Company: Dangote Cement Plc
Rating: Hold
Current Market Price: N170
Latest Dividend: N16.00
Year High: N215
Year Low: N136.10
Fair Value: N175.34
Equity Analyst: Tunde Segun Jeariogbe
Key Investment Ratios
• This report observed the financial numbers of Dangote Cement for the nine months ended September 30th, 2019, compared them with similar numbers released in 2018, so as to establish growth and rightly rate the company.
Strength
• Dangote Cement stands strong as one of the world’s top-20 cement companies by installed capacity. The company has secured clinker sufficiency in Nigeria, and as a low-cost producer, is well-positioned to absorb exogenous shocks without incurring material earnings variability.
• Dangote Cement is Africa’s leading integrated cement group, with plants in 10 countries. In addition to four export markets served from Nigeria.
• Thanks to its rapid accumulation of fixed capital, the company conveniently increased capacity to 46 million tonnes per annum (mtpa), up from 8mtpa in 2011.
• DCP has 39 subsidiaries, 32 of which are directly owned.
• The remainder comprises Dangote Cement South Africa (Pty) Limited’s six subsidiaries (mainly engaged in mining and exploration, cement production, and investment property); and Dangote Industries (Zambia) Limited’s limestone mining subsidiary.
Company figures
• The Turnover reported for the period ended 30th September was N679.79 billion, same as 0.80% below the N685.29 billion reported in the similar period of 2018.
• The cost of Sales stood at 0.81% above that of the corresponding quarters’ N290.01 billion, as against N287.68 billion.
• Operating Profit through the first nine-month of 2019 is estimated at N231.48 billion, compared to N266.86 billion in 2018.
• Operating Expenses grew by 18.54% over the amount spent in the similar period of 2018. Estimates show that the index stood at N160.34 billion, versus N135.26 billion in the prior nine-month.
• Finance Cost rose by 32.11% to N39.78 billion against N30.11 billion in the corresponding quarter.
• Thus, Profit Before Tax is valued at N197.68 billion, same as 20.09% below the N247.36 billion achieved at the end of 2018 nine-month.
• Having made allowances for Tax Expense, a total of N154.35 billion was reported as Profit for the period, down from the N158.27 billion reported in the similar period of 2018.
• The current Asset is valued at N355.16 billion, the same as 17.62% below the N431.10 billion estimated at the end of the first nine months of 2018.
• Non-Current Assets held by the giant cement firm was valued at N1.28 trillion, as against the N1.26 trillion reported in the 2018 third-quarter result.
• Current Liabilities stood at N517.88 billion; same as 3.23% below the N535.15 billion stated in its 2018 nine months result.
• Non-Current Liabilities dropped by 28.68% to N269.68 billion, compared to the prior N378.15 billion.
• Net Assets for the period, therefore, stood at N856.58 billion, as against the N782.27 billion of 2018.
• Retained Earnings improved by 18.42% to stand at N731.15 billion, versus N617.42 billion in 2018.
Financial Strength/Solvency Ratios
• Debt Ratio is currently estimated at 0.48x, 11.07% below the 0.54x estimated in a similar period of 2018. This implies that Total Liabilities is the same as 48% of Total Assets.
• Total Debt to Equity was equally estimated at 0.92x, as against the 1.17x estimated in the comparable quarter. This simply implies that both Equity and Debt used to service assets through the year were almost at par; unlike the previous quarter when more Debt was used.
• The report established that Equity is the same as 52% of Dangote Cement’s Assets Value, as against estimates from the 2018 nine-year performance indices which yielded 46%.
• Nevertheless, we can conclude that the Dangote Cement stock is liquid, given that the estimated Beta value stood above unity.
Profitability Ratios
• EBITDA margin estimated for the period stood at 34.05%, lower than the 38.94% estimated from the 2018 nine-month earnings numbers.
• Pre-Tax Margin equally dropped by 19.44% to 29.08%, as against the 36.10% estimated at the end of the 2018 third-quarter business session.
• Cost of Sales was 42.66% of the Turnover figure, which is only 1.63% above the 41.98% estimated in 2018. This is a confirmation of the management’s effort to control its direct costs.
• Return on Equity for the period stood at 18.02%, compared to 20.23% of 2018. This is a commendable achievement
Efficiency Ratios
• Operating Expenses to Turnover value is the same as 23.59%. This is a 19.50% improvement in efficiency from the 19.74% estimated from 2018 nine months financial indices.
• Turnover to Total Assets Ratio stood at 41.35%, as against the previous 40.42%, a 2.30% efficiency growth, when compared to the estimate from its 2018 nine-month performance indices.
• Working Capital Ratio, which indicates a company’s effectiveness in using its working capital, was estimated at -4.18x, a 36.57% drop from the -6.59x estimated in a similar period of 2018.
• Still, on the management’s efficiency, we tested the Working Capital Ratio, which confirmed that Current Assets is lower than the current liabilities at the end of the period.
Investment/Valuation Ratios
• At the end of the 2019 nine-month business cycle, Earnings Per Share of Dangote Cement dropped 2.48% from the previously estimated N9.29 to N9.06.
• Our nine months adjusted P/E-Ratio slipped by 27.24%, after moving to 16.45x from 22.61x, reducing investors waiting period. Also, do understand that the high P/E-Ratio is an indication of positive investors’ sentiments in the shares of Dangote Cement.
• The said Earnings Per Share yielded 6.08% of the current market price of Dangote Cement shares on the floor of the exchange as at the time the result was made available to investors.
• The Book Value of Dangote Cement is currently estimated at N50.27 per share, which is far below the market value on the exchange. This significant discount arises from investor sentiments/preferences for the company.
• Confirming the over-priced status of Dangote Cement shares on the floor of the exchange is the Price to Book Value at far above unity (2.96x).
Valuation
Our blend of valuation techniques maintained our previously estimated fair value of its shares. Thus we have valued each unit of Dangote Cement’s shares at N175.34and have rated it a Hold.
