May 2, 2023/CSL Research
Dangote Cement reported a marginal decline in Revenue by 1.6% y/y to N406.22bn in Q1 2023 from N413.18bn in Q1 2022 based on its recently released Q1 2023 results. On a q/q basis, performance was disappointing, as Revenue was down by 7.1% q/q from N441.07bn in Q4 2022. We attribute the decline in Revenue to the drop in the company’s production levels, which was down by 10.6% in Q1 2023 as the company continues to battle with worsened supply chain challenges.
Cost of Sales (adjusted for depreciation) was up by 5.5% y/y to N140.01bn in Q1 2023. The y/y growth in Cost of Sales (adjusted for depreciation) was mainly driven by other production expenses (111.2% y/y). Also marginal increases in Fuel & Power consumed (+2.2% y/y) and Plant maintenance cost (+8.8% y/y) contributed to the rise in Cost of Sales. Gross profit declined by 4.9% y/y to N266.7bn in Q1 2023 from N280.5bn in Q1 2022. Similarly, on a q/q basis, Gross profit declined by 8.2% to 266.71bn in Q1 2023 from N290.54bn in Q4 2022 while gross margin shrunk by 2.3ppt y/y to 67.9% in Q1 2023 from 65.6% in Q1 2022.
Operating Expenses (adjusted for depreciation) rose by 13.6% y/y to N82.20bn in Q1 2023 from N71.06bn in Q1 2022. The growth in Opex reflects the 16.9% y/y and 11.4% y/y growth in Selling & Distribution Expenses (adjusted for depreciation) and Administrative Expenses (adjusted for depreciation), respectively. Other Income rose by 45.2% to N1.48bn in Q1 2023. EBITDA declined by 11.9% y/y to N185.71bn in Q1 2023. Consequently, EBITDA margin contracted by 5.3ppts to 45.7% in Q1 2023 from 51% in Q1 2022. A 3.2% y/y rise in Depreciation & Amortisation to N28.84bn contributed to EBIT declining by 14.2% y/y to N157.88bn in Q1 2023.
Net Finance Cost declined by 16.5% y/y to N22.05bn in Q1 2023 from N26.41bn in Q1 2022. While Finance Cost was down 11.6% y/y to N36.8bn, Finance Income was up only 1.1% y/y to N10.47bn. Overall, Pre-Tax profit was down by 6.1% y/y to N146.82bn in Q1 2023 from N156.40bn in Q1 2022. The effective tax rate declined to 26.2% in Q1 2023 from 32.0% in Q1 2022. Given the 26.2% y/y decrease in Tax Expense, growth in Net Income improved, rising by 4.01% y/y to N109.50bn in Q1 2023 from N105.9bn in Q1 2022. Overall, Earnings per Share settled at N6.44/s in Q1 2023 compared with N6.18/s in Q1 2022.
We have a target price of N372.49 for Dangote Cement with a BUY recommendation. Current price; N270.00/s.
Source: Company data, CSL Research
