Shareholders smile to bank with increased dividend
Dangote Cement Group remains industry leader with N1.38trillion gross revenue
The Nigerian cement industry’s performance maintained an upward trajectory in the year 2021 driven by increasing demand for cement products. The growing demand for cement products is upheld by continued urbanisation in addition to growing infrastructure projects in the country. Not even the incessant increases in the price of the product by major players in the industry could reduce demand. Accordingly, investors who own shares in Dangote Cement, BUA Cement and Lafarge Africa Plc, three major players in the sector, are the beneficiary as they earn good return from their investment. BAMIDELE FAMOOFO reports.
The fortune of producers of cement in Nigeria has continued to grow as they grabbed the opportunity available to increase the price of the commodity to create wealth for both themselves and their shareholders. Summary of the financial performance of three key players in the industry which largely represent the average performance of the industry in the financial year ended December 31, 2021 showed that the sector has continued to grow as revenue generated by the Dangote Cement Group and Lafarge Africa Plc increased by 32.5 percent to N1.67trillion from N1.26trillion recorded in the financial period ended December 31, 2020. The financial record of BUA Cement Plc is excluded because it is yet to be made available by the Company to the Nigerian Exchange (NGX) Limited as at the time this report is being filed. But stock market analysts are of the opinion that the second largest cement is expected to report a performance that is in line with the industry trend.
The industry increased its profitability amid rising operational expenses more than it did to revenue as total profit after tax of both Dangote Cement and Lafarge Africa Plc increased to about N415.44billion in 2021 compare with about N307 Billion in 2020, representing a growth of 35.32 percent while total assets of both companies stood at N2.92trillion, growing 15.4 percent as against N2.53trillion in 2020.
Accordingly, return on investment (RoI) both in terms of dividend and price gain have increased to shareholders as average dividend yield in the industry in the review financial period stood at 7.3 percent. Dangote Cement Plc declared its intention to raise dividend payout from N16 per share it paid to shareholders in the last financial year to N20 per share at the Annual General Meeting (AGM) scheduled to hold in June. Lafarge Plc is also proposing a final dividend of N1 per share to its shareholders in April.
The performance of the stocks on the floor of the Nigerian Exchange Limited in the last three months showed that year to date return from share price of the three leading cement producers listed on the Industrial sector has been attractive to investors.
“The performance of the stocks on the floor of the Nigerian Exchange Limited in the last three months showed that year to date return from share price of the three leading cement producers listed on the Industrial sector has been attractive to investors”
YTD return analysis
Dangote Cement which is Africa’s leading cement producer with three plants in Nigeria and operations in 12 other African countries closed its last trading day (Thursday, March 3, 2022) at N273.50 per share on the Nigerian Stock Exchange (NGX). It means that the Cement Company which began the year with a share price of N257.00 per share and has since gained 6.42% on that price valuation, ranking it 45th on the NGX in terms of year-to-date performance.
Dangote Cement is the 33rd most traded stock on the Nigerian Stock Exchange over the past three months (Dec 2, 2021 – Mar 3, 2022).
DANGCEM has traded a total volume of 156 million shares—in 5,917 deals—valued at NGN 42.7 billion over the period, with an average of 2.48 million traded shares per session. A volume high of 103 million was achieved on January 20th, and a low of 7,521 on February 17th, for the same period.
On the other hand, the share price of BUA Cement Plc (BUACEMENT) closed at N70.75 per share last Thursday. BUA Cement began the year with a share price of N67.05 and has since gained 5.52 percent on that price valuation, ranking it 50th on the NGX in terms of year-to-date performance.
BUA Cement is the 69th most traded stock on the Nigerian Stock Exchange over the past three months (Dec 2, 2021 – Mar 3, 2022). It has traded a total volume of 31.1 million shares—in 2,743 deals—valued at N 2.09 billion over the period, with an average of 493,874 traded shares per session. A volume high of 2.15 million was achieved on January 5th, and a low of 374 on December 17th, for the same period.
Lafarge Africa Plc has also followed the same trend with a marginal year to date return of 0.21 percent. The share price closed at N24 per unit on Thursday, March 3, 2022 on the Nigerian Stock Exchange. Lafarge was the 28th most traded stock on the Nigerian Stock Exchange over the past three months (Dec 2, 2021 – Mar 3, 2022). The Company popularly known as WAPCO has traded a total volume of 184 million shares—in 6,050 deals—valued at N 4.68 billion over the period, with an average of 2.92 million traded shares per session. A volume high of 17.5 million was achieved on December 9th, and a low of 319,961 on December 31st, for the same period.
Financial performance
Lafarge’s 2021FY audited financials report showed that PAT grew by 65.4 percent y/y to N51.00 billion while EPS settled at N3.17/share (+65.4% y/y). The company’s earnings performance was bolstered by the combined impact of topline growth, higher margins and moderation in finance cost.
Revenue grew by 27.1 percent y/y in 2021FY, on the back of improvements in cement sales (+26.1% y/y; 97.3% share of revenue) and aggregate and concrete sales (+61.5% y/y; 2.6% share of revenue).
Though management is yet to provide details on the driver of the cement sales growth, “we believe the double-digit growth was supported by strong demand from the private sector, underpinned by the recovery in activities in the real estate sector (2021FY growth of 2.3% vs contraction of 9.2% in 2020FY). As observed with the industry leader (DANGCEM), we believe LAFARGE’s revenue also received a boost from the substantial increase in price per tonne of cement (+18.1% y/y) as of 9M-21,” Cordros Research noted.
