Dangote Cement Plc (DANGCEM), the biggest cement maker in Africa’s biggest economy, has fetched a ‘buy’ rating from analysts. This reflects strong performance from the company as recently released its 2017 first quarter (Q1 2017) result showed revenue and earnings spiked 48 per cent and 34 per cent compared to the corresponding period in 2016.
“Q1 number is better than expected,” said Christian Orajekwe, Head of Research and Strategy at Cordros Capital, Lagos-based investment firm. “Though we expect volumes may drop, high price should adequately compensate for that.”
DANGCEM’s Q1 2017 performance had surpassed analysts estimate as the company raised average cement prices by 58 per cent in the year from 2016 levels, dampening any concerns that may have arisen from plummeting volumes. Sales from the Nigerian operation shrunk by 16.5 per cent versus the corresponding year in 2016, according to the Q1 2017 financial report. This was compensated by sales from operations in other African operations, which grew by 16.4 per cent year-on-year.
Group margin of the cement titan was boosted by the Nigerian operation that saw 72 per cent margin, the best since the second quarter of 2015; margins of the pan-African operations stood at 19.9 per cent during the period.
Analysts say that the high margins from the Nigerian operations came from productivity savings as the company replaced a costly energy source with a cheaper and more efficient one.
“We upgrade Dangote Cement to a Buy based on improved margins brought about by recent price increases and an improved fuel mix,” said earnings review note to investors by Nigeria-based CSL Stockbrokers.
The CSL report said that despite the hurt dealt to profit margins in late 2015 as a result of price cut in the face of rising costs, margins are getting back to the levels gthey were prior to the 2015 price cut. Ex-factory price had increased 51% as at end of February relative to February 2016, the CSL note said.
Notwithstanding the great earnings story of the company, the pan-African operations appear to be weighing down the group performance.
2016 audited report for the colossal cement maker showed that while the Nigerian operations reported profit after taxes of N379.3 billion, the pan-African operations recounted a second consecutive year of losses that totalled N38.5 billion following the N23.5 billion losses of 2015.
As African operations continue to the drag on the company’s performance as the bears see limited upside for DANGCEM, analysts have expressed optimism that the improvement in gross margins will be maintained in 2017 as the company relies on more efficient fuel source.
“The company dictates the Nigerian market”, said Orajekwe in response to questions. “The company dictates the Nigerian market and we don’t expect any fx or any negative surprises for the year. Consensus price is at the N200 level. ”
DANGCEM closed at N173 when trading stopped on The Nigerian Stock Exchange on Friday, posting 5 per cent gain for the week.
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