DANGOTE CEMENT Q1: Benefits of expansion on profitability that drive price History

Dangote Cement Plc is a world class cement production company and Nigeria’s largest cement manufacturer with ambitious plans to expand into 14 other African countries.  A fully integrated quarry-to-depot producer, the company has production capacity of about 20 million tonnes yearly in Nigeria.

It is currently investing more than $4 billion to expand its production and import capacity to around 50 million tonnes a year by end of this year.  This investment would increase capacity in Nigeria to at least 32 million tonnes, with new capacity being added to Ibese and Obajana, and a new factory being planned for Calabar, in Cross River state. 

Dangote Cement was listed by introduction on the floor the Nigerian Stock Exchange on October 26, 2010 and has remained the most capitalised company ever since. It currently has a market value of N3.07 trillion which is equivalent to $15.41 billion.

DANGOTE CEMENT
Share Holding Structure
Alhaji Aliko Dangote	0.17%
Other Nigerian Citizens & Ass.	99.83%
Other Statistics
Shares Outstanding (MN)	17,040,507,405
Opening Price (2014)	N220
Closing Price (2014)	N200
Closing Price as at April 17, 2015	N180
Date Listed[I1]	26TH October, 2010
Year End	December 31st

2014 Performances Analysis

The company, thriving on strong business strategies and influence of the Nigerian great business tycoon Alhaji Aliko Dangote, struggled during the pre-election period as its share price nose-dived with the general market. This was regardless of the seemingly strong numbers, from a high of N244.50 per share in August 2014 to as low as N150.90, which made it possible for new traders and investors to invest in the company in 2014 till the first quarter of 2015.

Its strong influence on the market as the most capitalised equities singled it out among others.It may have gained the interest of the entire traders after it carried the market along with its trending pattern.  Please note that the N7 dividend reward stands relatively strong, when compared to the selling price and the market price, which largely accounted for investors’ confidence and sentiments for the equity.

Five-Year Financial Analysis.

Looking at the company's scorecard, the increased capacity to satisfy Nigeria’s rising demand for cement and end its historic reliance on imports and even turning the country into a net exporter had reflected on the numbers posted.
The regular release of its financials in compliance with the post listing requirement made the company's corporate governance strong such that investors could forecast and plan their investment. 

The sales revenue of the company for the period under review grew consistently from N235.70 billion it was listed to N391.69 billion, an increase of 66.18 per cent. Also, its bottom line was up by 67.58 per cent to N184.69 billion from N110.21 billion in 2010 after it hit a profit level in excess of N200 billion in 2013.
The shareholder’s funds for the period was up by 179.84 per cent from N211.51 billion in 2010 to N591.89 billion.

Since the listing of the company in 2010, it has consistently rewarded shareholders with dividend, supported by improving numbers.  The company, since it got listed had paid a total dividend of N19.50 per share, excluding the bonus of one new ordinary share for 10 held in 2011

DANGOTE CEMENT PLC  FIVE YEARS FINANCIAL POSITIONS
	2014	2013	2012	2011	2010
Date Released	March,26,2015	March 26,2014	April 22, 2013	April 4, 2012	April 06, 2011
Price @ Released	151.00	230	116.5	103	125.5
Turnover	391,687,060,000	386,177,220,000	298,454,068,000	235,914,000,000	235,704,000,000
Profit After Tax	184,688,927,000	201,198,088,000	145,024,234,000	125,909,831,000	110,208,000,000
Total Equity	591,886,155,000	550,093,270,000	404,536,401,000	295,827,810,000	211,509,000,000
Dividend	6	7	3	1.25	2.25
Bonus	NIL	NIL	Nil	1;10	NIL

Estimated Performance Ratios

Dangote Cement's earnings power for the period of five years grew by 52.46 per cent to N10.84 from N7.11 in 2010, after the said earnings per share had recorded all high of N12.99 in 2013 on N7 dividend.   The company had four years of straight up trend in earnings before sliding down marginally in 2014, due to increased investment in its capacity building and harsh business environment.

The company recorded a Price Earnings ratio of 13.93x in 2014, reducing investors waiting period from all time high of 17.71x (times) in 2013 and 2010 respectively.  On the other hand, the said earnings per share was same as 7.18 per cent of its price at the released date.
The book value as at the last financial was N34.73, the highest so far in the company's existence as a quoted entity. This is however relatively low, compared to its market value. The growing net assets and robust retained earnings would further boost the company's business to earn more.

