August 29, 2024/CSL Research
In H1 2024, BUA Cement reported a substantial 64.6% y/y increase in Revenue, reaching N363.94 billion, up from N221.07 billion in H1 2023. On a quarterly basis, Revenue also grew significantly, rising by 25.9% to N202.81 billion in Q2 2024 from N161.13 billion in Q1 2024. This strong Revenue performance is attributed to increases in both price and volume. The rise in sales volume reflects heightened demand, driven by increased government capital expenditure (CAPEX) and expanded private-sector activity, as the government continues to prioritize infrastructure development, keeping cement demand robust.
Despite government efforts to regulate cement prices, we expect prices to continue rising in 2024, driven by prevailing macroeconomic conditions. We project a 13.7% y/y increase in the average cement price to N79,220 in 2024. We also forecast a 44.2% increase in sales volumes, with an average of 9.5 million metric tonnes expected in 2024. Overall, driven by these anticipated increases in both price and volume, we forecast full-year Revenue of N 754.17 billion in 2024, marking a 64.0% y/y growth from the previous year’s Revenue of N405.50 billion.
We are concerned about the company’s ability to control its escalating costs. Without a stronger focus on cost-cutting measures, the company’s bottom line may remain pressured in the medium to long term. We maintain our target price of N77.52/s and reiterate our SELL recommendation on the stock. Our target price implies a 68.1% downside potential from the last closing price of N113.9/s. Our target price is derived using a blend of Discounted Cash Flow (DCF) and Relative Valuation methods, weighted equally at 50:50. The stock is currently trading at an EV/EBITDA multiple of 25.86x, significantly higher than the industry average of 12.04x.
In H1 2024, BUA Cement reported a substantial 64.6% y/y increase in Revenue, reaching N363.94 billion, up from N221.07 billion in H1 2023. On a quarterly basis, Revenue also grew significantly, rising by 25.9% to N202.81 billion in Q2 2024 from N161.13 billion in Q1 2024. This strong Revenue performance is attributed to increases in both price and volume. The rise in sales volume reflects heightened demand, driven by increased government capital expenditure (CAPEX) and expanded private-sector activity, as the government continues to prioritize infrastructure development, keeping cement demand robust.
Despite government efforts to regulate cement prices, we expect prices to continue rising in 2024, driven by prevailing macroeconomic conditions. We project a 13.7% y/y increase in the average cement price to N79,220 in 2024. We also forecast a 44.2% increase in sales volumes, with an average of 9.5 million metric tonnes expected in 2024. Overall, driven by these anticipated increases in both price and volume, we forecast full-year Revenue of N 754.17 billion in 2024, marking a 64.0% y/y growth from the previous year’s Revenue of N405.50 billion.
We are concerned about the company’s ability to control its escalating costs. Without a stronger focus on cost-cutting measures, the company’s bottom line may remain pressured in the medium to long term. We maintain our target price of N77.52/s and reiterate our SELL recommendation on the stock. Our target price implies a 68.1% downside potential from the last closing price of N113.9/s. Our target price is derived using a blend of Discounted Cash Flow (DCF) and Relative Valuation methods, weighted equally at 50:50. The stock is currently trading at an EV/EBITDA multiple of 25.86x, significantly higher than the industry average of 12.04x.
| Source: Company, CSL Research |
Volume and Price increases drive Revenue growth.
In its recently released unaudited H1 2024 results, BUA Cement reported a substantial 64.6% y/y increase in Revenue, reaching N363.94 billion, up from N221.07 billion in H1 2023. On a quarterly basis, Revenue also grew significantly, rising by 25.9% to N202.81 billion in Q2 2024 from N161.13 billion in Q1 2024. This strong Revenue performance is attributed to increases in both price and volume. The rise in sales volume reflects heightened demand, driven by increased government capital expenditure (CAPEX) and expanded private-sector activity, as the government continues to prioritize infrastructure development, keeping cement demand robust.
