DANGOTE CEMENT: AFRO-CENTRIC INVESTMENT DRIVE PUSHES PERFORMANCE, SUPPORT DIVIDEND

 

 

The recurrent expansion of Dangote Cement's manufacturing capacity in its plants based in Nigeria and across Africa to meet the increasing demand for its products continues to reflect in its top and bottom lines. This is despite the high cost associated with investment in capacity building to sustain future growth by increasing market share beyond the shores of Nigeria.

The company's track record of strong earnings and share price has helped itto outperform the wholemarket in terms of relative price stability and as the most capitalised equity on the floor of the Nigerian Stock Exchange.  

Its current share price can be considered cheap and attractive at13.99 times of earnings as at the released date of the 2015 full year result. On the strength of its recent earnings report, DCP's full year earnings per share stands at N10.86 per share, representing a 16 percent improvement over the 2014 earnings.

Our updates on Dangote Cement's 2015 interim results were pointers to the actual full year numbers made available to the investing community on Tuesday, March 1, 2016, earlier than the release date of its 2014 figures.

As summarized in the table and chart below, Dangote Cement delivered a solid underlying full year result, with net income increasing by 25.56 percent to N491.73 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 of the company.  

The company’s numbers revealed improved performances, compared to the previous year, as the top and bottom line were up, despite the harsh business environmentas seen in the high financing and operating cost which increased by 64.8 per cent and 32.2 percent respectively to N54.35 billion and   N86.05 billion.

Its capacity expansion and operations outside Nigeria has   started impacting on profitability, as shown in the numbers posted. Revenue stands tall over the corresponding period by 25.56 per cent from N391.64 billion in 2014 to N491.71 billion. Profit after tax growth for the period was slower at 16percent to N181.32 billion, from N159.50 billion in 2014.  

Its investment in capacity building and high cost of operation did not hamper its profit for the period as reduction in tax supported its earnings power. Net assets soared to N644.72 billion from N591.89 billion in 2014 representing a 9 percent growth. Its earnings per share for the period grew to N10.86 from N9.36 in 2014. The EPS for the full year is a replica of price at 13.99x, which we consider more attractive, especially considering the fact that it is lower than the 16.35x recorded in the corresponding periond of last year. The trailing book value for the period stood at N37.84 from N34.74 in 2014. Profit margin of 36.87 percent is an indication that management's cost cutting effort is yielding positive results as seen in its profitability level.

DANGOTE CEMENT PLC
2015 AUDITED  REPORT
COY	2014	2015
	(N)	(N)	% Chg
Date Released	March 26, 2015	March 1, 2016
Price As At Released Date	152.60	148.83	-2.47
Turnover	391,639,000,000	491,725,000,000	25.56
Profit After Tax	159,501,000,000	181,323,000,000	16.02
Shareholders' Fund	591,885,000,000	644,720,000,000	9.00
ESTIMATED RATIOS
Earnings Per Share	9.36	10.86	16.02
PE Ratio	16.30	13.99	-14.17
Earnings Yield	6.13	7.15	16.65
Book Value	34.73	37.84	9.00
ROE (%)	26.95	28.12	4.34
Dividend Per Share	6.00	8.00	33.33
Profit Margin	40.73	36.87	-3.86
Year End	Dec	Dec

Source: Company Financial & Investdata Research 

Its strong influence on the market as the most capitalisedstock singles it out. It may have gained the interest of the entire traders after it carried the market along with its trending pattern. 

Please note that the N8 dividend reward stands relatively strong, when compared to the market price, which largely accounted for investors’ confidence and sentiments for the equity.

Technical View

Looking at the chart, price action of Dangote Cement has been trending down from its high of N250 to a lower low of N123.60 after trending sideways to resist a southward movement. It thereafter gave way at the double tops that brought the price low to where it formed a double bottom that were later supported by the impressive 2015 financials to the level of forming the current multiple tops that has now weakened the momentum.

In the last three months, the stock has also formed a cup and handle which is a bullish and reversal chart pattern. 
Meanwhile, any position taking at the current market value should be for the medium and long term as the stock is still attractive. 

DANGCEM closed below the upper band by 20.2%.  Bollinger Bands are 160.24% wider than normal. The large width of the bands suggest high volatility as compared to DANGCEM's normal range. Therefore, the probability of volatility decreasing and prices entering a trading range has increased for the near-term. However, a short-term pull-back inside the bands is likely, as other indicators like RSI arecurrently  reading 66.31, CCI, SO and Money flow are signaling SELL.

