Dangote Cement: Valuation Upgrade to N210.35 Per Share
Company: Dangote Cement Plc
Rating: Hold
Current Market Price at Earnings Release: N234.70
Intrinsic Value: N210.35
Latest Cash Div: N10.50
By: Jeariogbe Tunde Segun (Equity Analyst)
Rating: Hold
Current Market Price at Earnings Release: N234.70
Intrinsic Value: N210.35
Latest Cash Div: N10.50
By: Jeariogbe Tunde Segun (Equity Analyst)
Financial Highlights
• Group revenue up 16.9% to ₦482.4 billion
• Group EBIT up 22.64% to ₦200.517 billion
• Earnings per share up 3.15% to ₦6.64
• The company successfully issued a ₦50 billion Commercial Paper under a ₦150 billion programme, this is the largest issue done by any Nigerian company so far.

• Group revenue up 16.9% to ₦482.4 billion
• Group EBIT up 22.64% to ₦200.517 billion
• Earnings per share up 3.15% to ₦6.64
• The company successfully issued a ₦50 billion Commercial Paper under a ₦150 billion programme, this is the largest issue done by any Nigerian company so far.

Strength
• Dangote Cement stands strong as one of the world’s top 20 cement companies by installed capacity. The company has secured clinker sufficiency in Nigeria, and as a low-cost producer, is well positioned to absorb exogenous shocks without incurring material earnings variability.
• Thanks to rapid fixed capital accumulation, the company conveniently increased its capacity to 46 million tonnes per annum (mtpa), up from just 8mtpa in 2011.
• Management plans to revise its expansion pipeline, in view of foreign currency restrictions and unutilized capacity in Nigeria.
• Medium term commitments have been limited to grinding plants in Cote d’Ivoire and Ghana, while execution of the rest of the Capex plan will depend on foreign currency availability.
• Dangote Cement is Africa’s leading integrated cement group, with plants in 10 countries. In addition, a total of four export markets are served from Nigeria.
• DCP has 39 subsidiaries, 32 of which are directly owned. The remainder comprises:
• Dangote Cement South Africa (Pty) Limited’s six subsidiaries (mainly engaged in mining and exploration, cement production, and investment property) and
• Dangote Industries (Zambia) Limited’s limestone mining subsidiary.
• Dangote Cement stands strong as one of the world’s top 20 cement companies by installed capacity. The company has secured clinker sufficiency in Nigeria, and as a low-cost producer, is well positioned to absorb exogenous shocks without incurring material earnings variability.
• Thanks to rapid fixed capital accumulation, the company conveniently increased its capacity to 46 million tonnes per annum (mtpa), up from just 8mtpa in 2011.
• Management plans to revise its expansion pipeline, in view of foreign currency restrictions and unutilized capacity in Nigeria.
• Medium term commitments have been limited to grinding plants in Cote d’Ivoire and Ghana, while execution of the rest of the Capex plan will depend on foreign currency availability.
• Dangote Cement is Africa’s leading integrated cement group, with plants in 10 countries. In addition, a total of four export markets are served from Nigeria.
• DCP has 39 subsidiaries, 32 of which are directly owned. The remainder comprises:
• Dangote Cement South Africa (Pty) Limited’s six subsidiaries (mainly engaged in mining and exploration, cement production, and investment property) and
• Dangote Industries (Zambia) Limited’s limestone mining subsidiary.
Corporate Figures
• The Turnover figure for the period grew by 16.91% over the comparable period of 2017. The reported figure for the period was N482.43 billion compared to the N412.67 billion of H1-2017
• EBIT stood smartly over the figure quoted in similar period of 2017 by 22.64%, that is, it is currently at N200.51 billion, as against the previous N163.49 billion.
• Profit before Tax (PBT) is currently N185.53 billion, this is 19.25% above the previous N155.58 billion
• Thus, Profit for the period (PAT) inched marginally north by 3.15% and currently stands at N113.16 billion, compared to N109.71 billion last year.
• The N573.06 billion reported as retained earnings for the period was 13.57% below the N663.05 billion posted in the corresponding period of 2017
• Boosted by improvement in the Current Assets, the Total Assets figure increased mildly by 5.57% from the previous estimate of N1.637 billion to N1.729 billion.
• Meanwhile, growth in the Non Current Assets enhanced the Total Liabilities estimate by 22.83% as it currently stood at N1.001 billion compared to the N815.29 billion in 2017 half year financials.
• Due to the higher increase in Liabilities as against the Assets for the period, the Net Assets reported for the period was 11.53% below that of 2017. Please note that the current value of the Net Assets is N727.87 billion as against the N822.68 billion achieved in H1-2017.

