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Dangote Cement Plc Q3'20: Robust Q3 earnings provides springboard for a strong 9M 202
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Dangote Cement Plc Q3'20: Robust Q3 Earnings Provides Springboard For a Strong 9M'20 Performance

By Cordros

DANGCEM published Q3-20 audited financials after the close of market today. Q3 EPS more than doubled to N4.80 (+129.9% y/y) underpinned by solid revenue growth and foreign exchange gains, despite the surge in tax charge (NGN26.6bn in Q3-20 vs NGN7.1bn in Q3-19). The robust growth in Q3-20 EPS drove 9M-20 EPS higher to NGN12.25 (+34.6% y/y) from NGN7.45 in H1-20. On an annualized basis, the 9M-20 EPS is 36.7% ahead of our FY 2020E forecast of NGB11.95.  

The group’s aggregate revenue grew by 34.2% y/y in Q3-20, driven by the improvement in revenue from its Nigerian operations (+45.5% y/y) and Pan African operations (+19.8% y/y). The solid topline performance in Q3-20 provided a tailwind for a faster expansion in 9M-20 Revenue (+12.0% y/y) from 2.0% y/y in H1-20. While we await confirmation from management, we believe the strong growth in revenue from Nigeria was volume-driven, buoyed by the relaxation of restrictive measures which drove cement demand. That said, we highlight that the revenue growth (for Nigeria) is in tandem with the topline growth reported by the other two major players in the industry (WAPCO: +31.4% y/y and BUACEMENT: +39.7% y/y) during the third quarter. On Pan African Operations, we think the confluence of (1) the re-opening of regions challenged (South Africa, Ghana and Congo) during the second quarter, and (2) higher realized prices due to the devaluation of the local currency supported topline growth.  We note that the group’s overall production volume rose to 6.7MMT in Q3-20 from 5.45MMT in Q3-19.  

EBITDA grew by 60.6% y/y in Q3-20, on the back of revenue growth (+34.2% y/y) which outpaced cost of sales ex-depreciation (+22.4% y/y) amid sub-inflationary growth in operating expenses ex-depreciation (+5.8% y/y). Accordingly, 9M-20 EBITDA rose to NGN355.02 billion (+17.1% y/y). However, we note that the company faced input cost pressures during Q3-20 arising from dollar-linked cost items. This is evidenced in the rise in energy cost (+32.2% y/y) in Q3-20.  However, the company kept a lid on operating expenses as it grew below the inflation rate (+5.8% y/y). We applaud the company’s operational efficiency, as we understand that it now delivers volumes directly to customers to reach untapped markets. Overall, EBITDA margin strengthened by 7.9ppts to 48.1% in Q3-20.

Further down, earnings received a boost from the moderation in net finance cost (-71.6% y/y) in Q3-20. This was supported by the blend of higher interest income (+1.43x), a foreign exchange gain of NGN4.76 billion in Q3-20 which was absent in Q3-19, and the high base finance cost in Q3-19 due to foreign exchange losses of NGN6.99 billion.  Adjusting for the impact of the FX gain in Q3-20 and FX loss in Q3-19, net finance cost would have declined by 14.4% y/y in Q3-20.

DANGCEM’s net operating cash flow rose by 27.9% y/y to NGN376.60 billion in 9M-20, supporting the growth in cash and cash equivalents (+1.31x) which fed into the expansion in finance income (+43.2% y/y) despite the lower yield environment.

Overall, PBT surged by 158.6% y/y in Q3-20 with related margin improving by 18.4ppts, due to the growth in revenue and FX gain. Following higher tax charge (NGN26.6 billion in Q3-20 vs NGN7.1 billion in Q3-19), PAT grew slower by 135.1%.

Comment: The above-market revenue growth (for Nigeria operations) delivered by the company in the third quarter is a testament to its market leadership position. With the better-than-expected EPS growth in Q3-20, we expect consensus estimates for FY 2020 EPS to be reviewed upwards.  From a market standpoint, we believe savvy investors took a cue from the strong earnings delivered by WAPCO and BUACEMENT in re-pricing DANGCEM as the share price has gained 16.3% over the past 10 trading days. Nonetheless, we expect a positive reaction from investors. Our estimates are under review.

[Image: 13c21b17-e0b0-49b3-96a0-9a884a5c4d16.png]
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