July 31, 2023/Cordros Report

BUA Cement Plc (BUACEMENT) released its Q2-23 unaudited financials on Friday (28 July), reporting a standalone EPS of NGN1.09 in Q2-23 (Q2-22: NGN0.83), bringing the H1-23 EPS to NGN1.88 (H1-22: NGN1.81). The growth in EPS is attributable to the higher revenue (+25.3% y/y) recorded in the period. The board has announced a final dividend per share of NGN2.80 for 2022FY (vs 2021FY: NGN2.60), implying a dividend yield of 2.8% based on the last closing price of NGN98.95 (28 July).
 
BUACEMENT’s revenue increased by 25.3% y/y in Q2-23 (H1-23: 17.2% y/y), which we believe was driven by an increase in sales volume from a possible boost in investments in the real estate and construction sectors combined with higher pricing instituted within the year. On a q/q basis, we highlight that revenue advanced by 7.9% y/y.
 
Gross margin (+528bps) expanded to 27.7%, following the faster revenue growth (+25.3% y/y) relative to costs (+22.6% y/y). The increased cost of sales highlights the effects of higher raw material and energy costs amid sustained inflationary pressures.
 
The company’s operating expenses ex-depreciation increased by +7.0% y/y in Q2-23 due to higher distribution costs (c.50.0% of total OPEX) rising by 84.2% y/y in Q2-23. Nonetheless, the company’s EBIT (+380bps) and EBITDA (+280bps) margins advanced to 42.4% and 47.8%, respectively, in Q2-23, supported by moderation in administrative expenses ex-depreciation (-55.7% y/y to NGN1.10 billion).
 
Further down, net finance costs surged by 179.5% y/y, primarily due to a 93.2% y/y increase in finance costs. We note that the surge in finance costs emanated from higher interest payments (+57.1% y/y) in the period, compounded by exchange rate losses (+102.9% y/y).
 
Pre-tax profit grew by 26.0% y/y to NGN41.01 billion in Q2-23. Consequently, profit after tax increased by 30.6% y/y (NGN36.86 billion vs Q2-22: NGN28.22 billion) following a decline of 3.9% y/y in tax expense (NGN4.15 billion vs Q2-22: 4.32 billion).
 
Comment: We like that BUACEMENT put out a strong showing in Q2-23, despite headwinds from FX volatility and the high cost of raw materials and energy. Although these issues remain downside factors, we envisage the company will maintain positive performance levels for 2023FY. Our estimates are under review.