• The Turnover figure for the period grew by 16.91% over the comparable period of 2017. The reported figure for the period was N482.43 billion compared to the N412.67 billion of H1-2017
• EBIT stood smartly over the figure quoted in similar period of 2017 by 22.64%, that is, it is currently at N200.51 billion, as against the previous N163.49 billion.
• Profit before Tax (PBT) is currently N185.53 billion, this is 19.25% above the previous N155.58 billion
• Thus, Profit for the period (PAT) inched marginally north by 3.15% and currently stands at N113.16 billion, compared to N109.71 billion last year.
• The N573.06 billion reported as retained earnings for the period was 13.57% below the N663.05 billion posted in the corresponding period of 2017
• Boosted by improvement in the Current Assets, the Total Assets figure increased mildly by 5.57% from the previous estimate of N1.637 billion to N1.729 billion.
• Meanwhile, growth in the Non Current Assets enhanced the Total Liabilities estimate by 22.83% as it currently stood at N1.001 billion compared to the N815.29 billion in 2017 half year financials.
• Due to the higher increase in Liabilities as against the Assets for the period, the Net Assets reported for the period was 11.53% below that of 2017. Please note that the current value of the Net Assets is N727.87 billion as against the N822.68 billion achieved in H1-2017.

Liquidity/Risk Ratios
• The estimated Debt to Equity value stood slightly below the industry average. Nevertheless, the ratio is well within acceptable limits, especially considering the high capital intensiveness of the cement business.
• For the period under review, the company ran at 0.60x of Current Ratio, far below the industry average of 2.77x, and below the equilibrium of unity. The implication is a possible delay in financing of current liabilities as and when due.
• Though we have estimated a beta value lower than the industrial average, the equity’s beta value is well above unity, signify acceptable patronage by the investing public
• The quoted Interest Coverage is as at the first quarter of 2018, and it confirmed the very healthy state of Dangote Cement in financing its interest bearing liabilities.

• The estimated Debt to Equity value stood slightly below the industry average. Nevertheless, the ratio is well within acceptable limits, especially considering the high capital intensiveness of the cement business.
• For the period under review, the company ran at 0.60x of Current Ratio, far below the industry average of 2.77x, and below the equilibrium of unity. The implication is a possible delay in financing of current liabilities as and when due.
• Though we have estimated a beta value lower than the industrial average, the equity’s beta value is well above unity, signify acceptable patronage by the investing public
• The quoted Interest Coverage is as at the first quarter of 2018, and it confirmed the very healthy state of Dangote Cement in financing its interest bearing liabilities.

Profitability Ratios
• Compared to other manufacturing companies, the 40.96% Cost of Sales Margin achieved by Dangote Cement is commendable, making it more interesting because the current Margin is 4.80% below the estimate from the corresponding period of 2018.
• Profit before Tax Margin estimated from the half year financial statistics is 2.01% above that of 2017.
• Due to deferred Tax Expenses of N63.698 billion and the Pioneer Tax of N2.464 billion observed in the period, Profit Margin stood at 11.77% below the amount Margin estimated in 2017 half year.
• Return on Average Equity is fair at 15.55%, this is 16.58% above the 13.34% return achieved in 2017.

• Compared to other manufacturing companies, the 40.96% Cost of Sales Margin achieved by Dangote Cement is commendable, making it more interesting because the current Margin is 4.80% below the estimate from the corresponding period of 2018.
• Profit before Tax Margin estimated from the half year financial statistics is 2.01% above that of 2017.
• Due to deferred Tax Expenses of N63.698 billion and the Pioneer Tax of N2.464 billion observed in the period, Profit Margin stood at 11.77% below the amount Margin estimated in 2017 half year.
• Return on Average Equity is fair at 15.55%, this is 16.58% above the 13.34% return achieved in 2017.