Moreover, the commencement of the company’s new production lines 3 and 5 at the Obu and Sokoto plants, which expanded BUA Cement’s production capacity to 17 million metric tonnes from the previous 11 million metric tonnes, significantly contributed to the increased sales volumes. This expansion is expected to have a positive impact on the company’s sales growth trajectory moving forward. Despite government efforts to control cement prices, we anticipate that prices will continue to rise in 2024, remaining responsive to macroeconomic conditions. We project a 13.7% y/y increase in the average cement price to N79,220 in 2024. We also forecast a 44.2% y/y increase in sales volumes, with an average of 9.5 million metric tonnes expected in 2024. Overall, driven by these anticipated increases in both price and volume, we forecast full-year revenue of N 754.17 billion in 2024, marking a 64.0% y/y growth from the previous year’s revenue of N405.50 billion.
Cost pressures continue to mount.
Cost of Sales (adjusted for depreciation) was up by 131.8% y/y to N244.20bn in H1 2024 from N105.36bn in H1 2023. We observed that most of the cost increases came from operation and maintenance service charges (278.44% y/y), energy cost (+171.68% y/y), and materials (140.749% y/y). The elevated inflationary pressures, and rising energy costs have raised the cost of the company significantly. Despite the rise in Cost of Sales, Gross profit rose marginally by 3.5% y/y to N119.74bn in H1 2024 while Gross margin contracted by 1,944bps y/y to 32.9% in H1 2024 from the 52.3% recorded in H1 2023.
Operating Expenses (adjusted for depreciation) increased significantly, up 44.74% y/y to N24.41bn in H1 2024 from N16.86bn in H1 2023. The rise was driven by increases in both Administrative Expenses adjusted for depreciation (up 88.5% y/y to N10.53bn) and Selling & Distribution Expenses adjusted for depreciation (up 23.1% y/y to N13.87bn). Other Income which comprises insurance claims, government grants, and sundry income declined by 86.1% to N137m from N983m in H1 2023. EBITDA decreased by 4.4% to N95.47bn in H1 2024 from N99.83bn in H1 2023 while EBITDA margin also contracted by 1,893bps to 26.2% in H1 2024 from 45.2% in H1 2023. Depreciation and Amortisation was up by 4.9% to N13.52bn in H1 2024. Consequently, the company’s Operating Profit declined by 5.7% y/y to N81.96bn from N86.94bn in H1 2023.
Though the company noted that it has continued its transition from Heavy Fuel Oil (HFO) to Liquefied Natural Gas (LNG) across its plants in a bid to stem rising energy costs, we remained concerned about the company’s ability to control its escalating costs. Without a stronger focus on cost-cutting measures, the company’s bottom line may remain pressured in the medium to long term. Overall, we estimate EBITDA of N98.23bn in 2024, which translates to an EBITDA Margin of 13% in 2024, a significant decline from the 22% in 2023.
Net Finance Cost for BUA Cement decreased by 87.1% to N1.08bn in H1 2024 from N8.38bn in H1 2023. The decline reflects a significant y/y rise in Finance Income to N9.80bn in H1 2024 from N2.22bn recorded in H1 2023. Finance Cost also rose to N10.88bn from the N10.59bn recorded in H1 2023. The company’s FX losses increased significantly to N39.98bn in H1 2024 from N2.14bn in H1 2023, driven by the continuous devaluation of the Naira. We have forecasted FX losses to reach N83.93bn in 2024, an increase from the N69.96bn recorded in 2023
Consequently, Pre-Tax profit was down by 47.5% y/y to N40.13bn in H1 2024 from N76.43bn in H1 2023 while Net Income declined by 46.2% to N34.25bn in H1 2024 from N63.62bn in H1 2023. Earnings per share (EPS) declined by 46.3% y/y to N1.01/s for H1 2024 from N1.88/s in H1 2023. Looking ahead, we believe profitability will decline in 2024 and we forecast an 8.0% decline in PBT to N58.38bn in 2024.
Valuation
We maintain our target price of N77.52/s and reiterate our SELL recommendation on the stock. Our target price suggests a 68.1% downside potential from the last closing price of N113.9/s, indicating that we believe the stock is currently overvalued at its current levels. Our target price is derived using a blend of Discounted Cash Flow (DCF) and Relative Valuation methods, weighted equally at 50:50. The stock is currently trading at an EV/EBITDA multiple of 25.86x, significantly higher than the industry average of 12.04x.
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BUA Cement H1 2024 Earnings Review.pdf