Recommendation /Analyst Opinion

Having reported what we consider another impressive full year result under this harsh business environment and backed with its expansion drive to other Africa countries, the company is currently consolidating its position, while growing sales revenue with robust profitability.

We conclude that Dangote Cement remains in good shape. However, with the company currently trading at 13.99 times earnings and a dividend yield of 5.38 percent, there is value in the stock judging by its robust balance sheet, positive cash flow generation and strong brands. All of these provide positive fundamentals for the company.  The infrastructure gap to support agricultural development, manufacturing and housing by the government, especially with the rebuilding of Nigeria's north east ravaged by the seven-old battle to dislodge the Boko Haram insurgents the company's product would come handy. Besides, DangCem's Chairman/Chief Executive, Alhaji Aliko Dangote is co-chair of the committee in charge of rebuilding the region. This anticipated demand for its products will drive market share and profitability in this dispensation.

We have recommended hold before now, but based on the foregoing, among others, we upgrade to BUY position for new entrants with long term investment goal.

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 (2015)	N200
Closing Price (2015)	N170
Closing Price as @ March,11 2016	N164
Date Listed	26TH October, 2010
Year End	December 31st

Source: Company Financial & Investdata Research 

Five-Year Financial Analysis.

A look at the company's scorecard for the five-year period, the increased capacity to satisfy Nigeria’s rising demand for cement, estate development and other infrastructure development have put an end to historicalreliance on imports. Today, Nigeria has been turned into a net exporter of cement as reflected in the company's increasing numberof millions of metric tons produced per annum and earnings released.
The regular release of its financials in compliance with the post listing requirement makes DangCem's corporate governance strong, such that investors can forecast and plan their investment. 

Meanwhile, the sales revenue of the company for the period under review grew consistently from N235.91 billion a year after it was listed on the Nigeria stock exchange to N491.73 billion, an increase of 108.35 per cent. Also, its bottom line was up by 44.01 per cent to N181 billion from N125.91 billion in 2011 after it hit a profit level in excess of N200 billion in 2013.
The shareholder’s funds for the period was up by 117.94 per cent from N295.83 billion in 2011 to N644.72 billion.

In the last five years, the company has consistently rewarded shareholders with dividend, supported by improving numbers. Within the period under consideration, it had paid a total dividend of N25.25 per share, excluding the bonus of one new ordinary share for 10 given in 2011

DANGOTE CEMENT PLC  FIVE YEARS FINANCIAL POSITIONS
	2011	2012	2013	2014	2015
Date Released	April 4,2012	April 22,2013	March 26, 2014	March 26, 2015	March1, 2016
Price @ Released	103.00	116.50	230	151.00	148.34
Turnover	235,914,000,000	298,454,068,000	386,177,220,000	391,687,060,000	491,725,000,000
Profit After Tax	125,909,831,000	145,024,234,000	201,198,088,000	159,501,493,000	181,323,000,000
Total Equity	295,827,810,000	404,536,401,000	550,093,270,000	591,885,155,000	644.720,000,000
Dividend	1.25	3	7	6	8
Bonus	1;10	Nil	Nil	Nil	NIL

Estimated Performance Ratios

The company earnings power for the five-year period grew by 31.32 per cent to N10.86 from N8.13 in 2011, after the said earnings per share had recorded an all-time high of N12.99 in 2013, with the directors distributing a N7 dividend. The company had up and down trend in earnings for the period due to increased investment in its capacity building and harsh business environment.

The company recorded a Price Earnings Ratio of 13.99x in 2015, reducing investors waiting period from all time high of 17.71x in 2013 and 16.30x in 2014 respectively.  On the other hand, the said earnings per share was same as 7.32 per cent of its price at the released date.
The book value as at the last financial year was N37.84, 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 and grow shareholders funds.
The estimated ratio also reveals that Dangote Cement's profit margin for the period has consistently been above the benchmark internationally, ranging from 36.82 to 53.37 per cent. This is healthy and shows the commitment of management to reduce cost and in the process support profitability that would create value for its shareholders.

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, competent management to drive profitability and business model of the company

DANGOTE CEMENT PLC- ESTIAMATED RATIOS
	2011	2012	2013	2014	2015
Earnings Per Share	8.13	9.36	12.99	9.36	10.86
PE Ratio	12.67	12.45	17.71	16.30	13.99
Earnings Yield	7.89	8.03	5.65	6.13	7.15
Book Value	19.09	26.11	32.28	34.73	37.84
ROE	0.43	0.36	0.37	0.27	0.28
Profit Margin	53.37	48.59	52.10	40.73	36.82
Year End	Dec	Dec	Dec	Dec	Dec

Source: Company Financial & Investdata Research