March 1, 2024/Cordros Report
BUA Cement Plc (BUACEMENT) released its 2023FY audited financials yesterday (29 February), reporting an EPS of NGN2.05 (2022FY: NGN2.98). The significant decline in the company’s EPS was due to rising COGS ex-depreciation (+42.1% y/y) and OPEX ex-depreciation (+12.8% y/y) amid further drain from the huge FX losses (+12.7x y/y to NGN69.96 billion) incurred for the year. BUACEMENT’s board has proposed a final dividend of NGN2.00/s, translating to a dividend yield of 1.3%, based on the closing price of NGN150.00/s (29 February).
Revenue grew by 27.4% y/y in 2023FY (2022FY: +40.3% y/y), boosted by sales from its Nigerian market (+27.9% y/y), even as export earnings (-10.4% y/y) contracted. While management is yet to provide further details on the topline print, we attribute the strong growth to the favourable price/volume mix in Q2-23 underpinned by improvements in real estate and construction sectors’ demand. Sequel to the price slash instituted in October 2023, we note that sales turnover sustained its growth momentum, settling higher at 8.1% q/q in Q4-23.
Gross margin declined by 575bps to 44.2% in 2023FY, undermined by the heightened cost of sales ex-depreciation (+42.1% y/y) growth. Notable increases on BUACEMENT’s cost line stemmed from energy consumption (+35.2% y/y) – highlighting the impact of rising energy costs – and operation and maintenance service charges (+40.8% y/y) during the period.
Consequently, the group’s EBITDA margin contracted by 508bps to 37.0%, further exacerbated by a growth in OPEX ex-depreciation (+12.8% y/y), following a 59.7% y/y increase in selling and distribution (ex-depreciation) expenses.
Further down, net finance costs (+794.2% y/y) surged in 2023FY, driven by a marked increase in FX losses (+12.7x y/y to NGN69.96 billion) and interest expenses (+88.9% y/y to NGN19.94 billion) amid a higher interest income balance (+563.5% y/y to NGN12.88 billion). On the FX losses, we highlight that NGN52.48 billion is attributable to losses from financing of the group’s capacity expansion (incl. other ancillary activities), while NGN17.47 billion emanated from losses on foreign trade payables.
Sequentially, PBT fell by 44.0% y/y to NGN67.23 billion in 2023FY. After accounting for a tax credit of NGN2.23 billion (vs tax expense of NGN19.14 billion in 2022FY), PAT settled lower at 31.2% y/y to NGN69.45 billion.
Management call on Thursday (March 14) at 3.00 p.m. Nigerian time. Click here to register.
Comment: We like that BUACEMENT was able to sustain revenue expansion despite the dampened industry-wide demand in the year as the adjustment of its ex-factory price in Q3-23 supplemented topline performance. However, sticky production and operating cost pressures continued to weigh on the group’s margins amid the naira devaluation in 2023FY further diminishing earnings growth. Going into 2024E, we anticipate the group will maintain its topline growth as it ramps up production volume from its newly commissioned 3.00mmtpa lines at the Sokoto and Obu Plants. Furthermore, we envisage the new 70MW gas power plant in Sokoto and planned activation of the 70MW gas power plant at Obu in Q1-24, will likely reduce energy costs in the near term and provide some needed respite for profit margins. Our estimates are under review.
