Vetiva Research Reaffirms ‘Buy’ Recommendation on Dangote Cement

Vetiva Capital Management Limited has reaffirmed ‘buy’ recommendation on the shares of Dangote Cement Plc following the release of cement company’s nine months results ended September 30, 2018.

The investment banking firm, in its recent earnings review of Dangote Cement Plc cited solid operations across the group and strong top line growth in the pan-African business as the major performance drivers of the company’s nine months (9M’18) results. The report also noted that Dangote Cement Plc reported strong earnings, with bottom line growing by three year-on-year (y/y) to N158 billion and group earnings before interest, tax, depreciation and amortisation (EBITDA) rising 15 per cent y/y to N337 billion, a 49 per cent margin.

Speaking on the report, the Industrial Goods Analyst at Vetiva Capital Management Limited, Onyeka Ijeoma said: “Dangote Cement’s Nigerian EBITDA remained robust, rising 13 per cent y/y to N306 billion (9M margin: 65 per cent), while pan-African EBITDA also rose 21 per cent y/y to N39 billion, following an eight q/q jump in revenue. According to management, the improvement in pan-African EBITDA was driven by stronger pricing and improved volumes in certain regions. Furthermore, Dangote Cement recently announced the acquisition of gas turbines in its Tanzanian operations – capable of generating 25 MW of power – to replace diesel plants, a more expensive power source. The company also plans to connect gas lines to the kilns in November, a move which is expected to be margin accretive.”

In addition, Vetiva Capital Management Limited highlighted the new product lines “Falcon” and “Blocmaster” as well as the expected completion of the Dangote jetty in H2’19 as upside opportunities for volumes in the Nigerian and pan-African operations.

Overall, in spite of higher net finance costs (9M’18: N19 billion; 9M’17: N13 billion), PBT rose 12 per cent y/y to N247 billion.

According to the report, the group is expected to produce 25.1 million metric tonnes (MT) for FY’18 (+15 per cent y/y), with the Nigerian business accounting for 15.0 million MT.

“As such, FY’18 revenue for the Nigerian operations is estimated at N645 billion – translating to a 17 per cent y/y growth. Further supported by the outperformance reported as at 9M’18, Vetiva Research revised its FY’18 pan-African revenue forecast to N297 billion (previous: N273 billion), a 15 per cent y/y growth. Overall, the group is expected to report record high revenue and profit figures for FY’18 with both lines printing at N943 billion (FY’17: N806 billion) and N227 billion (FY’17: N204 billion) respectively. Vetiva Research has quoted a target price of N265.41 for Dangote Cement while reiterating a BUY rating on the cement giant,” the firm said.