The estimated ratio also reveals that Dangote Cement's profit margin for the period has consistently been above benchmark internationally, ranging from 46.76 to 53.37 per cent. This is healthy and shows the commitment of management to reducing cost and in the process support profitability.

On the strength of the figures posted, the stock is fairly priced at N220 each, considering fund managers and investor’s preference for consistent dividend and competent management to drive profitability.

DANGOTE CEMENT PLC- ESTIAMATED RATIOS
	2014	2013	2012	2011	2010
Earnings Per Share	10.84	12.99	9.36	8.13	7.11
PE Ratio	13.93	17.71	12.45	12.67	17.64
Earnings Yield	7.18	5.65	8.03	7.89	5.67
Book Value	34.73	32.28	26.11	19.09	13,65
ROE	0.31	0.37	0.36	0.43	0.52
Profit Margin	47.16	52.10	48.59	53.37	46.76
Year End	Dec	Dec	Dec	Dec	Dec

CURRENT 2015 RESULT

The company's first quarter result for the period ended March 31, 2015 was made available to the market last week, earlier than the release date of 2014. The numbers revealed improved performances compared to the previous year as the top and bottom line where in the north direction. This is despite the high cost of finance which increased by 410 per cent in a year from N3.18 billion in 2014 to N16.27 billion.

This reflects the cost of financing capacity expansion and operation that had started driving profitability.  Sales revenue stands tall over the corresponding period by 10.78 per cent from N103.57 billion in 2014 to N114.74 billion. Profit after tax for the period was up by 44.10 percent to N68.62 billion from N47.62 billion in 2014. 

The company's high cost of operation did not hamper its profit for the period as reduction in tax supported its earnings power. Net assets soared to N662.27 billion from N591.89 billion last year. Its earnings per share for the period grew to N4.03 from N2.79 in 2014. The EPS for first quarter is a replica of price in 11.44x which is attractive and lower than the 20.21x recorded last year as released market value. The trailing book value for the period stood at N38.86 from N35.19. The high profit margin evidence in the full year and the quarterly result indicates management effectiveness in controlling costof operation.

DANGOTE CEMENT PLC
FIRST  QUARTER
COY	2015	2014
	(N)	(N)	% Chg
Date Released	April 30, 2015	May 5, 2014
Price As At Released Date	184.50	226.00	-18.36
Turnover	114,737,108,000	103,569,340,000	10.78
Profit After Tax	68,618,895,000	47,619,875,000	44.10
Shareholders' Fund	662,270,276,000	599,667,034,000	10.43
ESTIMATED RATIOS
Earnings Per Share	4.03	2.79	44.44
PE Ratio	11.44	20.21	-43.39
Earnings Yield	2.18	1.24	75.81
Book Value	38.86	35.19	10.43
ROE	10.36	7.94	30.48
Profit Margin	59.80	45.98	30.06
Year End	Dec	Dec

Technical View

Dangote Cement at the beginning of 2013 started its rally that lasted to August 2014 where the stock hit the N250 mark. This uptrend was supported by strong financials that were made available on quarterly basis.  But in the last nine months, the stock has been trending down, making lower lows to N141.90 in the month of February before reversing up and  currently side-trending at the level of N180. 
Meanwhile, the short to medium trending pattern holds strong support around N151.40 with bullish channel. At this point, the stock is attractive for positioning and more attractive when the share price declines further.
DANGCEM closed above the upper band by 5.7%.  This combined with the steep uptrend suggests that the upward trend in prices has a good chance of continuing.  However, a short-term pull-back inside the bands is likely, as other indicators like RSI is showing over bought at the current value of 75.12, CCI, MACD and Money flow are  signaling buy as funds enter the stock.

Recommendation /Analyst Opinion

The sector within which the company operates is undoubtedly very important to the current economic diversification of the country. The infrastructure gap to support agricultural development, manufacturing and housing by the government and private sectors are very pertinent. This demand will drive market share and profitability in the new dispensation. We recommended hold before now, but on the strength of the company's numbers we upgrade to BUY position for new entrants as the stock trades on a trailing 11.44x(times) of its Q1 earnings. The stock stands amongst the best instruments for long term positions as the company's future looks brighter to support high investment returns. Its full year EPS for 2015 is projected to be in the region of N14.20 if this tempo of earnings is sustained in the future quarters.

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