Dangote Cement: Making a BUY case for the stock

…impressive scorecard translates to higher dividend

Despite Nigeria’s rising inflation and the impact of COVID-19 pandemic on businesses, Sub-Saharan Africa’s largest cement producer, Dangote Cement Plc continues to excite its shareholders with impressive financials which translates to higher dividend pay-out.

The full year 2021 financial performance

Dangote Cement which, most capitalised company on the Nigerian Exchange Limited (NGX) ended year 2021 with robust earnings which were underpinned by strong top-line growth, supported by increased sales volumes and strong demand across all operations. The group revenue increase by 34percent to N1.384 trillion (2020: N1.034trillion). Group net profit increased by 32percent to N364 billion (2020: N276.1 billion).

Group earnings per share increased by 32percent to N21.24 (2020: N16.14). Profit from operating activities was N582.491billion in 2021 from N386.734billion in 2020, up by 50.6percent. Profit before tax (PBT) was N538.366billion in 2021, up by 44.2percent from N373.310billion in 2020.

About N340billion paid as dividend

The directors of Dangote Cement Plc pursue a dividend policy that reflects the Company’s earnings and cash flow, while maintaining appropriate levels of dividend cover. The Board considered that the proposed dividend is appropriate and is in line with the Company’s strategic growth objectives. They also considered the capital needed to fund the Company’s operations and expansion plans.

At the company’s 13th annual general meeting held recently in Lagos, the Directors recommended and got shareholders’ approval for dividend of N20 per ordinary 50 kobo share (2020: N16). Dividends were paid to the shareholders whose names are registered in the Company’s Register of Members at the close of business on May 30, 2022.

The dividend paid out was approximately N340billion. Dangote Cement share capital analysis shows pre-Buy-Back it has 17,040,507,405 shares outstanding. Shares bought back from 30th to 31st December 2020 (Tranche I) were 40,200,000 units; while shares bought back from 19th to 20th January 2022 (Tranche II) were 126,748,153 units. Its total number of residual issued and fully paid outstanding shares is 16,873,559,251 each priced at N249.3 as at Monday June 20, representing a capitalisation of about N4.2trillion.

Making a BUY case for the stock

In their April 11 note, Lagos-based Coronation Research asked investors to BUY shares of Dangote Cement saying that it has upside potential considering their Price Target of N328.65.

“We initiate coverage with Target Price (TP) of N328.65 per share and BUY rating, implying potential upside… According to our estimates, Dangote Cement is trading on a 2022E P/E of 11.6x and EV/EBITDA multiple of 6.9x which is a discount to emerging market peer multiples of 13.6x and 8.7x. We rate the investment case highly, especially considering the company’s strong earnings growth, return on equity and Pan-African diversification benefits. A key catalyst to its share price is the potential for a Tranche III share buyback programme, following the success of the first two,” said Adebayo Adebanjo, analyst at Coronation Research said in the April 11 note.

“We believe opportunities still exist for volume growth in the forecast year 2022F due to strong demand, an evident infrastructure deficit and traction in commercial construction, especially in a pre-election year in Nigeria.

“We continue to see potential growth opportunities in the cement market of which Dangote Cement has positioned itself as a market leader accounting for about 60percent of the industry in Nigeria. These growth opportunities for Dangote stem from rapid demand growth in the domestic market of Nigeria as well as its Pan-African (Rest of Africa) markets as housing infrastructure, commercial construction, and government projects including major highways, roads, and railways gain traction,” the analyst Coronation added.

Abigail Alabi, equity research analyst at Vetiva in a March 4 note to investors also rated Dangote Cement stock a BUY with target price (TP) at N358.43.

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“Private and public demand to ramp up growth in 2022. We envisage another solid year for Dangote Cement with public and private demand as well as pricing to be major drivers. For the Nigerian market, we expect prices to decline slightly on the back of increased production capacity by industry players, thereby driving demand, especially in the private sector. Additionally, we expect a ramp up in public sector demand on the back of the government’s commitment to infrastructure investment as the election period draws close,” she added.

“Another highlight for the 2022 outlook is the establishment of Public Private Institutions like InfraCo. The Infrastructural Corporation of Nigeria Limited (INFRACO), a newly established Public Private Institution would provide funding for public projects like roads, rails and power infrastructure. We anticipate a boost in cement demand as these projects commence.

