July 30, 2024/Cordros Report
BUA Cement Plc (BUACEMENT) released its Q2-24 unaudited financials yesterday (29 July), reporting an EPS decline of 55.8% y/y to NGN0.48 (Q2-23: NGN1.09). This decline is primarily attributed to increased costs (+146.0% y/y) and substantial FX losses during the period. Similarly, H1-24 EPS fell by 46.2% y/y to NGN1.01 (H1-23: NGN1.88).
BUACEMENT’s Q2-24 revenue surged by 76.8% y/y to NGN202.81 billion (H1-24: +64.6% y/y to NGN363.94 billion). We attribute this robust growth to improved sales volumes due to elevated demand and expanded production capacity following the commissioning of the Obu Line 3 and Sokoto Line 5 factories in January 2024, alongside higher cement prices during the period.
However, the company faced considerable cost pressures, reflected in the gross margin falling by 18.48 ppts y/y to 34.3% (H1-24: -19.44 ppts y/y to 32.9%), following a 146.0% y/y rise in the cost of sales (ex-depreciation). The sharp rise in production costs was primarily due to higher raw material costs (+126.9% y/y | 35.4% of COGS) and energy costs (+194.2% y/y | 55.2% of COGS), driven by the broader inflationary environment, currency weakness and high diesel costs.
Thus, EBITDA margin declined by 20.58 ppts y/y to 27.2% in Q2-24 (H1-24: -18.93 ppts y/y to 26.2%), exacerbated by a 117.4% y/y increase in operating expenses (ex-depreciation). The OPEX outturn was fueled by higher staff costs (+71.3% y/y) and distribution costs (+49.8% y/y).
In Q2-24, BUACEMENT reported a net finance income of NGN740.62 million (vs NGN4.02 billion net finance cost in Q2-23), supported by a 212.8% y/y increase in interest income and a 2.8% y/y decline in interest expenses. In contrast, net foreign exchange losses surged by 677.7% y/y to NGN29.92 billion. For H1-24, net finance costs declined by 87.1% y/y to NGN1.08 billion, while FX losses increased significantly to NGN39.98 billion (H1-23: NGN2.14 billion).
Consequently, profit before tax declined by 54.0% y/y to NGN18.84 billion (Q2-23: NGN40.96 billion), leading to a 55.8% y/y decrease in profit after tax to NGN16.28 billion (Q2-23: NGN36.82 billion), on a tax expense of NGN2.56 billion (Q2-23: NGN4.15 billion).
Comment: Costs and foreign exchange pressures continue to overshadow the company’s impressive topline performance, significantly impacting margins. Nonetheless, we anticipate continued revenue growth in the next quarter, bolstered by increased sales volume amid contributions from the new factory lines. However, persistent cost challenges due to inflationary pressures and heightened foreign exchange exposure will further exert downward pressure on margins. Our estimates are under review.
