Dangote Cement profit surges 44.07% as finance income spikes

Dangote Cement plc, Africa’s biggest producer of the building material, recorded a 44.07 percent surge in profit to start the year driven by spikes in finance income.

It means the cash kept by the company in short-term deposit investments such as certificates of deposit with maturities up to 12 months, savings account and money market funds are yielding interest for the business.

Profit was N114.73 billion in the first quarter of 2015 compared with N103.57 billion the previous year, the company said on the website of the exchange.

Sales increased 10.77 percent to N114.73 billion, the strongest since Q4 2013.

“Similar to Q4 2014 when DangCem reported an FX gain of N27 billion, we believe that net interest income was boosted by FX gains on non-naira assets due to the quasi devaluation of the naira by the CBN in February,” said Tunde Abidoye, equity research analyst with FBN Capital, an investment firm, in a May 3 note.

“Recall that the CBN shut its official RDAS window in February, a move which shifted all previously qualifying transactions (such as raw materials) to the interbank market,” said Abidoye.

Dangote’s finance income spiked by 1596 percent to a record N28 billion in one quarter as net income margin, a measure of profitability and efficiency, moved to 59.80 percent in 2015 from 45.96 percent the previous year.

The company’s bottomline was also boosted by a 71.42 reduction in income tax expense as it enjoys tax relief on some of its new plants.

This is a stellar performance by the bellwether cement company given the challenging business environment, shortage of gas that culminate in rising production costs and reduced spending by government on capital expenditure that slowed construction activities this year.

Further analysis of the company’s balance sheet showed it was efficient in the management of direct costs attributable to projects as gross profit increased by 10.49 percent. Total assets rose by 7.64 percent to N1.06 trillion.

Earnings per share (EPS) increased by 46.06 percent to 409k in 2015 as against 280k in 2014.

The company is using resources of shareholder in generating high profit as its return on average equity (ROE) increased to 10.35 percent in 2015, from 8.40 percent in 2014.

Dangote’s borrowing costs spiked by 411 percent to N16.27 billion as the company borrowed money from banks to fund the acquisition of plants across Africa.

Analysts say rapid urbanisation, rising middle class that crave for accommodation and infrastructure deficits will drive the demand for building materials in Africa largest economy, Nigeria. This means Dangote Cement will be in a growth spurt.

“We expect small volume contributions from the plant in Senegal and the grinding plant in Cameroon, which both commenced operations in Q4 2014 and Q1 2015, respectively,” said Abidoye.

The company’s share price was down by 15.55 percent in the past one year to close at N180.50 percent, while market capitalisation was N3.14 trillion.

 

BALA AUGIE