October 2024/InvestmentOne Report
Impressive Topline Growth: BUA Cement Plc recently released its unaudited result for 9M:2024, revealing a 73.70% YoY growth in revenue to NGN583.41bn. The strong revenue growth was primarily driven by a hike in cement price in line with industry trend during the period. Largely owing to the high inflationary environment and elevated energy cost, cost of sales surged by 115.94% to NGN402.59bn. Specifically, energy cost and raw material cost surged by 138.82% YoY and 125.45% YoY to NGN196.65bn and NGN142.97bn respectively. Although revenue impressively rose in the reporting period, cost pressures dragged the gross profit margin down by 1350bps to 30.99% relative to the previous year.
Despite the advancements in operating expenditure following increases in selling & distribution cost and administrative expenses, operating profit inched upwards by 15.16% YoY to NGN137.83bn. Analysis revealed selling & distribution cost rose by 27.54% YoY to NGN26.69bn. Furthermore, administrative expense rose to NGN16.51bn as staff cost edged higher by 63.35% YoY to NGN4.11bn, registration, listing & debt issue fees surged by 579.20% YoY to NGN1.77bn, corporate social responsibility increased by 61.96% YoY to NGN1.48bn, security expenses rose by 69.52% YoY to NGN1.47bn and other administrative expenses accelerated by 118.70% YoY to NGN3.23bn. Consequently, the operating margin contracted to 23.62% from 35.63% in the corresponding period of the previous year.
Foreign Exchange Loss Slows Earnings Growth: BUA Cement Plc reported a net foreign exchange loss of NGN57.44bn from NGN26.93bn in the previous year due to the impact of the currency devaluation thus far this year. Net finance cost printed at NGN17.37bn (vs NGN6.99bn in 9M:2023), driven by the 109.41% YoY expansion in interest expense as a result of the high-interest rate environment. Furthermore, minimum income tax expense of NGN1.26bn also drove the Profit Before Tax (PBT) down to NGN61.75bn in 9M:2024 – a by 27.98% YoY moderation. Income and deferred taxes amounted to NGN12.78bn. Consequently, BUA Cement Plc posted a Profit After Tax (PAT) of NGN48.97bn, marking a 35.63% YoY moderation in earnings growth. Consequently, the Earnings Per Share (EPS) fell to NGN1.45 kobo from NGN2.55 kobo in the corresponding period of 2023.
Balance Sheet: As of 30th September 2024, BUA Cement Plc achieved a total asset growth of 53.77% YoY to NGN1.56trn, driven by increases in property, plant and equipment (+55.69% YoY to NGN1.10trn), cash and short term deposit (+11.84% YoY to NGN185.19bn), inventories (+9.48% YoY to NGN148.31bn) and prepayments and other receivables (+7.30% YoY to NGN114.07bn). Conversely, total liabilities increased at a faster pace of 91.69% to NGN1.19trn due to the currency devaluation as previously highlighted in this report. Specifically, long-term borrowing advanced by 148.10% YoY to NGN489.52bn, trade and other payables rose by 266.06% YoY to NGN292.06bn and short-term borrowing also edged higher by 96.32% YoY to NGN119.66bn. At the end of the reporting period, net asset stood at NGN366.47bn.
Outlook: BUA Cement has demonstrated impressive topline growth, but this has not fully translated into profitability, as evidenced by the contraction in margins particularly due to the currency fluctuations. Looking ahead, BUA Cement is expected to continue leveraging its relatively strong market position, though its profitability could face headwinds from persistently high energy and raw material costs. As inflation and currency devaluation pressures remain, cost management will be critical to sustaining margins. Nevertheless, the rising interest rate environment may further increase finance costs, impacting net earnings. We hence place a NEUTRAL rating on BUACEMENT.
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