Dangote Cement Maintains Dominance


Dangote Cement Plc remains the dominant cement manufacturing firm on the African continent, writes Goddy Egene

Dangote Cement Plc(DCP) is one stock that investors who need regular dividend must include in their portfolios. The company has a good history of regular dividend payment and this has endeared it to many investors who are always expectant at the end of every financial year. DCP did not disappoint last year as it paid a dividend of N16 per share, which was higher than N10.50 paid the previous year.

Shareholders, who approved that dividend last month at the 10th annual general meeting of DCP, hailed the performance and commended the board and management for the improvement and continuous declaration of dividend despite the challenging operating environment.
And the shareholders of the cement company will reap higher returns for the current financial year as the DCP has recorded impressive performance for the half year ended June 30, 2019.

Half year financial performance
DCP posted a revenue of N467.73 billion in H1 of 2019, compared with N483.44 billion in the corresponding period of 2018.Production cost fell from N197.17 billion to N193.17 billion, while gross profit stood at N274.5 billion as against N285.8 billion in 2018.

Administrative expenses increased marginally from N24.71 billion to N24.97 billion, while selling and distribution expenses rose to N80.31 billion, from N62.14 billion. Finance cost fell from N21.53 billion to N19.619 billion, while the company ended the H1 with a profit after tax (PAT) of N119.2 billion, compared with N113.16 billion in 2018.

The Group Chief Executive Officer, DCP, Joseph Makoju had said the company in 2019 would focus on efficiency gains and achieving higher sales in domestic and export markets.

“A major priority for us is to get these export terminals on stream so we can replace non-African imports in Cameroon, rake in foreign currency for Nigeria and increase the utilization of our Nigerian plants,” he told shareholders last month.
Analysts’ assessment

Assessing the H1 performance, analysts at WSTC Financial Services Limited said DCP reported a revenue decline of three per cent from N482.44 billion in 2018 to N467.73 billion in 2019.

“Despite a three per cent growth in the pan-African business, following strong volume growths in Tanzania (172 per cent), Sierra Leone (89 per cent), and Senegal (100 per cent), a three per cent sales volume decline in the Nigerian markets depressed the group’s overall top line.

The activities responsible for the revenue decline in the Nigerian market include delays in elections which affected sales, heightened competition in the market, increased discounting of prices, and climatic factors. Recently, a major competitor, BUA Cement, expanded capacity by merging two of its subsidiaries – Cement Company of Northern Nigeria Plc and Kalambaina Cement, in which CCNN’s capacity grew from 500,000 metric tonnes per annum to two million metric tonnes per annum,” the analysts said.

According to them, considering that DCPs’ cement sales in the North are about 28 per cent to total sales, and also taking into account the strong market presence of CCNN in the North, they believe that DCP’s lost part of its market share during the period which contributed to the revenue decline.

They explained that in the wake of the changing market dynamics, they have revised their estimates and lower our revenue forecast for DCP.
“We considered a possible weak third quarter earnings growth. Historically, DCP had always reported a weak third quarter due to climatic conditions, as rainfall tend to drag the pace of construction works which lowers demand for cement during the period.

“We also expect heightened competition beyond current levels going forward, from major competitors – BUA Cement and Lafarge Africa Plc, especially following the latter’s turnaround initiatives in H1 of 2018,” they noted.

However, the analysts said they expect to see continued improvement in the Pan-African business, adding that in H1’19, a strong performance was recorded in Tanzania, after the successful installation of gas turbines.
“Sales volume grew by 172 per cent in Tanzania, and is expected to improve subsequently, on the back of increase in government infrastructure spending, and other core projects.

“We also expect to see a sustained improvement in other African subsidiaries such as Zambia, Senegal, Cameroon, and Sierra Leone. However, we believe that the South African business will continue to drag performance, in light of challenging macro economy, and lack of investment.

On the other hand, we expect to see continued increment in operating expenses, arising from marketing expenses, amid intense competition in the industry. Recently, DCP launched a promo, in which we believe was an effort to increase penetration into the market and boost sales. We envisage further activities towards sales promotions and discounting in the subsequent periods of the year,” they said.

The analysts have projected a full year revenue of N864.78 billion (previous forecast: N989 billion). We estimate a full year profit before tax of N267.05 billion, and a PAT of N205.63 billion. Using a blend of free cash flow, dividend discount model, and residual income model valuation methodologies, we arrived at a fair value estimate of N212.49. At the market price of N170 (close price of July 30, 2019), the stock trades at a 24 per cent discount to our fair value estimate. Hence, we recommend a ‘buy,” they said.

The sustainability report advantage
Market analysts and stakeholders have said the despite the growing competition in the industry and challenging operating environment, DCP’s sustainability initiatives would make it come out stronger and with better performance.

DCP last May released its 2018 Sustainability Report, outlining its sustainability initiatives, activities and achievements during the 2018 financial year.
According to the company, it aims to make the culture of sustainability a business imperative through its 7-pillar approach to sustainability, called “The Dangote Way”.

Makoju said: “We have identified and are leveraging sustainability to drive regulatory compliance, proactive risk management and building trust and goodwill in the countries, markets and communities where we operate.”
He said with major operations in three locations in Nigeria and across 14 African countries, DCP is enhancing its positive impact on the economy, environment and society through an integrated approach that mainstreams sustainability across the entire business. This process includes publishing its maiden Global Reporting Initiative (GRI)-Standards compliant sustainability report.

He added that DCP is also committed to aligning its operations with the group-wide sustainability vision, driven by its 7-Sustainability Pillars, through extensive engagements with internal and external stakeholders.
“The 2018 DCP sustainability report is structured according to these pillars and covers the financial and non-financial performance in four countries, namely Nigeria, Ethiopia, Senegal and South Africa.

“By aligning with the seven pillars (institutional, cultural, operational and environmental, economic, social, financial), the company ensures that every aspect of its business is run in line with global sustainability principles; thereby embedding sustainability – beyond issues of risk management and compliance – in its day-to-day business operations,” he said.

DCP was commended for the being the first company to take advantage of the ‘Facts Behind the Sustainability Report’(FBSR), an interactive forum created by the Nigerian Stock Exchange (NSE) to further promote environmental, social and governance (ESG) performance and reporting among listed companies in Nigeria, in line with its newly introduced NSE sustainability disclosures guidelines.

The Chief Executive Officer of the NSE, Mr. Oscar Onyema, who gave the commendation said: “Better ESG reporting is key to strengthening capital markets and achieving a sustainable global economy. The exchange is strategically positioned to influence the adoption of globally recognised sustainability standards by Nigerian businesses and we continue to highlight the importance of sustainable business practices in delivering value to our listed companies and investing public to support economic growth.”