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Analysts at Renaissance Capital have upgraded Dangote Cement Plc to Hold on the back of a positive growth outlook for the company.
The investment house said the upgrade was based on the cement maker’s strong margins, healthy balance sheet and pick up of growth in Nigeria.
“We increase our Dangote Cement TP by 20 percent to N257 (from N214) as we now include sea-based clinker exports to West African countries from 2019 and increase our long-term growth rate to 9 percent (from 6 percent), incorporating our SSA economist’s revised 2019 Nigeria GDP growth forecast of 3 percent,” said Temilade Aduroja, equity analyst at Renaissance Capital in a note to client.
“On the back of this, we upgrade our rating to HOLD (from Sell) as our TP now implies downside of 3 percent,” said Aduroja.
The largest producer of the building material in Africa’s largest economy has utilized each unit of sales in generating higher profit as margins improved. This means it is efficient amid a tough and unpredictable macroeconomic environment.
Earnings before interest and tax (EBIT) margin increased to 37.76 percent to in December 2017 as against 29.66 percent as at December 2016.
Gross profit margins moved to 56.39 percent in the period under review as against 47.35 percent the previous year. Net margin increased to 25.35 percent in the period under review as against 23.22 percent as at December 2016.
Cost of sales ratio fell to 43.66 percent in the period under review from 52.64 percent the previous year as the company switched to coal, a cheap source of energy to power plant at the factory.
There are positive prognoses for Dangote Cement and other producers of the building material as an economic recovery and demand for accommodation are expected to drive cement volumes.
“We think 2018 will be a good year for the Nigerian cement market boosted by stronger prices and growth, in line with management’s guidance to keep cement prices flat in the medium term,” said Aduroja.
Management of the company expects strong growth of 7-10 percent in the Nigerian cement market, supported by government contractors resuming work and an increase in individual demand.
Dangote Cement’s sales grew by 30.96 percent to N805.58 billon in December 2017 from N615.10 billion as at December 2016.
A breakdown of sales by region shows the Nigerian business make up 68.59 percent (N552.36 billion ) of total revenue while Pan Africa make up 32.08 percent (N258.44 billion).
The company’s cement volume stood at 21.22 million metric tonnes as at December 2017, which represents 5.81 percent drop from 22.53 million metric tonnes for last year.
Cement production capacity increased slightly by 2.35 percent to 43.55 million metric tonnes in the period under review from 42.55 million metric tonnes.
DangCem plans to raise a local bond of N50bn N300bn approved by Securities and Exchange Commission (SEC) for refinancing, and a Eurobond for expansionary capital expenditure subject to approval by the board.
The company’s shares closed at N255.0 as of close of market on Friday, valuing the company at N4.34 trillion.
BALA AUGIE