Efficiency Ratios
• All efficiency ratios considered in this analysis improved over the corresponding period of 2017;
• Total Asset Turnover grew by 10.73% to stand at 27.90% as against the 25.19% of the previous half year
• Equity Turnover also improved by 32.13% as it currently estimated at 66.28% as against 50.16%
• Equity was multiplied 2.38 times through the six months’ operation in 2018, this is 19.33% above the 1.99 multiple achieved in 2017
• Fixed Assets was equally built by 20.04% to 38.80% as against the 32.33% of 2017.

• All efficiency ratios considered in this analysis improved over the corresponding period of 2017;
• Total Asset Turnover grew by 10.73% to stand at 27.90% as against the 25.19% of the previous half year
• Equity Turnover also improved by 32.13% as it currently estimated at 66.28% as against 50.16%
• Equity was multiplied 2.38 times through the six months’ operation in 2018, this is 19.33% above the 1.99 multiple achieved in 2017
• Fixed Assets was equally built by 20.04% to 38.80% as against the 32.33% of 2017.

Investment Ratios
• All investment ratios estimated from the half year financial statistics of Dangote Cement are positive and quite impressive too;
• As in the company’s earnings figures, the estimated Earnings per share (EPS) of Dangote Cement is 3.15% above 2017 estimate. As stated in the table below, EPS is currently N6.64 from N6.44
• Meanwhile, due to better income realized from Exchange differences on translating net investments in foreign operations, and other comprehensive gains/losses in 2017 compared to H1-2018, the Total Comprehensive Income per shares stood at N7.36, a 7.67% below the N7.97 estimated last year
• The above stated EPS generated a yield of 2.83% of the current market price of Dangote Cement share price on the floor of the exchange as at the date this result was released to the market. Please note that the yield in 2017-H1 is 2.63%.
• The Price to Earnings Ratio was fairly revalued by the investing public as it now stands at 8.84x from the previous estimate of 9.51x
• Ordinarily, the very large Price to Book Value ratio (5.49x) and the far gap between the Book Value and the current market price of Dangote Cement should simply imply an overvalued price, but considering the fact that this position had been successfully maintained for years by Dangote Cement, it should academically imply investors’ preference/sentiments on its shares rather than an overpriced interpretation.
• Current Opex Margin is 23.46%, an 11.77% below the 26.59% estimated in the corresponding quarter of 2017. This is a welcome development

• All investment ratios estimated from the half year financial statistics of Dangote Cement are positive and quite impressive too;
• As in the company’s earnings figures, the estimated Earnings per share (EPS) of Dangote Cement is 3.15% above 2017 estimate. As stated in the table below, EPS is currently N6.64 from N6.44
• Meanwhile, due to better income realized from Exchange differences on translating net investments in foreign operations, and other comprehensive gains/losses in 2017 compared to H1-2018, the Total Comprehensive Income per shares stood at N7.36, a 7.67% below the N7.97 estimated last year
• The above stated EPS generated a yield of 2.83% of the current market price of Dangote Cement share price on the floor of the exchange as at the date this result was released to the market. Please note that the yield in 2017-H1 is 2.63%.
• The Price to Earnings Ratio was fairly revalued by the investing public as it now stands at 8.84x from the previous estimate of 9.51x
• Ordinarily, the very large Price to Book Value ratio (5.49x) and the far gap between the Book Value and the current market price of Dangote Cement should simply imply an overvalued price, but considering the fact that this position had been successfully maintained for years by Dangote Cement, it should academically imply investors’ preference/sentiments on its shares rather than an overpriced interpretation.
• Current Opex Margin is 23.46%, an 11.77% below the 26.59% estimated in the corresponding quarter of 2017. This is a welcome development

Valuation
• After an outstanding performance of the full year ended December 31st, 2017 (smartly above our estimates), along with first and second quarter of 2018. We upgrade our valuation of each units of Dangote Cement from the previous conservative price of N182.86 to N210.35.
• After an outstanding performance of the full year ended December 31st, 2017 (smartly above our estimates), along with first and second quarter of 2018. We upgrade our valuation of each units of Dangote Cement from the previous conservative price of N182.86 to N210.35.
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