April 30, 2024/Cordros Report
BUA Cement Plc (BUACEMENT) released its Q1-24 unaudited financials yesterday (29 April), reporting an EPS decline of 33.0% y/y to NGN0.53 in Q1-24 (Q1-23: NGN0.79). Despite the stellar revenue growth (+51.5% y/y), the combined impact of higher COGS ex-depreciation (+116.8% y/y) and FX losses (NGN10.06 billion vs FX gain of NGN1.71 billion in Q1-23) in the period under review pressured earnings.
BUACEMENT’s revenue surged by 51.5% y/y in Q1-24, which we believe was driven by an increase in sales volume and higher cement prices. On the latter, management noted during the 2023FY earnings call that they were only able to sustain the slash in ex-factory price to NGN3,500.00 for about four months but had to retrace on the decision given the unfavourable FX dynamics and energy prices and the resultant effect on business performance. As a result, the company’s cement price was adjusted upwards as of 2023 year-end in line with rising cost challenges and in a bid to ensure a decent profit margin for the company’s shareholders.
Notwithstanding, gross margin declined considerably by 20.73ppts to 31.1%, due to a 116.8% y/y rise in cost of goods ex-depreciation. We note that the major drivers for the higher production cost were increases in the cost of materials (+156.2% y/y), energy (+147.1% y/y), and operation and maintenance service charges (+281.5% y/y). Consequently, cost of sales margin advanced to 68.9% in Q1-24, relative to the 48.1% in Q1-23.
Accordingly, the company’s EBIT (-15.3ppts) and EBITDA (-17.3ppts) margins weakened to 20.8% and 25.0%, respectively, in Q1-24 amid a 2.4% y/y moderation in operating expenses ex-depreciation in the quarter.
Furthermore, net finance costs fell by 53.8% y/y, primarily due to the 49.4x y/y increase in finance income amid a 10.4% y/y increase in finance cost. Following the naira depreciation in Q1-24, we highlight that the group recorded FX losses of NGN10.06 billion (vs FX gain of NGN1.71 billion in Q1-23).
Sequentially, pre-tax profit declined by 40.0% y/y to NGN21.29 billion in Q1-24. Nevertheless, profit after tax moderated by 33.0% y/y (NGN17.97 billion vs Q1-23: NGN26.80 billion) supported by a lower tax charge of NGN3.32 billion (-61.7% y/y) in Q1-24.
Comment: BUACEMENT’s performance was in tandem with our expectations as we envisaged topline expansion will be accomplished while accelerating costs will continue to pressure earnings. Looking ahead, we think revenue growth should be sustained and cost challenges remain quite sticky. We highlight that the company’s significant FX exposure – 90.0% of loans, raw materials importation and FX-linked energy sources – in the face of persisting currency pressures pose as an inhibiting factor to earnings in subsequent quarters. Our estimates are under review.
