Strong Investment Ratios, Juicier Reward For Shareholders

CCNN: Strong Investment Ratios, Juicier Reward For Shareholders

Company: Cement Company of Northern Nigeria (CCNN)

Rating: Buy

Current Market Price: N19.65

Intrinsic Value: N25.17

By: Jeariogbe Tunde Segun (Equity Analyst)

Key Financial Tickers:

·         Our analysis is chiefly based on the financial performance of CCNN by the full-year 2017 performance statistics. Although, comparisons were made Quarter-on-Quarter to establish growth and sustainability of improved performance and to also project the firm’s income expectations for the first quarter of 2018.

·         According to information contained in the released financial report under review, the management of CCNN proposed N1.25 cash dividend for the reported year (an improvement over the no cash dividend of 2016). In fact, the last time the directors paid a dividend was the N0.10 of 2015 financial year.

·         Details of the said dividend was not readily available as at the time of compiling this report.

·         Meanwhile, the said cash dividend is 48.72% of the company’s earnings for the year.

Cement Company of Northern Nigeria (CCNN)
Bourse	Nigerian Stock Exchange
Code Name	C C N N
Market Classification	Main Board
Nature of Business	Cement Manufacturing & Marketing
Date of Incorporation	August 15th 1962
Date Listed	October 4th 1993
End of Accounting Year	31st December
Website	www.sokotocement.com
Registrar	AFRICA PRUDENTIAL REGISTRARS PLC
Auditor	Gbenga Badejo & Co.
EPS (MRQ)	2.57
INTRISINC VALUE	25.17
Share Price (N)	19.65
Share Outstanding	1,256,598,864
Market Capitalisation	24,692,167,678

The Strength

·         The company operates in a sector with huge growth potentials. The infrastructure gap in the country is evident in the poor road network, insufficient housing units for the rapidly growing population and inadequate infrastructure. The abundance of the sector’s primary raw material (lime stone) in the country is equally a major incentive.

·         Strong presence in the North Western space: If CCNN continues to consolidate on its near monopolistic advantage in Nigeria’s North West geo-political zone, without playing for size with its bigger competitors, then its revenue is sustainable. Please note that the company’s revenue growth has been estimated at 11.47%.

Corporate Figures

·         It is indeed an impressive performance over the released figures for the full year ended 31^st December, 2016.

·         Sales figure improved by 39.05% from the N2.463 billion in 2016 to N3.133 billion in the year under review.

·         Operating profit soared above previous year by 133.98% from N4.226 billion to N14.087 billion. Further impacting this figure was the appreciable adjustment in the Cost of Sales (CoS) Ratio. The company spent 61.17% of its sales as CoS, an improvement from the 72.06% of 2016.

·         Operating Expenses Ratio on the other hand grew above the previous year’s. Please note that the Opex to Sales ratio of CCNN increased to 17.77% from 72.06%.

·         Both Profit before and after Tax grew outstandingly by 141.49% and 157.13% respectively.

Cement Company of Northern Nigeria (CCNN)
Financial Positions	2017(000)	2016(000)	%CHG
Cash and Cash Equivalence	3,133,663	2,463,485	27.20
Sales	19,588,260	14,087,553	39.05
EBIT	4,226,852	1,806,500	133.98
PBT	4,203,153	1,740,522	141.49
PAT	3,223,853	1,253,805	157.13
Total Comp. Income	2,918,934	1,474,171	98.01
Retained Earnings	10,173,690	6,949,836	46.39
Non Current Assets	12,325,166	10,531,183	17.03
Current Assets	12,323,509	9,499,038	29.73
Total Assets	24,648,675	20,030,222	23.06
Non Current Liabilities	3,070,514	3,034,968	1.17
Current Liabilities	7,165,954	5,501,981	30.24
Total Liabilities	10,236,469	8,536,950	19.91
Net Assets	14,412,206	11,493,271	25.40

Liquidity/Risk Ratios

·         CCNN’s Debt to Equity looks cool at 4.4%, far below the industry average of 17.25%. Nevertheless, the management can still do with more debt to finance activities, a situation that will help achieve and even outperform its sustainable growth rate.

