October 28, 2024/InvestmentOne Report

Remarkable Revenue Growth: In its recently released 9M:2024 unaudited financial report, Dangote Cement Plc posted a 69.06% revenue growth to NGN2.56trn, up from NGN1.51trn in the corresponding period of the previous year. This was mostly driven by price increases with a mix of volume expansion. Group sales volume marginally increased by 1.90% YoY to 20.70 million metric tonnes, due to the rebound in Nigeria volumes to 13.20 million metric tonnes. However, the production cost of sales materially increased, as the high inflationary environment drove cost up by 51.89% YoY – with fuel and power consumed being the major contributor to this surge. Additionally, raw material cost significantly rose by 76.47% YoY largely mirroring the impact of the rising inflation on inputs.

Operating profit surged by 33.76% YoY to NGN750.40bn, supported by advancement in other
income due to miscellaneous income earned from the sales of material to related parties. Nevertheless, operating margin declined by 29.31% YoY, following the increases recorded in operating expenses. Specifically, selling and distribution cost inched up to NGN464.71bn from NGN252.64bn in the previous year – the most pressure was from haulage expenses. Additionally, administrative expenses rose to N145.60bn, indicating a 95.65% YoY rise due to increases especially in salaries and related staff cost.

High Borrowing Cost and Currency Depreciation Mute Bottom Line Growth: The Profit Before Tax (PBT) growth was somewhat flattish, marginally increasing by 0.36% YoY to NGN406.39bn. Most notably, interest expense and next foreign exchange loss was the driver of the flattish performance due to the rise in interest rates alongside the volatile foreign exchange market seen thus far this year. For context, interest expense surged by 152.52% to NGN227.67bn. Likewise, net foreign exchange loss rose to NGN222.08bn from NGN99.01bn in 9M:2023. Consequently, we saw the PBT margin shrink by 1086bps YoY as the tough macroeconomic environment continue to pressure company performance.

Furthermore, the Profit After Tax (PAT) posted a modest growth of 0.56% to NGN279.09bn as elevated inflation, high borrowing costs and foreign exchange losses muted the impressive  topline performance in the period under review. Nonetheless, Earnings Per Share (EPS) increased to NGN16.55 kobo in 9M:2024 from NGN16.08 kobo in 9M:2023 – a 2.92% YoY growth supported by the strong revenue recorded during the period.

Balance Sheet: As of 30th September 2024, Dangote Cement Plc grew its total asset by 65.52% YoY to NGN5.54trn, driven by increases in property, plant and machinery (+64.56% YoY to NGN3.32trn), prepayments and other current assets (+86.17% YoY to NGN687.90bn), inventories (+82.69% YoY to NGN671.12bn) and strong cash generation with cash and cash equivalent rising by 37.89% YoY to NGN531.25bn. Conversely, total liabilities surged by 70.52% YoY to NGN3.37trn, due to the rise in current liabilities. Specifically, financial liabilities advanced by 135.28% YoY to NGN1.35trn. Similarly, trade and other payables rose to NGN1.04trn from NGN499.11bn in 9M:2023. At the end of the reporting period, net asset stood at NGN2.16trn.

Outlook: While Dangote Cement Plc achieved impressive revenue growth, the company must focus on protecting its margins especially due to its sensitivity to the challenging macroeconomic environment. The outlook for Dangote Cement is cautiously optimistic as the currency fluctuation and high finance cost is expected to drag bottom line numbers. Nonetheless, we opine that the company will maintain its market leadership due to the likelihood to expand capacity through export strategies. We hence place a NEUTRAL rating on DANGCEM.

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