October 31, 2023/Cordros Report
BUA Cement Plc (BUACEMENT) published its Q3-23 unaudited financials yesterday (30 October), reporting a standalone EPS of NGN0.37 (-1.6% y/y) bringing the 9M-23 EPS to NGN2.25 (+2.8% y/y). The lower EPS print was due to a 240.4% y/y surge in net finance cost amid increases in COGS ex-depreciation (+63.4% y/y) and OPEX ex-depreciation (+57.4% y/y) in the review period.
Revenue grew by 55.1% y/y in Q3-23 (9M-23: +27.9% y/y). Though management is yet to provide details behind the double-digit growth in revenue, we believe that topline performance was driven by the relatively higher prices in Q3-23 (+19.0% y/y) compared to Q3-22. However, we highlight that cement sales turnover on a q/q basis grew slowly by 0.1%, attributable to reduced sales volume likely impacted by the heavy rainfall in Q3-23.
Gross margin in Q3-23 declined by 300bps y/y to 41.9% as cost of sales ex-depreciation (Q3-23: +63.4% y/y) grew faster than revenue (Q3-23: +55.1% y/y). The higher COGS was driven by increases in raw materials (+47.3% y/y) and energy costs (+26.7% y/y), primarily reflective of inflationary pressures and currency devaluation. Sequentially, EBITDA (-310bps y/y to 34.0%) and EBIT (-60bps y/y to 28.5%) margins weakened further pressured by OPEX ex-depreciation (+57.4% y/y) printing higher.
Further down, BUACEMENT recorded a sharp increase in net finance cost (Q3-23: +240.4% y/y) as the FX losses of NGN24.80 billion and higher interest expense (+59.2% y/y to NGN10.58 billion) ultimately outweighed the accretion recorded in finance income (+20.54ppts to NGN6.08 billion).
Accordingly, PBT dipped by 35.2% y/y in Q3-23, with related PBT margin declining by 11.40ppts to 8.1%. Nonetheless, the Q3-23 tax credit of NGN3.13 billion (vs tax expense of NGN1.78 billion in Q3-22) moderated the decline in earnings as PAT settled slightly lower by 1.4% to NGN12.48 billion.
Management call on 7 November at 3.00 p.m. Nigerian time. Click here to register
Comment: In the review period, BUACEMENT’s performance was negatively impacted by sluggish sales due to heavy rainfall, foreign exchange losses, higher interest expense, and production costs. Going into Q4-23, we are cautiously optimistic that the slash in ex-factory price that management implemented in October will likely drive demand for its products and improve sales volume. In addition, we expect the company to embark on strategies to protect margins by hedging FX positions and moderating production costs. Our estimates are under review.