·         The Current Ratio is equally acceptable at 1.76x, though the index is below the industrial average.

·         The beta value is estimated at 1.72, well above the industry average of 1.43, which confirms the activeness and liquidity of its shares on the floor of the exchange. Working with the industry average, we can safely confirm that it is far more active than industry peers.

·         At Interest Coverage of 1.63x the firm holds enough muscle to push through its finance expenses. Nevertheless, judging by the industrial average, few of its industry peers are stronger in this regard.

Liquidity/Risk Ratios	CCNN	Industry	%CHG
Debt to Equity Ratio	4.40%	17.25%	-74.49
Current Ratio	1.76	2.36	-25.42
Beta	1.72	1.43	20.28
Interest Coverage	1.63	23.08	-92.94

Profitability Ratios

·         Typical of its industry, CoS margin is measured at 61.17%, lower than the 2016 estimate.

·         Both Profit before and after tax margins are fair at 21.46% and 16.46% respectively, especially since this ratio are an improvement over the previous year’s.

·         Compared to prior year, Return on Average Equities and Assets doubled at 22.37% and 13.08% respectively.

Profitability Ratios	2017	2016	%CHG
Cost of Sales Margin	61.17%	72.06%	-15.10
PBT Margin	21.46%	12.36%	73.67
Profit Margin	16.46%	8.90%	84.92
RoAE	22.37%	10.91%	105.05
RoAA	13.08%	6.26%	108.95

Efficiency Ratios

·         Generally, the management of CCNN could be rated high considering the impressive ratios estimated from its financials below.

·         Total Assets Turnover increased to 79.47% from 70.33% last year

·         The Turnover figure replicated what Equity 1.36x above 1.23x achieved last year

·         Meanwhile, it was also established that the Total Assets of the firm can replicate the Equity’s 1.71x, slightly below the 1.74x achieved in the comparable year of 2016.

Efficiency Ratio	2017	2016	%CHG
Total Asset Turnover	79.47%	70.33%	12.99
Equity Turnover	1.36	1.23	10.89
Equity Multiplier	1.71	1.74	-1.87
Fixed Asset Turnover	1.59	1.34	18.81

Investment Ratios

·         Growing by 157.13% over the 2016 estimate, the amount earned during the one-year financial operation (2017) of CCNN is currently N2.57 as against N1.00.

·         Similarly, the Total Comprehensive Income per unit of CCNN soared by 132.81% as it moved to N2.32 from N1.00

·         Despite the strong positive revaluation by investors before the release of this result, the said earnings yielded 13.68% of the current market price of N18.75 (as at the released date), although this is a lower yield when compared to the 21.23% achieved last year when the price was N4.70

·         It should be noted however that the equity is currently trading at 17.32% above its Book Value of N11.47

·         The N1.25 cash dividend declared is 48.72% of the amount earned per share during the 2017 financial year, hence we have estimated CCNN’s Sustainable Growth Rate (SGR) at 11.47%.

Investment Ratios	2017	2016	%CHG
EPS	2.57	1.00	157.13
TCIP/SHARE	2.32	1.00	132.81
Earnings Yield	13.68%	21.23%	-35.55
P/E-RATIO	7.31	4.71	55.15
P/BV	1.6348	0.5139	218.14
BVPS	11.47	9.15	25.40
Opex Margin	16.46%	0.09	84.92
DIVIDEND DETAILS
Dividend/Share (N)	1.25	-	#DIV/0!
Payout Ratio	48.72%	0.00%	#DIV/0!
Sustainable Growth Rate	11.47%	10.91%	5.14%

Valuation/Recommendation

Our valuation explored the constant perpetual growth rate model where we discounted by 11.4% using the sustainable growth rate of 11.47%, we arrived at an intrinsic value of N25.17 for each unit of CCNN.

On the strength of the above and other strong improvements established through the financials of CCNN, we rate the stock a Buy.