Gross margin declined marginally by 15bps to 58.9 percent in 2021FY, due to the slightly higher increase in the cost of sales ex-depreciation (+27.6% y/y) compared to revenue (+27.1% y/y). The rise in the cost of sales was driven mainly by the variable cost (+45.5% y/y) and maintenance cost (+72.5% y/y) components –“ we believe the increase in these cost lines was due to the pass-through impact of the local currency’s devaluation on energy cost, essential materials such as gypsum, and spare parts associated with maintaining plants.”
Despite the increase in the cost of sales, EBITDA rose (+29.6% y/y) on the back of favourable price/volume mix and gains from its operational efficiencies evidenced by the moderation in OPEX/sales ratio (25.8% in 2021FY vs 26.8% in 2020FY). Sequentially, EBITDA margin strengthened to 33.4% in 2021FY (2020FY:32.7%).
Earnings were also lifted by the moderation in finance cost (-45.7% y/y in 2021FY), reflecting gains from the reduction in gross debt (-53.2% y/y to N23.28 billion in 2021FY vs N49.73 billion in 2020FY). Meanwhile, the growth in finance income (+48.0% y/y) was supported by FX gains of N1.18 billion, which was absent in 2020FY.
PBT grew by 65.7 percent y/y to N62.25 billion in 2021FY. Following the increase in tax expense (N11.25 billion in 2021FY vs N6.73 billion in 2020FY), PAT grew by 65.4% y/y to N51.00 billion.
The company sustained profitability for the third consecutive year after recording pre-tax losses in the 2016-2018 financial years. The post-tax profit of N51 billion is also the highest since 2014 (N33.82 billion), suggesting the divestment from its loss-making South African subsidiary in 2019 and the execution of its debt restructuring programme have continued to yield positive results.
Looking ahead, “we are concerned about the sustainability of the current pricing environment, given that cement producers have raised prices significantly over the past two years. We believe guidance on Lafarge’s borrowing plans given the very low leverage (debt/equity of 0.06x as of 2021FY) will be at the front burner of discussion at the conference call (date yet to be announced),“analysts said.
Dangote Cement
DANGCEM reported growth of 29.1 percent y/y in Q4-21 standalone PAT while EPS grew by 28.6 percent y/y to N5.00, bringing 2021FY EPS to N21.24 (+31.6 percent y/y). The board has proposed a final dividend of N20.0/share (an increase of 25.0 percent from N16.0/share in 2020FY), implying a dividend yield of 7.3 percent based on the closing price of N273.50 on February 28.
The group’s aggregate revenue grew by 32.5 percent y/y in Q4-21 (2021FY: +33.8 percent y/y), driven by broad-based expansion across its Nigerian (+43.0 percent y/y) and Pan African (+10.6 percent y/y) operations. For Nigerian operations, the revenue growth in Q4-21 was driven mainly by higher price per tonne (+28.7 percent y/y) compared to volumes (+11.1 percent y/y to 4.47MMT). It is noted that sales volumes in Nigeria grew stronger by 16.8 percent y/y in 2021FY (2020FY: +12.9 percent y/y), reflecting continued gains from the pick-up in activities in the real estate sector, led by individual homebuilders. On Pan-African operations, the translation impact arising from the devaluation of the Nigerian naira combined with the increase in sales volumes (+8.9 percent y/y to 10.66MMT) drove the increase in 2021FY revenue (+24.2 percent y/y). Overall, the group’s sales volume expanded by 13.8 percent y/y to 29.27MMT in 2021FY.
Group EBITDA grew by 39.4 percent y/y in Q4-21 (2021FY: +43.5 percent y/y), as the topline growth (32.5 percent y/y) overshadowed the increases in the cost of sales ex-depreciation (+22.9 percent y/y) and operating expenses ex-depreciation (+30.7 percent y/y).
Similarly, the EBITDA margin rose by 2.3ppts to 46.8 percent in Q4-21 (2021FY: +3.3ppts to 49.4 percent). The expansion in the group’s 2021FY EBITDA margin was buoyed by the substantial increment in price per tonne in Nigerian operations (+18.1 percent y/y), which neutered pressures emanating from cash cost/tonne (+38.9 percent y/y in 2021FY). In addition, margins received a boost from the improvement in OPEX/sales ratio (16.7 percent in 2021FY vs 18.3 percent in 2020FY).
Net finance cost surged by 217.1 percent y/y to N44.94 billion in 2021FY, following the increase in finance cost (+49.4 percent y/y to N65.71 billion) amidst the decline in finance income (-30.4 percent y/y to N20.77 billion). The finance cost growth reflects the impact of higher gross debt (+17.0 percent y/y to N577.96 billion) and FX loss of N8.76 billion in 2021FY, which was absent in 2020FY. On the other hand, the reduction in finance income was due to the absence of FX gains in 2021FY compared to N16.63 billion in 2020FY.
Overall, PBT grew by 31.1 percent y/y in Q4-21 (2021FY: +44.2 percent y/y). Following the significant increase in tax charge (+37.5 percent y/y in Q4-21 I 78.9% y/y in 2021FY), PAT grew slower by 29.1 percent y/y in Q4-21 (2021FY: +31.9 percent y/y).
