DANGOTE CEMENT CAPACITY BUILDING ACROSS AFRICA DRIVES PROFIT, PRICE, DIVIDEND

Dangote Cement Plc has from its onset in its sector and on the Nigerian Stock Exchange (NSE) since 2010 when it became the market’s most capitalized equity upon listing its shares, demonstrating high quality corporate governance, especially in the area of consistently keeping to its post-listing requirement. This has helped the investing public to plan their investment while the company continues to create value for shareholders by way of dividend payment and capital appreciation. To achieve this, the company has continued an ambitious expansion across the African continent and the process supporting its growth and development today for increased sales revenue and sustained profit in the future. 

The continued investment across the continent is fast turning it into Africa’s cement manufacturing hub, especially with capacity expansion and widening of its distribution network across the continent and beyond to support its growing revenue, equally impacting on the profitability ratios on quarterly and yearly basis. This is regardless of its huge operating cost and challenges in the economies of African countries as a result of the fall in commodity prices, particularly crude oil in 2016 before the rebound that is now inspiring hope again to the region, despite security challenges in some of these countries. 

The company’s impressive Q1 numbers is just a reflection of the yield from the continued investments in expansion over the past five years, in addition to improvement in Nigeria’s FX market, its independent power project to sustain optimal production on coal and integrated power, especially as gas supply has improved relatively with the seeming peace in the Niger Delta region. In all of these, the company’s market dominance and low price regime helped to sustain patronage despite the upward adjustment in price during the period under review to factor in the increasing cost of production as reflected in the profit margin for the quarter, hoping that cost will drop in this current financial year.

The sales revenue and profitability level for the period under review were up to reflect the improving  business environment in the country and region, as revenue  was up by 48.12% to N208.17bn from N140.52bn in the corresponding period of 2016, with quarterly  earnings  growth of 33.71% from N52.78bn in Q1 2016 to N70.57bn.

Dangote Cement’s net assets for the period rose by 24.46% to N869.17bn from N698.35bn in 2016 to show the net inflow of investment in capacity building. Its earnings per share for the period grew to N4.14 from N3.10 in the corresponding year. This is a replica of price at 9.66x, which has reduced investors’ waiting period due to the improving earnings, when you look at the fact that it is lower than the 13.00x recorded in 2016. The Book Value per share for the period stood at N51.01 from N40.98 in 2016, just as Net Profit Margin of 33.90% is an indication of management’s efficiency andcost cutting measures. The strong Retained Earnings position of N749.95bn as of Q1 is impressive, while at the same time pointing to a possibility of the company recording N1tr savings and continue to support dividend payment and future expansion.

DANGOTE CEMENT PLC
THREE MONTHS   REPORT
COY	2016	2017
	(N)	(N)	% Chg
Date Released	April 25, 2016	April 28, 2017
Price As At Released Date	161.04	160.00	-0.65
Turnover	140,521,000,000	208,166,000,000	48.12
Profit After Tax	52,779,000,000	70,572,000,000	33.71
Shareholders' Fund	698,354,000,000	869,167,000,000	24.46
ESTIMATED RATIOS
Earnings Per Share	3.10	4.14	33.55
PE Ratio	13.00	9.66	-25.69
Earnings Yield	1.92	2.59	34.90
Book Value	40.98	51.01	24.48
Price To Book	3.93	3.14	-20.10
ROE (%)	7.56	8.12	7.40
Profit Margin	37.56	33.90	-9.74
Year End	Dec	Dec

  Source: Company Financial &Investdata Research 

The company’s influence on the market is noticeable, especially being the most capitalised stock, a position it continues to retain with its huge revenue and profit continues to be acknowledged by the market. It has gained the interest of traders and institutional investors who use the stock to manage risk in their portfolio. It is also generally known that the stock continues to swing the market along its trending pattern.

Dangote Cement forex earnings from its operation in 25 countries across Africa will further strengthen its earnings and balance sheet over the coming years.

Technical View

The price action of Dangote Cement has recently broken out of a symmetrical triangle to form a rising channel that was supported by strong momentum as its trending ability has equally remained strong since ADX is above 20 at 58.92. However,we have noticed that the stock price is pulling back after touching high of N214.99 declining with the first support level to be N199.

 MACD is bullish while MFI is looking down to indicate that funds are leaving  the stock while RSI is reading 72.01 to show that Dangote Cement is at its overbought region, pointing to an imminent correction.However, a breakdown of support level will be a good opportunity for new entrants.

Recommendation /Analyst Opinion

The company operating cash flow for the period is looking up in the same direction as earnings, an indication that Dangote Cement can sustain its earnings growth in subsequent quarters of this year and in the process drive price during this current financial year.