“Meanwhile, across its Pan African operations, we expect continued growth in markets like Tanzania, Senegal, Zambia and Congo on the back of rising public and private investments. On the flip side, we anticipate inflationary pressures and FX liquidity issues to persist throughout 2022, causing an increase in cost lines,” the Vetiva analyst further stated.

Still on Dangote Cement

Dangote Cement operates a fully integrated “quarry-to-customer” business with activities covering manufacturing, sales and distribution of cement. Dangote Cement has a production capacity of 35.3Mta in their home market, Nigeria.

The Obajana plant in Kogi state, Nigeria, is the largest in Africa with 16.3Mta of capacity across five lines; the Ibese plant in Ogun State has four cement lines with a combined installed capacity of 12Mta, the Gboko plant in Benue state has 4Mta; and the Okpella plant in Edo state has 3Mta.

Dangote Cement, through its current investment, has removed Nigeria’s dependence on imported cement. It has transformed the nation into an exporter of cement to neighbouring countries. In addition, Dangote Cement has operations in Cameroon (1.5Mta clinker grinding), Congo (1.5Mta), Ghana (1.5Mta import), Ethiopia (2.5Mta), Senegal (1.5Mta), Sierra Leone (0.5Mta import), South Africa (2.8Mta), Tanzania (3.0Mta), Zambia (1.5Mta).

Chairman speaks to shareholders

“Our exceptional EBITDA of N684.6 billion was up 43.2percent owing to our strong cost control measures. Over the last decade, EBITDA has grown by a compound annual growth rate of 18percent implying a fivefold increase and revealing a true growth story. Furthermore, in January 2022, the company completed the second tranche of its buy-back programme.

“Dangote Cement has now purchased 0.98percent of its outstanding shares. This share buy-back programme reflects the company’s unwavering commitment to creating value and identifying opportunities to return cash to shareholders,” Aliko Dangote, chairman of the Company told shareholders.

““In 2021, we began operations in our new 3Mta Okpella plant in Edo State where we are successfully ramping up production and have contributed to creating a new industrial hub. We actively deploying our alternative fuel strategy across all countries of operations to optimise energy efficiency, reduce reliance on fossil fuels and ultimately reduce CO2 emission.

“Whilst we focussed our efforts on meeting the robust demand of our local market in Nigeria, at the expense of our export markets, we still made significant progress in our cement and clinker exports. In 2021, we exported 7 ships of clinker out of Nigeria and exported cement from 5 of our operations. Our vision is for West and Central Africa to be cement and clinker self-sufficient, while making the regional and continental free trade agreement a reality,” he noted further.

Series 2 bond issuance

In May, Dangote Cement successful completion of its N116billion Series 2 Bond issuance which is the largest corporate bond issuance in the history of the Nigerian Capital Markets. The Bond Issuance, which is the second issuance under the Company’s N300billion Multi-Instrument Issuance Programme, attracted participation from a wide array of institutional investors including pension funds, asset managers, banks, insurance companies and high networth individuals. The Bond Issuance comprised three tranches: a 5-year Tranche A issuance priced at 11.85percent, a 7-year Tranche B issuance priced at 12.35percent, and a 10-year Tranche C issuance priced at 13percent. The proceeds of the Bond Issuance will be used to finance the Company’s Nigeria expansion projects, short-term debt refinancing and working capital requirements.

Stanbic IBTC Capital acted as Lead Issuing House/Bookrunner to the Bond Issuance, whilst Absa Capital Markets, Meristem Capital, Standard Chartered, United Capital, Coronation Merchant Bank, Ecobank Development Company, FBNQuest Merchant Bank, FCMB Capital Markets, Futureview Financial Services, Vetiva Capital, Quantum Zenith Capital and Rand Merchant Bank Nigeria acted as Joint Issuing Houses.

Commenting on the Bond Issuance, Michel Puchercos, Group Managing Director of Dangote Cement, said: “Dangote Cement is delighted to have successfully undertaken a second issuance under our Multi-Instrument Issuance Programme which was launched last year, and even more delighted to have concluded the most significant corporate bond issuance in the history of the Nigerian Debt Capital Markets. This landmark transaction would fund our expansion projects and further support the implementation of our export strategy. I want to thank our stakeholders and investor community for their strong participation in another Bond issuance with the Company.”

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