August 9, 2024/Cordros Report
We update our views on BUACEMENT in this report, after the release of the company’s Q2-24 result. BUACEMENT’s revenue surged by 76.8% y/y in Q2-24, which we believe was supported by a favourable price/volume mix in the year. However, cost pressures and FX losses continued to hold earnings sway, as Q2-24 EPS declined to NGN0.48 (-55.8% y/y). As a result, we maintain our outlook of margins and profitability drain for 2024E and lower our target price by 10.0% to NGN51.27/s (prev.: NGN56.99/s), while retaining our “SELL” rating on the stock. Accordingly, we now forecast EPS of NGN2.51 (prev.: NGN2.60) given the expected sticky pressure from costs and FX losses. Thus, we now estimate a DPS of NGN2.42 in 2024E, translating to a dividend yield of 1.9%. Based on our estimates, BUACEMENT is trading on a 2024E P/E of 51.4x and EV/EBITDA of 32.2x.
Revenue to grow further as headwinds chip away at profits: BUACEMENT’s topline performance is expected to remain stellar, as the reversal of the 2023 price slash continues to pave way for management to adjust cement prices in line with rising operational challenges and boost revenue numbers. Specifically, we forecast revenue to settle 59.2% y/y higher (prev.: +35.4% y/y) in 2024E, driven by a 21.7% y/y increase in volumes and a 30.8% y/y hike in product prices. Over the 5-year forecast period, we expect revenue to grow at a CAGR of +16.9%. Meanwhile, we maintain that production costs will weigh further on margins as the company inflationary, energy and FX-stimulated pressures remain unabated. Thus, our projection is for EBITDA margin (-269bps y/y) to contract to 19.1% (prev.: 23.2%). Furthermore, we highlight that the local currency challenges will continue to impact BUACEMENT given their significant dependence on foreign denominated loans and project a higher net FX loss of NGN74.76 billion (+6.9% y/y | prev.: NGN44.90 billion) for the year. Overall, we now anticipate EPS to print NGN2.51 (+22.3% y/y | prev.: NGN2.60) in 2024E.
Cautious view of performance drive stock value: We acknowledge that our Dec-24 TP for BUACEMENT (NGN51.27/s) falls short of consensus estimate (NGN60.50/s) due to our cautious stance on the company’s performance. For context, stellar revenue print as a result of a favourable price/volume mix has been the only driver of profitability over the years. While the company has sustained the revenue growth momentum, cost overruns have continued to go unchecked, leading to constantly diminishing margins and efficiency. Thus, we are wary that any sudden shock to demand dynamics or faster-than-anticipated cost pressures would strain performance, potentially impeding earnings growth or even trigger losses. Elsewhere, we note that the company’s market valuation (PE & EV/EBITDA) has remained at a significant premium to peers as the stretched price on the counter remains unjustifiable.
Valuation: Our target price is NGN51.27/s, derived from an 80/20 blend of DCF and sector relative valuation (P/E & EV/EBITDA) estimates. Our DCF FV is derived from an equal blend of FCFF (NGN50.40/s) and FCFE (NGN61.58/s) estimates, assuming a 20.2% WACC and a 4.0% terminal growth rate. On P/E, we utilised the Bloomberg Middle East & African (MEA) peer average 2024E multiple of 14.2x. Applying this to our 2024E EPS estimate of NGN2.51/s gives a FV of NGN35.62/s. Similarly, for EV/EBITDA, we also utilised the 2024E Bloomberg MEA peer average (8.0x) and derived a fair value estimate of NGN29.23/s.
