May 7, 2025/Cordros Report
We update our views on BUACEMENT in this report, accounting for the impressive performance in the first quarter of 2025. BUACEMENT’s revenue surged by 80.5% y/y in Q1-25, which we believe was primarily driven by higher pricing. The robust revenue growth, slower cost escalation (+31.2% y/y), and a sharp 91.7% y/y decline in FX losses drove a 20.20ppts y/y expansion in EBITDA margin to 45.1%, and a 3.51x y/y surge in earnings to NGN2.40. Given our expectation of slower cost growth relative to revenue and a significant decline in FX losses, we raise our target price by 47.2% to NGN75.87/s (Prev: NGN51.54/s) and upgrade our rating to “HOLD” (Prev: “SELL”). We also revise upwards our 2025E EPS forecast to NGN8.64 (Prev: NGN3.26) and project a DPS of NGN8.51, reflecting a dividend yield of 10.2% based on the last closing price of NGN83.70/s (as of 07 May). On our estimates, BUACEMENT is trading at a 2025E P/E of 9.7x and EV/EBITDA of 6.3x.
Strong revenue and cost control to fuel earnings surge: We now project BUACEMENT’s revenue to grow by 40.6% y/y in 2025E (Prev: +44.0% y/y), driven by a 12.9% y/y increase in sales volume to 9.53 Mt (Prev: +30.9% y/y to 11.10 Mt) and a 24.5% y/y rise in average cement prices to NGN129,308.00/t (Prev: +10.0% y/y to NGN114,250.00/t). Sales volume growth will be supported by increased construction activity, though our volume forecast has been revised downward to reflect potential slowdowns in government-funded projects, while the price increase reflects a favourable pricing environment. However, we forecast a slower growth in cost of sales (+16.8% y/y, Prev: +42.6% y/y) but maintain our OPEX growth forecast at 46.4% y/y, driven by higher distribution costs (+57.9% y/y). As a result, we now expect EBITDA margin to expand by 10.78 ppts to 41.8% (Prev: +100bps y/y to 31.1%), while EPS is projected to increase by 295.9% y/y to NGN8.64 (Prev: +49.4% y/y to NGN3.26), further supported by a 94.4% y/y reduction in FX losses to NGN5.19 billion.
Cost pressures to ease on energy and efficiency gains: BUACEMENT’s historically high cost profile is expected to improve over the forecast period. Between 2020 and 2024, the company’s cost-to-sales ratio averaged 55.1%, peaking at 65.7% in 2024. However, over the 2025E–2029E forecast period, we project a measured reduction, with the ratio expected to decline by 12.12 ppts to 53.7% in 2025E and average 52.0% over the period, driven by structural cost savings and operational efficiencies. The anticipated reduction in 2025E is primarily driven by a projected 25.0% y/y decline in energy costs, supported by the stabilising diesel prices and the company’s accelerated cost efficiency initiatives. These include the shift from Heavy Fuel Oil (HFO) to Liquefied Natural Gas (LNG) at the Sokoto plant and the introduction of solid fuels at the Obu plant. In addition, we project a 75.0% y/y decline in operation and maintenance service charges. Meanwhile, relative exchange rate stability is also expected to contribute to the overall improvement in the cost profile.
Valuation: Our year-end target price is NGN75.87/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 (NGN72.97/s) and FCFE (NGN63.70/s) estimates, assuming a 19.9% WACC and a 4.0% terminal growth rate. For EV/EBITDA, we utilised the 2025E Bloomberg MEA peer average (7.0x) and derived a fair value estimate of NGN96.85/s. On P/E, we utilised the Bloomberg Middle East & African (MEA) peer average 2025E multiple of 13.3x. Applying this to our 2025E EPS estimate of NGN8.64/s gives a FV of NGN115.16/s.
