Tuesday, January 22, 2019 1:05:04 PM- Nigerian Stock Exchange.



  Dangote ( DANGCEM ) cement’s strong start to the year; moving to Outperform

      

13% incr. to price target driven largely by reduction to risk free rate: 


Dangote Cement’s ( DANGCEM ) Q1 2018 results surprised positively across all key headline items. Although sales were broadly in line (+2%) with the analyst’s forecast, PBT beat by 27% because of positive surprises in gross margin, opex and net interest expense. In terms of volume trends, growth was underscored by the 5% y/y growth delivered by the Nigeria division. 


The growth in Nigeria marks the first quarter of growth after five consecutive quarters of y/y volume contraction. At the current run-rate, management sees strong unit volume growth of over 10% y/y for 2018E on the back of government’s infrastructure spend and a recovery in private demand. Longer term, the completion of DangCem’s export terminal situated in Onne, in the Niger-Delta region by end-2018 will also help drive volume growth. 


Consequently, the analysts have increased their unit volume forecasts for Nigeria by c.3% on average over the 2018-19E period. The upward revisions to Nigeria underpin the average sales growth of 15% y/y that the analysts forecast for the Group over the period. Management is confident that the pioneer tax relief for Ibese lines 3&4 will be approved later this year. Nevertheless it guided to an effective tax rate of 20%+ for 2018E. As such, the analysts have increased their 2018E tax rate assumption by 500bps to 20%. These changes underpin the 2% average increase to the analyst’s EPS forecasts over the 2018-19E period. 


Despite the modest increases to the analyst’s EPS forecasts, their new price target of N277.2 is up by 13% because the analysts have lowered their risk free rate assumption by 100bps to 13.0% to reflect the lower yields on federal government bonds. The analyst’s new price target implies a potential upside of 24% from current levels. As such, the analysts upgrade their recommendation on the stock to Outperform from Neutral.


Strong Q1 2018 results; PBT up 40% y/y: 


DangCem’s Q1 2018 results showed that PBT grew strongly, by 40% y/y to N108.4bn. The stellar results were driven by a combination of factors including sales growth of 16% y/y, a gross margin expansion of 197bps y//y to 59.8% and a net finance income of N4.6bn (compared with a net interest expense of –N5.9bn in Q1 2017). 


The net finance income was driven by fx gains of N12.5bn. Despite a 572bp y/y increase in the effective tax rate to 33.5%, PAT advanced by 35% y/y to N80.0bn, thanks to a positive result of N10.8bn in other comprehensive income (OCI) compared with N1.3bn in Q1 2017. Sequentially, although the trends mirrored the y/y ones, the growth was amplified.

 

Source: Analysts from FBNQuest Capital Limited  Reporting for EasyKobo on Monday, 04 June 2018 from Lagos, Nigeria



Readers's Opinion(0)
 

If you would like to post comments! Please log in.

Advertisement
Community sentiment

Top Stocks creating buzz on easykobo
Finance message boards

Related Articles