February 28, 2019/Cordros Update
Event: DANGCEM just published 2018FY results, reporting a strong EPS growth of 95.9% y/y to NGN22.83 (Consensus estimate: NGN13.46). The group reported FY-18 EBITDA growth of 12.1% y/y. Management declared DPS of NGN16.00, which translates to a yield of 8% on current share price.
- On Q4-18 standalone, both revenue and PAT increased by 6.9% y/y and 1988%, respectively. Specifically, growth in revenue was supported by higher volume in both Nigeria and non-Nigeria businesses, even as average price moderated in the period. For context, Nigeria’s Q4 volume grew by 10.6% y/y to 3.42mt, which masked the impact of softer average prices (-2.5% y/y to NGN42,943/tonne). Meanwhile, revenue growth across Pan-Africa was supported by both volume (+1.4% y/y to 2.34mt) and price (+9.7% y/y to NGN30,235/tonne).
- On COGS, input cost grew at a slower pace (+9.1% y/y) driven by material costs (+25.6% y/y) and Fuel & Power consumed (+51.0% y/y). Consequently, gross profit was higher by 8.8% y/y to NGN120 billion, with the related margin increasing a notch higher by 97 bps to 55.7%. Elsewhere, OPEX expanded by 52.5% y/y driven by faster increase in general administration (+57% y/y) and haulage expenses (+19% y/y). Thus, operating profit increased by a tamer 3.3% y/y.
- Further down, net finance cost surged by 395% y/y to NGN18.96 billion, a development triggered by both finance income (-92% y/y) and finance cost (+54% y/y).
- Largely reflecting the strong revenue growth in the period, together with the previous tax provisioning that was reversed in the review period (NGN89.5 billion), the group recorded PAT of 1988% y/y increase to NGN232.1 billion over Q4-18.
Breaking down 2018FY result across the Group’s operations:
- Nigerian operation recorded revenue (11.9% y/y), EBITDA (10.7%), and PAT (89.1% y/y) growth. The sharp earnings growth owes much to a tax write-back of NGN89.5 billion from the previous provisioning for Ibese production lines 3 & 4 and Obajana production line 4. The key highlights from Nigeria are (1) heathy volume growth (+11.4% y/y) and higher gross margin (+117 bps y/y) while the negative remains the marked increase in operating expenses (+47% y/y).
- Non-Nigerian revenue and EBITDA grew by 9.6% y/y and c.28.2% y/y. However, pre and post-tax losses increased by 74% y/y and 81% y/y respectively, driven by significant increase in net finance cost (+80% y/y) and OPEX (+22% y/y). Non-Nigerian volume (9.4Mts) was same as in 2017, as lower sales in Tanzania, Ethiopia, and Ghana and offset both the strong performance achieved in Zambia and the impact of the new facilities opened in Congo and Sierra Leone.
Comment: The strong EPS, combined with attractive dividend, will drive positive reaction to the stock in today’s trading. Our estimates are under review.
