Dangote Cement Q3 2021 Results Review: Outperform Rating Maintained

Dangote Cement Q3 2021 Results Review: Outperform Rating Maintained

Proshare Nigeria Pvt. Ltd. Q3 price increases offset softer cement output; new PT of NGN299.4 up marginally

DangCem ‘s Q3 results were in line with expectations. Sales of NGN331.6trn grew 17% while earnings of NGN99.8bn advanced by around 30%. However, there were some noticeable variances between our estimates and the results, with cement production missing our forecast, while prices were comfortably ahead. Looking ahead, we have adjusted our FY’21 cement production forecast downwards by around -2.5% to 29.1 million metric tonnes (mmt) and raised our average price estimate by 3.4% to c.USD114/tonne.

The net impact on our EPS estimate for this fiscal year is negligible. Nigerian volumes were down -6% y/y to 4.3mmt in Q3, mainly due to heavier rains compared with Q3 ’20. Nonetheless, we expect demand to remain resilient, driven by housing, retail and infrastructure projects. In particular, the presidential executive order for Road Infrastructure Development and Refurbishment Investment Tax Credit (ITC) scheme, in our view, provides a sustainable pipeline for cement demand. Recently, the FG approved road projects under the ITC scheme for the Nigerian National Petroleum Corporation. The roads will cover a total distance of 1,804.6km at a financial consideration of NGN621.2bn. From a cost perspective, we see two main headwinds. Firstly, rising gas prices and freight costs, which continue to pose downside risks to profits, and, secondly, global cement industry’s net-zero CO 2 emissions commitment by 2050. Proshare Nigeria Pvt. Ltd. For the latter, substitution of clinker (the main constituent in portland cement) and the reduction of fossil fuel use in kiln operation are key pillars. Our new price target of NGN299.4, is up marginally and represents a potential upside of 6.9% from current levels. Although the stock has rallied 12% since our most recent note (25 Aug ’21), we retain our Outperform rating because of likely upward support from a potential share buyback. DangCem is trading on a ’21f EV/EBITDA of 7.6x vs global peers (8.8x). Year-to-date, the shares have gained 14.3% vs. the NGX ASI’s 7.4%.

DangCem Q3 ’21 earnings of NGN99.8bn grew 30% y/y, in line with our estimate. Bottom line growth was helped by double-digit sales growth (+17% y/y to NGN331.6bn) and a +207bp y/y gross margin expansion to 61.6%. Both improvements more than offset rising operating expenses, up +21% y/y to NGN67.4bn, and net finance costs which grew by +160% y/y to NGN13.9bn. 9M sales, up +34% y/y, crossed the […]

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