DANGOTE CEMENT Q2:

DANGOTE CEMENT Q2: Strong And HealthyTo Drive price, Dividend

Manufacturing company’s solidification is a function of how well established in their respective industries and have the benefit of good management to drive consistent growth, Dangote Cement has continued on its track record of strong earnings and share price, outperforming of the broader market.  The company’s current share price cannot be considered cheap but fair at 23.86 times earnings. On the strength of its recent earnings report, the company full year earnings per share projection is upgraded to be in the region of N14.50 per share.

Since our last update on Dangote cement in mid-April, the company has released its interim results for six months ended June 30, 2015.  As summarized in the table and chart below, Dangote Cement delivered  a solid underlying half year result, with net income having increased by 28 percent to N121.81 billion. The year on year change in earnings per share was commensurate with net earnings and positive operating cash flow that indicates strong earnings power for the company. 

The company’s result for the period consideration 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 were up, despite of the headwinds of  high cost of finance and operation  which increased by 199 per cent and 86.68 percent respectively to  N24.38 billion and   N13.62 billion.

The high cost of financing its capacity expansion and operations outside the shore of this country has   started driving profitability, as shown by numbers posted. Sales revenue stands tall over the corresponding period by 16 per cent from N208.91billion in 2014 to N242.22 billion. Profit after tax for the period was up by 28 percent to N121.81 billion from N95.40 billion in 2014. 

Its high cost of operation did not hamper its profit for the period as reduction in tax supported its earnings power. Net assets soared to N612.71 billion from N527.03 billion last year but had 8 percent decline from its first position of N662.27 billion. Its earnings per share for the period grew to N7.15 from N5.60 in 2014. The EPS for second quarter is a replica of price in 23.86x which is attractive and lower than the 40.37x recorded last year as released market value. The trailing book value for the period stood at N35.96 from N30.93 in 2014 lower than N38.86 posted in its first quarter result. The high profit margin of 50.29 percent is an indication that management effectiveness in controlling cost of operation is impacting on its bottom line.

DANGOTE CEMENT PLC
FIRST  HALF REPORT
COY	2015	2014
	(N)	(N)	% Chg
Date Released	July 30, 2015	August 15, 2014
Price As At Released Date	170.52	226.00	-24.55
Turnover	242,215,000,000	208,909,000,000	16.00
Profit After Tax	121,808,000,000	95,400,000,000	28.00
Shareholders' Fund	612,712,000,000	527,031,763,000	16.26
ESTIMATED RATIOS
Earnings Per Share	7.15	5.60	28.00
PE Ratio	23.86	40.37	-40.90
Earnings Yield	4.19	2.48	68.95
Book Value	35.96	30.93	16.26
ROE (%)	20.00	18.00	11.11
Profit Margin	50.29	45.69	10.07
Year End	Dec	Dec

Technical View

Turning to the chart, the share price continues move south underpinned by nose-driving trend line as highlighted in the chart. The momentum remains weak with the current levels rotating higher lows on the back of a down market. Hence a reversal is imminent as strong financials that would drive price are made available on quarterly basis.  But in the last three months, the stock has been trending down since May before reversing up in late July.  
Meanwhile, the short to medium trending pattern holds strong support around N160.01 with bullish channel. At this point, the stock is attractive for positioning and more attractive when the share price declines further.

DANGCEM closed below the upper band by 30.9%.  Bollinger Bands are 80.12% narrower than normal.  The narrow width of the bands suggests low volatility as compared to DANGCEM's normal range.  Therefore, the probability of volatility increasing with a sharp price move has increased for the near-term. However, a short-term retracement inside the bands is likely, as other indicators like RSI current value is at 48.50, CCI, MACD and Money flow are signaling buy.

Recommendation /Analyst Opinion

Having reported what we considered to be another impressive result under this harsh business environment and backed with its expansion drive to other Africa countries to consolidate its position and grow sales with robust profitability. We conclude that Dangote Cement remains in good shape. However, with the company currently trading at 23.86 times earnings and a dividend yield of 3.51 percent, there is value in Dangote Cement with robust balance sheet, positivecash flow generation and strong brands provide positive fundamentals for the company.  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 have 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 23.86x(times) of its Q2 earnings.

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 @ July,31 2015	N171.00
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 N240 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