We see an improvement in government expenditure, especially with the bigger budget size for capital projects, particularly in the area of road and rail projects captured in the 2017 budget recently signed into law by Acting President Yemi Osinbajo. This is also not forgetting the company’s partnership with the Federal Government in the area of concrete road construction, which is central to further earnings growth in this and coming years. Also, important are factos such as tax credit and concessionary plans, especially as the Federal Government plans to accelerate infrastructure development in the current year by partnering with the private sector. Dangote Cement will be a net beneficial of this for which it is better positioned to sufficiently drive growth in 2017 and afterwards.

It must also be noted that with the impending implementation of the 2017 budget and reconstruction of the insurgency ravaged North East geo-political zone, we see a lot of opportunities for the company to further boost its top and, more importantly, bottom line at the end of the day.

We previously recommended HOLD before now, but based on the above mentioned expectations, among others, we upgrade to BUY position for new entrants with long-term investment objective.

DANGOTE CEMENT
Share Holding Structure
Alhaji Aliko Dangote	0.16%
Dangote Industries Ltd	90.93%
Other Nigerian Citizens & Ass.	8.91%
Other Statistics
Shares Outstanding (MN)	17,040,507,405
Opening Price (2016)	N170
Closing Price (2016)	N173.99
Closing Price as @ June,16 2017	N205
Date Listed	26TH October, 2010
Year End	December 31st

Source: Company Financial &Investdata Research Five-Year Financial Analysis.

Looking at the company's financials over the past five years, its continued investment in capacity building to meet the growing cement demand for development of infrastructure has further helped to turn Nigerian into an exporter of clement.

Today, its deep penetration into the African continental market has helped the company to significantly boost revenue as a result of the increase in metric tons produced per annum. The company’s good corporate governance remains the driver, helping it to sustain performance that creates value for shareholders thereby supporting the share price. In the process, investors are better able to forecast with improved measure of accuracy for enhanced returns on their investment.

Over the five-year period, sales revenue grew consistently from N298.45bn in 2012 to N615.1bn, representing an increase of 106.1%. Also, profitability level was up by 29% from N145.02bn in 2012 to N186.62bn after hitting a profit level in excess of N200bn in 2013. 

Net Asset for the period was up by 97% to N797.35bn from N404.54bn in 2012.

Over the period also, the company has consistently rewarded shareholders with dividend, supported by the improving numbers.

In the period, Dangote Cement distributed a total dividend of N32.50 per share to shareholders.

DANGOTE CEMENT PLC  FIVE-YEAR FINANCIAL POSITIONS
	2012	2013	2014	2015	2016
Date Released	April 22,2013	March 26, 2014	March 26, 2015	March 1, 2016	Feb 28, 2016
Price @ Released	116.50	230	151.00	148.34	168.99
Turnover	298,454,068,000	386,177,220,000	391,687,060,000	491,725,000,000	615,103,000,000
Profit After Tax	145,024,234,000	201,198,088,000	159,501,493,000	181,323,000,000	186,624,000,000
Total Equity	404,536,401,000	550,093,270,000	591,885,155,000	644.720,000,000	797,345,000,000
Dividend	3	7	6	8	8.50
Bonus	Nil	Nil	Nil	NIL	NIL

Estimated Performance Ratios

Earnings Per Share for the five-year period grew by 17% to N10.95 from N9.36 in 2012, after it had recorded an all-time high of N12.99 in 2013, when a dividend of N7 was paid them. The company went through an up and down trend in earnings for the period, due to the increased investment in capacity building and the harsh business environment. 

Price Earnings Ratio for the period moved from 12.45x in 2012 to 15.43x in 2016 to elongate investors waiting after dropping from an all-time high of 17.71x in 2013 and 16.30x in 2014 respectively.  This was attributed to different prices as at the released date.
The Book Value as at the last financial year was N46.79, the highest so far in the company's history, representing a 79.2% rise from N26.11 in 2012. However, this is relatively low, compared to its share price. The growing net assets and robust retained earnings would further boost the Dangote Cement’s ability 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, even while it has been on a downtrend in the past four years from 52.10% in 2013 to 30.34%. This is healthy and shows the commitment of management to reduce cost and support the profit line, while creating better value.

On the strength of the numbers posted and expectation of better financials in 2017, the stock is fairly priced at N245 per share, considering fund managers and investor’s preference for consistent dividend and competent management to drive profitability and clear business model.

DANGOTE CEMENT PLC- ESTIAMATED RATIOS
	2012	2013	2014	2015	2016
Earnings Per Share	9.36	12.99	9.36	10.64	10.95
PE Ratio	12.45	17.71	16.30	13.94	15.43
Earnings Yield	8.03	5.65	6.13	7.51	6.48
Book Value	26.11	32.28	34.73	37.83	46.79
ROE (%)	36.00	37.00	27.00	28.12	23.41
Profit Margin (%)	48.59	52.10	40.73	36.87	30.34
Year End	Dec	Dec	Dec	Dec	Dec

Source: Company Financial &Investdata Research