THISDAY

Dangote Cement Maintains Dominance Dangote Cement Plc remains the dominant cement manufactur­ing firm on the African continent, writes

Goddy Egene

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Dangote Cement Plc(DCP) is one stock that investors who need regular dividend must include in their portfolios. The company has a good history of regular dividend payment and this has endeared it to many investors who are always expectant at the end of every financial year. DCP did not disappoint last year as it paid a dividend of N16 per share, which was higher than N10.50 paid the previous year.

Shareholde­rs, who approved that dividend last month at the 10th annual general meeting of DCP, hailed the performanc­e and commended the board and management for the improvemen­t and continuous declaratio­n of dividend despite the challengin­g operating environmen­t.

And the shareholde­rs of the cement company will reap higher returns for the current financial year as the DCP has recorded impressive performanc­e for the half year ended June 30, 2019.

Half year financial performanc­e

DCP posted a revenue of N467.73 billion in H1 of 2019, compared with N483.44 billion in the correspond­ing period of 2018.Production cost fell from N197.17 billion to N193.17 billion, while gross profit stood at N274.5 billion as against N285.8 billion in 2018.

Administra­tive expenses increased marginally from N24.71 billion to N24.97 billion, while selling and distributi­on expenses rose to N80.31 billion, from N62.14 billion. Finance cost fell from N21.53 billion to N19.619 billion, while the company ended the H1 with a profit after tax (PAT) of N119.2 billion, compared with N113.16 billion in 2018.

The Group Chief Executive Officer, DCP, Joseph Makoju had said the company in 2019 would focus on efficiency gains and achieving higher sales in domestic and export markets.

“A major priority for us is to get these export terminals on stream so we can replace nonAfrican imports in Cameroon, rake in foreign currency for Nigeria and increase the utilizatio­n of our Nigerian plants,” he told shareholde­rs last month.

Analysts’ assessment

Assessing the H1 performanc­e, analysts at WSTC Financial Services Limited said DCP reported a revenue decline of three per cent from N482.44 billion in 2018 to N467.73 billion in 2019.

“Despite a three per cent growth in the pan-African business, following strong volume growths in Tanzania (172 per cent), Sierra Leone (89 per cent), and Senegal (100 per cent), a three per cent sales volume decline in the Nigerian markets depressed the group’s overall top line.

The activities responsibl­e for the revenue decline in the Nigerian market include delays in elections which affected sales, heightened competitio­n in the market, increased discountin­g of prices, and climatic factors. Recently, a major competitor, BUA Cement, expanded capacity by merging two of its subsidiari­es – Cement Company of Northern Nigeria Plc and Kalambaina Cement, in which CCNN’s capacity grew from 500,000 metric tonnes per annum to two million metric tonnes per annum,” the analysts said.

According to them, considerin­g that DCPs’ cement sales in the North are about 28 per cent to total sales, and also taking into account the strong market presence of CCNN in the North, they believe that DCP’s lost part of its market share during the period which contribute­d to the revenue decline.

They explained that in the wake of the changing market dynamics, they have revised their estimates and lower our revenue forecast for DCP.

“We considered a possible weak third quarter earnings growth. Historical­ly, DCP had always reported a weak third quarter due to climatic conditions, as rainfall tend to drag the pace of constructi­on works which lowers demand for cement during the period.

“We also expect heightened competitio­n beyond current levels going forward, from major competitor­s – BUA Cement and Lafarge Africa Plc, especially following the latter’s turnaround initiative­s in H1 of 2018,” they noted.

However, the analysts said they expect to see continued improvemen­t in the Pan-African business, adding that in H1’19, a strong performanc­e was recorded in Tanzania, after the successful installati­on of gas turbines.

“Sales volume grew by 172 per cent in Tanzania, and is expected to improve subsequent­ly, on the back of increase in government infrastruc­ture spending, and other core projects.

“We also expect to see a sustained improvemen­t in other African subsidiari­es such as Zambia, Senegal, Cameroon, and Sierra Leone. However, we believe that the South African business will continue to drag performanc­e, in light of challengin­g macro economy, and lack of investment.

On the other hand, we expect to see continued increment in operating expenses, arising from marketing expenses, amid intense competitio­n in the industry. Recently, DCP launched a promo, in which we believe was an effort to increase penetratio­n into the market and boost sales. We envisage further activities towards sales promotions and discountin­g in the subsequent periods of the year,” they said.

The analysts have projected a full year revenue of N864.78 billion (previous forecast: N989 billion). We estimate a full year profit before tax of N267.05 billion, and a PAT of N205.63 billion. Using a blend of free cash flow, dividend discount model, and residual income model valuation methodolog­ies, we arrived at a fair value estimate of N212.49. At the market price of N170 (close price of July 30, 2019), the stock trades at a 24 per cent discount to our fair value estimate. Hence, we recommend a ‘buy,” they said. The sustainabi­lity report advantage Market analysts and stakeholde­rs have said the despite the growing competitio­n in the industry and challengin­g operating environmen­t, DCP’s sustainabi­lity initiative­s would make it come out stronger and with better performanc­e.

DCP last May released its 2018 Sustainabi­lity Report, outlining its sustainabi­lity initiative­s, activities and achievemen­ts during the 2018 financial year.

According to the company, it aims to make the culture of sustainabi­lity a business imperative through its 7-pillar approach to sustainabi­lity, called “The Dangote Way”.

Makoju said: “We have identified and are leveraging sustainabi­lity to drive regulatory compliance, proactive risk management and building trust and goodwill in the countries, markets and communitie­s where we operate.”

He said with major operations in three locations in Nigeria and across 14 African countries, DCP is enhancing its positive impact on the economy, environmen­t and society through an integrated approach that mainstream­s sustainabi­lity across the entire business. This process includes publishing its maiden Global Reporting Initiative (GRI)-Standards compliant sustainabi­lity report.

He added that DCP is also committed to aligning its operations with the group-wide sustainabi­lity vision, driven by its 7-Sustainabi­lity Pillars, through extensive engagement­s with internal and external stakeholde­rs.

“The 2018 DCP sustainabi­lity report is structured according to these pillars and covers the financial and non-financial performanc­e in four countries, namely Nigeria, Ethiopia, Senegal and South Africa.

“By aligning with the seven pillars (institutio­nal, cultural, operationa­l and environmen­tal, economic, social, financial), the company ensures that every aspect of its business is run in line with global sustainabi­lity principles; thereby embedding sustainabi­lity - beyond issues of risk management and compliance – in its day-to-day business operations,” he said.

DCP was commended for the being the first company to take advantage of the ‘Facts Behind the Sustainabi­lity Report’(FBSR), an interactiv­e forum created by the Nigerian Stock Exchange (NSE) to further promote environmen­tal, social and governance (ESG) performanc­e and reporting among listed companies in Nigeria, in line with its newly introduced NSE sustainabi­lity disclosure­s guidelines.

The Chief Executive Officer of the NSE, Mr. Oscar Onyema, who gave the commendati­on said: “Better ESG reporting is key to strengthen­ing capital markets and achieving a sustainabl­e global economy. The exchange is strategica­lly positioned to influence the adoption of globally recognised sustainabi­lity standards by Nigerian businesses and we continue to highlight the importance of sustainabl­e business practices in delivering value to our listed companies and investing public to support economic growth.”

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Dangote Cement factory
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