Event: Dangote Cement reports Q2 2017 results
Implications: Marked upward revisions to consensus 2017 earnings forecast likely
Positives: Sales and PBT up by 35% y/y and 11% y/y respectively
Negatives: No obvious negatives
This afternoon Dangote Cement (DangCem) published its Q2 2017 results which showed that PBT grew by 11% y/y to N78.3bn despite Q2 2016 PBT being boosted by net fx gains of N38.1bn. The key drivers behind the y/y growth in PBT were sales growth of 35% y/y to N204.5bn and a 5,949bps expansion in gross margin to 56.1%. These positives were strong enough to offset a negative swing in net interest expense to –N2.0bn (from a net interest income of N28.5bn in the prior year). Despite the y/y growth in PBT, PAT declined by 24% y/y due to the strong result of N67.6bn on the other comprehensive income line (OCI) line that the company delivered in Q2 2016. Sequentially, sales dipped by 2% q/q, while PBT was flattish. However, PAT expanded by 27% q/q because of a positive result of N24.9bn on the OCI line. Compared with our forecasts, sales were in line while PBT beat slightly by 6%. However, PAT came in significantly ahead (43%) of our forecast due to the strong result on the OCI line.
On an H1 basis sales and PBT were up 41% y/y and 25% y/y respectively. However, PAT declined by 33% y/y largely because of the strong result on the OCI line in Q2 2016. Compared with our forecasts, sales were in line. Although PBT was slightly ahead (3%) of our forecasts, PAT beat by 20% mainly because of the OCI gain of N26.1bn which did not feature in our model.
Although unit volumes for Nigeria declined by 26% y/y to 3.1 million metric tonnes (mmt), the robust / double-digit sales growth was driven by significantly higher realised prices which were up by around 72% y/y. In contrast, unit volume growth for the pan-African operation was up by around 7% y/y in Q2 to around 2.4mmt. Similar to Q1 2017, Group EBITDA margin improved by 362bps y/y to 49.2%, mainly driven by a 2,586bp y/y expansion in EBITDA margin for Nigeria to 65.7%. According to management statements, apart from pricing, EBITDA margin in Nigeria was also boosted by a favourable fuel mix in favour of coal and gas as compared with low-pour fuel oil (LPFO).
DangCem’s H1 2017 PBT of N155.6bn tracks ahead of consensus 2017 PBT forecast of N269bn. As such, we expect to see material upward revisions to consensus 2017E earnings forecast. DangCem shares have slightly outtperformed the index slightly this year. They have gained 40.8% ytd compared with the 38.6% return delivered by the ASI. At current levels, on our published estimates, DangCem shares are trading on a 2017E P/E multiple of 16.0x for 14% EPS growth in 2018E.
We rate the shares Outperform. Our estimates are under review.