4% YoY increase in material cost. Thus, the gross profit stood at N28.7 billion in 3Q22 as the gross margin contracted 773 bps YoY to 38.8%.
   
• Bua Cement recorded a 31.4% YoY decline in the other income to N72 million in 3Q22 (3Q21:N105 million), driven by lower sundry income. The selling and distribution expenses soared 116.2% YoY to N4.6 billion in 3Q22, coupled with a 38.8% YoY rise in administrative expenses to N2.7 billion in the quarter.
   
• Consequently, Bua Cement recorded a 14.5% YoY drop in operating profit to N21.5 billion in 3Q22, compared to N25.2 billion in 3Q21. Furthermore, the operating margin recorded a massive drop to 29.1% in 3Q22 (3Q21:40.2%). The company reported a net finance cost of N6.9 billion this quarter against a mere N225 million in 3Q21, owing to increased interest expense to N2.9 billion in 3Q22 compared to only N266 million in 3Q21, resulting from capitalization of bond and loan interest on Sokoto line 4. 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 exchange loss of N4.2 billion in 3Q22 (3Q21: NIL) from the wide margin between auction bid rates and the I & E rates. The company reported an effective income tax rate of 12.4% this quarter against 9.1% in 3Q21; consequently, Bua Cement reported a 43.8% YoY decline in the net profit to N12.7 billion in 3Q22. The earnings per share came in at N0.37 in 3Q22 compared to N0.66 in the prior period.
   
• Looking at sequential performance, Bua Cement reported a 19.2% QoQ decline in revenue to N74.0 billion in 3Q22, while the cost of sales was lower at 7.0% QoQ, settling at N45.3 billion. Resultantly, the gross profit fell 33.0% QoQ to N28.7 billion in 3Q22. Selling and distribution expenses were down 5.5% QoQ to N4.8 billion, while the administration expenses edged 0.70% higher to N2.7 billion in 3Q22. Consequently, the profit after taxes slumped 55.2% QoQ to N12.7 billion in 3Q22, compared to N28.2 billion in 2Q22.

Market Reaction: The investor reaction to the mixed 3Q22 results was muted as the Bua Cement stock remained unchanged at N70.00, versus a 1.60% loss for the All-Share Index (28/10).

Bua Cement Earnings Highlights 3Q22

Source: Company Financials, FSDH