DANGOTE CEMENT BEATS EXPECTATIONS, AS PAN-AFRICAN EXPANSION IMPACTS NUMBERS

The management of Dangote Cement Plc recently presented its half year earnings report to the investing public, same date it was released a year ago to demonstrate its high level of corporate governance, as seen in the consistent provision of quarterly and full-year results to enable investors forecast and plan their investment.

The company consolidated its strong footing in Q1’17 by growing revenue and profit, helped by the continued market expansion and  investments across the continent where Dangote Cement is fast turning  into Africa’s cement hub. This has been particularly helped by capacity expansion and widening of its distribution network across the continent and beyond to support infrastructural development that will drive economic development and growth.

The recent sale of 412.2m shares, representing 2.3% stake of Dangote Industries Limited in the company was sold to foreign investors, that an indication that the company's capacity building efforts and investment in many Africa countries remains an attraction, especially with its earnings power looking up to drive future price action.   

The impressive Q2 numbers was equally supported by the improvement in the nation FX market, its independent power project to sustain optimal production on coal and the 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 as the company sought to factor in the increasing cost of production as reflected in the profit margin for the quarter. There is hope that the increasing consumption of cement locally will continue in this current financial year till 2018 and beyond.

The top  and bottom line for the period under review were up to reflect the improving  business environment in the country and region, as  sales revenue  was up by 41% to N412.68bn from N292.19bn in the corresponding period of 2016. Also half year profitability  grew of 39% from N103.42bn in 2016 to N144.04bn. 

Shareholders fund for the period was up by 20.94% to N822.06bn from N680.24bn in 2016, reflecting the inflow of investment as well as the growing profitability resulting from earlier investments and expanding market share. Earnings Per Share for the period moved to N8.45 from N6.07 in the corresponding year, a replica of price at 7.25x, which has reduced investors’ waiting period due to the improving earnings, especially when you consider the fact that it is lower than the 7.42x recorded in 2016. The Book Value Per Share for half year stood at N48.28 from N39.92 in 2016, just as Net Profit Margin of 34.90% is an indication of management’s efficiency and cost cutting measures.

DANGOTE CEMENT PLC
SIX MONTHS   REPORT
COY	2016	2017
	(N)	(N)	% Chg
Date Released	July 28, 2016	July 28, 2017
Price As At Released Date	180.06	244.99	36.06
Turnover	292,191,000,000	412,676,000,000	41.24
Profit After Tax	103,420,000,000	144,044,000,000	39.28
Shareholders' Fund	680,235,000,000	822,688,000,000	20.91
ESTIMATED RATIOS
Earnings Per Share	6.07	8.45	39.21
PE Ratio	7.42	7.25	-2.29
Earnings Yield	3.37	3.45	2.37
Book Value	39.92	48.28	20.94
Price To Book	4.51	5.07	12.42
ROE (%)	15.20	17.51	15.20
Profit Margin	35.39	34.90	-1.38
Year End	Dec	Dec

  Source: Company Financial &Investdata Research 

The faithful implementation of the 2017 budget, especially the juicy capital expenditure of N2.3tr would necessarily create higher demand for cement, in addition to the private sector as macro-economic indices improving to confirm the recovery of the nation's economy, while  influencing production.

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

Technical View

The company's price action on a weekly time frame had formed a saucer chart pattern that supports continuation trend that is already on a  bullish channel  with strong resistant at N250. However,we have noticed that the stock price is pulling back after touching high of N245 declining with the first support level to be N220.

MACD is bullish while MFI is looking up to indicate that funds are entering the stock while RSI is reading 81.43 to show that Dangote Cement is at its overbought region, pointing to an imminent pullback.However, a breakdown of support level will be a good opportunity for new entrants.

Recommendation /Analyst Opinion

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

Short and long term outlook on cement consumption remains strong, in spite of the recession the economy witnessed in 2016, Nigeria’s cement consumption was at the highest (about 24 million tonnes) and looks poised for further growth in 2017 this year. We maintain that the sector will sustain its bullish momentum through 2018 as the Federal Government's determination to develop infrastructure that will quicken the economic recovery on CAPEX gains.

We recommended HOLD for investors with long term horizon, while traders should book profit from the recent rally and wait to reposition at a pullback.

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 @ August,3 2017	N240.00
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 Nigeria into a cement exporter.

Today, its deep penetration into the African market has helped the company significantly boost revenue as a result of the increase in metric tons of cement produced per annum. The company’s good corporate governance remains the driver, helping to sustain performance that creates value for shareholders thereby supporting its: 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