Dangote Cement: BGL analysts retain ‘buy’ recommendation

Dangote Cement Plc (Dangote Cement) remains the largest cement producer in Africa and one of the first global industry contenders out of Africa, with annual revenue of US$2.0bn and selling to 19 African countries. In terms of production capacity, it currently accounts for over 70% of local production capacity in Nigeria and well above domestic demand of about 21MMTA in 2014.

Depressed FY 2014 earnings, followed by strong Q1 2015

Dangote Cement recorded a significant 20% decline in net earnings in the full year ended 2014 on account of the major reduction in product prices in Nigeria which resulted in depressed revenue from its Nigerian market. The modest growth in the group’s revenue was supported by the contribution of South African plant. In addition, the end of the tax holiday enjoyed by the Company and the tax charge for the year translated to the depression in net earnings amidst notable rise in finance expenses for the year.

This trend was however reversed in the impressive Q1-2015 results as the Company’s investments in its African projects began to yield results in terms of significant contributions to revenue. The Company grew topline by 10.78% as Senegal and Cameroun plants, alongside new lines in Nigeria and South Africa, commenced operation; and bottom-line grew by 44.10% in Q1-2015 compared to the corresponding period of 2014.

Maintains High profitability among peers

Dangote continued to maintain the highest profitability amongst its local peers with EBITDA margin of over 62.8% supported by economies of scale, new modern production capacities and access to cheaper fuel.

We retain our buy recommendation

For the full year ended December 2015, we project revenue of N438.20 billion and net income of N173.4 billion, leading to an EPS of N10.2. We also project a dividend per share of N6.60 for the financial year 2015. Therefore, using a combination of PE method and Net assets valuation, we arrived at a 12-month weighted stock price of N244.15. We therefore place a ‘buy’ recommendation on Dangote Cement Plc.